Reed Case Supermarkets

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However, the company's pricing is one of its greatest weakness. Reed has a standard sale value of 18% per transaction, which exceeds the national supermarket average. According to research done by the company, the number one reason buyers do not shop at Reed supermarkets is due to its high prices (Appendix B1), and three-quarters of Reed's loyal customers say that lowering prices will make them feel more satisfied (Appendix B2). Likewise, based on consumers’ perceptions of supermarket chains in the Columbus market, Reed has relatively low rate comparable to that of its competitors, including the dollar stores, limited selection stores, other supermarkets and supercenters (Appendix A). Therefore, as a result of higher price, the chain’s primary customers are the ones with a high-income consumer base, which makes up a smaller pool of the overall market. Besides, the supermarket chain lacks private label merchandisers that carry larger margins and are low in costs and prices.

External environment – Opportunities and Threats

Some of the possibilities include the economic slowdown expected to end. Since the median income of the average customer that regularly shops at Reed is 12% greater than average household living in the area, if the economic slowdown were to end then Reed can expect more traffic in their stores. The biggest thread for Reed is the dollar stores around the area, but according to the company's market research the market share of dollar stores is expected not to increase above 3%. The company has previously experienced similar cycles of fluctuation during the past years and has obtained the 10-15% share of well-establish customers, thus making them experienced in facing similar situations. As per the market research they acquire 20% more customers who own pets, as compared to others supermarkets allowing them to create an expansion in a line for pet food and products. They are also known for healthy products so they can concentrate better on that niche. According to the case, we can say that, in Columbus, they have a huge market of private label product, which indicates a focus on private label products.As in any market segment, competition remains a company’s largest threat. Low-end, high-end, warehouse, superstore, all providing a challenge for the traditional environment, and specifically Reed. In the Columbus market, there are 180 grocery stores, ranging from 15 different companies, including the 25 Reed locations. As developments in consumer change, buying habits and positioning among competitors became fiercer, so did customer loyalty. Supermarkets, like Reed, cannot rely on customer loyalty for several reasons, one of the reason is the development of modern consumers, which tend to do more price research before purchasing products. Consumers are more apt to shop at different locations in search of deals across all different types of stores (3). The market has also become less likely to make constant trips to the traditional grocery stores. With the expansion of superstores and warehouses, people tend to buy in bulk while staying on budget. Superstores and discount locations have influenced a vast consumer base because of the low-price model and their promotional strategy. In recent market research data, 60% of shoppers are more likely to make frequent trips and purchase products here and there while the remaining population still makes the traditional stock-up trips (3).

Alternatives

With the main problem being price, Reed needs to decide whether to compete for more aggressively on price or consider other strategies. Reed should focus on these following alternatives in order to be successful: (a) Eliminating the dollar specials and creating a low pricing strategy, (b) continue with the dollar specials, (c) introduce more high-margin items and removing low-end goods, (d) increase low-price products, expand private label brands, and add more coupons to consumers.

Evaluation of Alternatives

The first option is to eliminate the dollar specials and encourage an everyday low pricing strategy. Reed is a high-end supermarket that provides customers high-quality products and services. Having an everyday low pricing strategy will make Reed less consistent with the current brand image. About 80 years ago, Reed put hard effort as a company to upgrade consistently and open stores from a lower-end retailer, and over the years it became well-known for high-quality customer service and great products. At the moment its above-average pricing is reliable with the image it provides. Lower pricing will damage the chain’s positioning and ruin its brand image. Although, because the market is going through a recent economic downturn and has shifted in consumer trends, customers are shopping at different stores in search of the best prices. An everyday lower pricing strategy would create more traffic to the stores, and it will bring sales up. The new plan can also help locate Reed's customer base and build loyalty from its consumers as well as attracting new customers.

The next alternative is to stick with the dollar specials for at least six to seven months. Management was hoping that the campaign would create store loyalty among its regular customers; although, due to change in consumer trends and shopping habits, most consumers were no longer making regular stock-up trips, rather, making regular fill-in trips. Becuase of this change, shoppers choose and only visit the store during promotions and discounts and then buy the rest of their grocery elsewhere. While there is potential for the dollar specials to increase sales and ultimately increase share, the discounts for “on deal” goods lowered the overall margins. Thus, a positive to acquiring the campaign is being able to experience an increased in sales because of the dollar special items, all while help increasing revenue and consequently market share. Besides, if the campaign lasted longer, there is a chance that Reed can keep their high-quality brand image while providing low prices to its consumers.

The last alternative focuses on increasing the amount of high-margin products such as prepared foods. Also, lower some of the low-end goods to make them consistent with current trends. This plan has helped the company grow for the past couple decades and has worked well. Adding new units to the chain and providing higher-margin items like flowers, pet food, and prepared food will create value by offering customers accessibility through one-stop shopping. These higher-margin products nevertheless funded to improve sales margin and revenue, and consequently company growth and increased market share. Due to the increase in competition with the food