EXPRESS: Revitalizing the Grocery Store Experience: An Empirical Study on the Spillover Effects of Experiential Services

Grocery retailers increasingly use experiential services to attract customers to their stores. However, it remains unclear whether these services generate positive spillover effects to core grocery sales or cannibalize existing demand. We provide the first empirical evidence by studying a grocery retailer that introduced a taphouse as its first experiential service and examining the underlying mechanisms. We combine store transaction records with SafeGraph's point-of-interest data and survey data on product attributes. Using a quasi-experimental design, we specify a synthetic difference-in-differences estimator with staggered treatment timings. Our results show significant positive spillover effects. On average, stores that feature a taphouse experienced a 5.97% increase in daily sales volume, a 6.82% rise in sales revenue, a 5.76% increase in transactions, and a 6.18% expansion in product variety compared to stores without a taphouse. Our mechanism analyses suggest that these results are associated with activity through both extensive (newly observed customers) and intensive (greater purchasing activity among existing customers) margins. We find that an average order contains fewer but relatively higher-priced items, leaving average order value statistically unchanged. Newly acquired customers make relatively smaller purchases than existing customers, whose order size does not change significantly following the taphouse introduction. We also find that products complementary to the taphouse and those with a greater propensity for impulse purchasing account for larger shares of grocery sales following taphouse introduction. Finally, nearby competing supermarkets experience reductions in both total visits and unique visitors, suggesting that local competitive substitution may contribute to the observed customer expansion. To assess generalizability, we replicate the analysis with another grocery chain in a different region that introduced a full restaurant and obtain qualitatively similar results. Overall, the findings indicate that adding a taphouse can effectively increase grocery sales volume and revenue. Although high setup costs may deter adoption, our break-even analysis projects recovery in approximately 34 to 39 weeks from grocery-side gross-margin contributions alone, or 27 to 44 weeks when alternative assumptions about taphouse profitability, including operating losses, are incorporated.