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This case involves a mid-sized, regional grocery store chain called Reed Supermarkets. Reed has 192 retail stores, two regional distribution centers and 21,000 employees in five states in the Midwest of the United States. This case discusses Reed’s market strategy for the Columbus, Ohio, market in particular, which is one of Reed’s largest markets. The Columbus market has grown slightly over the past five years, while Reed’s market share has dwindled slightly in the market. Reed has watched their market share stagnate with the entrance of new competitors (10% growth in stores) and a dramatic shift in customer preferences to value or quality.
Reed’s CEO has tasked his executives to come up with a strategy that will growth revenues by 2% in the coming year. The main problem Reed faces is how do they grow revenues without compromising their customers’ perception of them as a high-end brand. Situation Analysis External Over the past three decades, the U. S. food retailing industry has experienced significant changes.
The most significant change has been in the trends and preferences of its customers, as customer loyalty has dwindled significantly and customers have focused their decision making on price almost exclusively.
This is not an impermanent movement and it has created new segments of retailers within the food retailing industry. Over the past two decades, three new segments have either begun or grown considerably. These industries are supercenter stores (WalMart and Target), warehouse clubs (BJs and Costco) and dollar/limited selection stores (Family Dollar and Trader Joe’s), which is the most recent growth segment.
These segments have quickly moved to take a significant market share from their more established grocery store counterparts.
Each segment offers different aspects that appeal to customers, but the one characteristic that is common with all is low prices. Traditional grocery chains are being pushed to tighten already tight margins. The Columbus market has remained stable through the recession and outperformed the nation in unemployment rate and population growth. Columbus’ median household income is also higher than the state of Ohio’s average. Reed’s position within in the Columbus is strong. In the past year, Reed held highest portion of the market at 14%.
This market share has declined somewhat over the past five years, but held steady in each of the past two years. Internal Reed Supermarkets started out as a lower-end retailer, but over the past two decades Reed has moved into the high-end in the supermarket business. They have done this with a combination of exceptional customer service, a full assortment of both standard and high-end products, including bakeries, meats and seafood. This niche has been very successful and been the diving force in their growth.
Unfortunately, as noted above, customer loyalty to a quality brand has dwindled and been replaced y the need to find the best price. Reed has attempted to combat this by both increasing their high-margin products (private label and prepared foods) and increasing the number and amount of specials they offer. These tactics have done little to change customers’ perception of Reed as a high-end and high-priced retailer. See Appendix A for a full SWOT analysis on HLL. Alternative Courses of Action Reed’s executives have put forth three alternatives to increase revenues in the Columbus market.
The first is to continue with their current “dollar special” campaign, which offers 250 items at considerable discount each week. This alternative is hoped to keep the majority of prices at their current level, while creating the perception that the retailer has dropped prices and then create greater traffic. There are two drawbacks to this strategy. The first is that customers may poach just those items on deep discount and significantly decrease margins storewide. The other negative is that a promotion of this kind could alter the perception of Reed being a high-end retailer, which could have a much more significant negative effect.
The second alternative is to move to an everyday low pricing model, which is employed by one of Reed’s main competitors. This could have a similar effect as the “dollar special” campaign and drive down Reed’s high-end perception among its customers. The third alternative would be to fight for the high-end ground and offer little in the way of specials/discounts, but instead continue to focus on their core competencies: exceptional customer service and a large selection of products. Recommendation
Based on the current economic environment, my recommendation would be to hold the high-end market and wait for customers to return to Reed’s superior product. Reed should continue to expand its premium private labels and higher-end prepared foods to compete with its high-end competitors. By not offering deep discount offers and keeping its margins in a correct position, Reed should be able to hold its share and growth its revenue. Smaller specials should be offered, but not deep discounts. Selective advertising to the right customer in terms of socioeconomic conditions and proximity to their stores should be undertaken and expanded.
This advertising should speak to the high-end shopping experience that Reed stands for. Conclusion Reed Supermarkets sits in an enviable position of being perceived as high-end and, as such, can charge a premium for it. Reed should not focus on trying to compete with the lower-end user, because this could lead to straddling the two segments and they would probably lose on both as a result. They need to focus on their core competency: providing exceptional customer service and high-quality, well-priced products.
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