The Convenience Premium
Prices at Belgian supermarkets are higher than those at independent speciality retailers such as butchers and greengrocers even though they sell products that are generally inferior to those sold by independent specialists. The perception in many other countries is that supermarkets have lower prices on most things. This, at least in part, has led to supermarkets and hypermarkets driving independent retailers out of business. In Belgium, the general understanding is that prices are higher at supermarkets; specialist retailers who offer high quality products at competitive prices have not only survived but thrived in the face of increasing number of supermarket branches opening in their home turfs.
The competitive advantage of supermarkets is that they offer convenience to the customers by having a broad range of goods. They enable consumers to save time on their shopping routine by being a one-stop-shop for all their daily provisions and a few other extras. It is fair for a seller to charge a premium for convenience because, in modern jargon, it enhances value: time is a precious commodity for many people.
The inevitable question is, what is the appropriate premium for the convenience that is offered partly in exchange for product quality? The answer, of course, is, whatever the consumers are willing to pay.
The question that economists cannot answer is, how does convenience taste?