Estimating geographical retail markets from card spending data
Imagine your local groceries store had a small but notable price change. You probably would not consider switching to a store 10 miles away, but how far would you travel to buy things? The answer is what economists call your local market. Defining local markets is crucial for understanding competition enforcement and research but can be difficult to do with existing data.
Overview
We, at the Office for National Statistics (ONS), have entered into an agreement with Visa to receive aggregated and anonymised data on UK Visa card payments. This data source offers opportunities to understand UK consumer spending. We have published a range of analysis articles exploring this data, including our latest piece on UK spending at different times of day. Last year, ONS began a collaboration with the Competition and Markets Authority (CMA) to make use of this data source to define local markets in retail. In October, CMA published an alternative approach to estimating geographical retail markets.
What are local markets?
Local markets are geographic areas within which merchants are plausible alternatives for consumers, and where merchants compete for the same consumers. If there is just one supermarket in your local market, then it does not matter if there are plenty of supermarket chains up and down the country because your local store does not have to compete for you by lowering prices or improving quality. And if there are two stores in your local market and they merge, then even though their national market share could be low, they would still notably reduce competition locally.
Background
These local markets are typically defined by traditional survey-based measures and calculated as an arbitrary percentage of where a retailer’s revenue is drawn from. To overcome the costly and volatile nature of the surveys, the CMA Microeconomics Unit have used the card payment data to explore an alternative approach to estimating geographical retail markets.
This work is not just useful to the CMA, it may be of interest to wider government who are interested in how consumer spending patterns changed, during coronavirus (COVID-19) pandemic and throughout the rise in the cost-of-living. As well as those interested in how local spending is affected by infrastructure and how store access changes across demographics, such as income.
Methodology
The joint CMA-ONS research team have utilised the spatial card spending data to explore the flow of spending between a cardholder’s home location and the location of the merchant where a face-to-face transaction takes place. We have applied hierarchical clustering to estimate local retail markets for all months between January 2019 and March 2024 and for 23 separate retail merchant categories. Alongside this paper, the monthly breakdowns of local retail consumer markets for all merchant categories, such as restaurants and food and groceries have been made available to the research community.
Food and groceries
The paper continues by exploring the food and grocery sector in more detail. Through clustering, the researchers defined around 2,000 local food retail markets each month. We compared these market estimates with those previously identified through surveys. Reassuringly, these new estimates are of a similar size, but the granular nature of the data allows us to understand these markets much better.
The paper also explores demographic insights of these local markets. For example, local markets are smaller in densely populated urban areas.
Related publications
In November 2023 we published the first in a series of articles covering Regional consumer card spending, UK: 2019 to 2023. We published a data set showing spend at merchants in every postal area in the UK, and analysis of spending in different sectors. This generated interest from local authorities and other government departments, leading to further publications: Consumer card spending, flow of spending across the UK – Office for National Statistics and International consumer card spending, UK and abroad – Office for National Statistics. Most recently, in November we published analysis of consumer card spending trends by time of day across the UK.