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Financial risk and return across the grocery supply chain (RV of 2006/14/MKT/TOM)

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In this paper we study the performance of the grocery sector's supply chain on stock markets in the US, the UK and France over the last two decades. Using Total Shareholder Return (TSR) as an evaluation criterion and applying state-of-the-art financial valuation models, we show that the grocery sector's supply chain outperformed the stock market in all three countries, and that this was driven by the larger players in the supply chain. Both retailers and their suppliers contributed to this abnormal return without one of them dominating the other in this regard. The positive abnormal return could be the result of efficiency gains, innovation, or technological threats to the sector. Although retailers allegedly have increased their power in the supply chain relative to suppliers, we don't see this power increase reflected in stronger stock market performance, at least in the US or in the UK. We attribute this phenomenon to a highly competitive retail market in which shoppers face low switching costs when choosing amongst retailers. We define this effect as "retailer incontinence". In France, incontinence has been counteracted by legislation (the Loi Gallant, passed in 1996) which de facto has protected retailer margins. Notwithstanding such environmental differences, our results show that the profiles of the grocery supply chains of the US, the UK, and France are remarkably similar, providing evidence for the globalisation of the grocery sector and its supply chains.

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