The effect of organic growth and acquisitions on performance of retailing networks in an alternating external operating environment

Abstract

PurposeThis paper aims to investigate the impact of acquisition and organic growth on the operating efficiency and total factor productivity change of retailing networks.Design/methodology/approachThe assessment uses low-frequency data of newly opened stores and acquired stores of a large supermarket (S/M) network in Athens, for a period (financial year 2014) where the network began to refocus on its organic growth after a two-year period of deep recession (financial years 2012–2013). To evaluate the performance effects of both strategies, the authors employ the innovative benchmarking tool of bootstrap data envelopment analysis (DEA) for measuring operational efficiency and the Malmquist productivity index DEA approach for measuring productivity change over time.FindingsThe short-run evidence indicates that compared to organic growth, acquisitions lead to lower operating efficiency. However, this difference gradually converges over time as acquired stores show a higher rate of productivity compared to newly opened stores. The authors interpret this as a result of the smooth integration of the acquired chain store into the organizational structure of the existing store network given their significant similarities in terms of products and customers.Practical implicationsThe authors inform managers of store chains that during the process of organic growth, a general improvement in efficiency takes place while in the case of acquisitions, the required post-acquisition streamlining actions cause a short delay on the realization of efficiency gains. Therefore, managers should not take it for granted that acquisitions cause a long-term decrease in efficiency.Originality/valueThe study contributes to the literature on growth strategies and retailing performance in general, by offering new evidence regarding the comparative effect of the horizontal growth modes on the efficiency of store chains.