Why a Supermarket in the Neighborhood Extended its Business Hours
Until late last year, most supermarkets in the Caseville area operated between 9 o’clock in the morning to 6 o’clock in the evening. Any person who wanted to buy a product, say, at 8 pm had to drive to a hypermarket located about 7 miles away. At the beginning of this year, one supermarket, Capital Store, decided to extend its closing time to 10 pm on weekdays. In this paper a microeconomic analysis of the supermarket’s decision to lengthen it operating time by 4 hours is provided.
Supermarkets in Caseville do business in a competitive market. The stores are small, and as the barriers to entry into the market are low, many people have set up stores in the area. To a large extent, the stores can be described as operating under a perfect competition market structure because there are many stores in the area and no single control of the market price. Besides, they sell similar products such as milk, bread, eggs, rice, and many others. However, they have unequal resource and technology capabilities. There is intense competition for customers in the area because of the presence of many suppliers of similar products. Therefore, each supermarket is trying to implement a unique strategy that would give it a competitive advantage. One has established an online store while Capital Store has chosen to extend business hours. These are examples of non-price competition.
The extension of business hours by Capital Store may have been driven by research that established that a significant number of residents in the area would like to do their shopping after 6 pm. However, there were no stores open to provide the products demanded by the consumers. A majority of residents of Caseville are students and people working for various organizations in the surrounding towns. To this end, most residents are out during the day. They mostly come back in the evenings after classes and work. Many of them perhaps would want pass by the supermarket and pick up a few items before they head home. However, until last year, no supermarket was open for business after 6 pm. Now that Capital Store is operating until late in the evening, many residents flock to the supermarket in the evening. There is a high demand for products at night.
In deciding to extend the opening hours of the supermarket, the managers assumed that the marginal benefits derived from extended operation would exceed the marginal cost. The managers predicted that they would generate additional revenue that would surpass the marginal cost. It is not clear why the supermarket chose 10 pm and not any other time. Nonetheless, the author takes the view that the supermarket’s marginal cost would be more than its additional revenue after 4 hours. The other additional benefit the supermarket may get, which is difficult to quantify, is customer loyalty influenced by good customer service.
The decision also comes with opportunity cost. Abraham (3) defines opportunity cost as the cost of the sacrificed alternative. The supermarket would have to determine how much it costs the business to operate for an extra 4 hours. One such cost is the loss of productivity associated with working for long hours if the same staff were to be used. The other is time value for what could have been done from 9 am to 6 am apart from opening the supermarket. In summary, Capital Store’s decision to extend business hours may have been motivated the by the existence of demand for products in late evenings and the desire to generate additional revenue at lower marginal cost.
Abraham, Akampurira. Microeconomics: An Aspect of Development. Hamburg: Anchor Academic Publishing, 2015. Print.