The effect of Internet distribution on brick‐and‐mortar sales

I examine the introduction of an online shopping service by a large supermarket chain also operating a network of brick-and-mortar stores. The establishment of the Internet channel led to a 13 percent increase in overall revenues, with limited cannibalization of traditional sales. I study the mechanisms underlying this result, focusing on two areas. First, I demonstrate the importance of the reduction of customers' travel costs in the attraction of new business. Second, I provide some evidence that revenues increase more in markets where the chain faces more competitors, suggesting that the online channel can help divert business from rival supermarkets.