Case Study about Reed Supermarkets Essay
Reed supermarket is a store chain that has been in operation for approximately 80 years. The supermarket was established in 1939 by William Reed as a retail store and has grown to operate in numerous states of Midwestern United states. The average income of a reed customer earns 12% more than the common customer considering the stable Columbian market where Reed is densely distributed. There is much to discuss about Reed Supermarkets especially in the Columbus marketplace considering the strategic position and the best strategies that it can induce in order to be defensible in this market.
Despite of all these, the supermarket has been going through considerable decrease in market share in the past and is currently experiencing new threats to its position as the region’s leading supermarket.1 The threats are by close competitors such as Dollar General and Aldi stores who are offering better prices. In 2010, the supermarket led its competitors in food retailers in the Columbus region with a 14 percent market share which was a percentage less of what it had been maintaining five years earlier. Reed had tried to maintain its margin in the past ten years by increasing specialty commodities, broadening the collection of higher end ready foods as well as increasing the private label combination and using weekly advertisements in order to boost customer traffic.2 The region of Columbus accommodates 25 Reed supermarkets currently and the organization had no recent reasons for any addendums. The supermarket CEO had set a target of 16% share market by 2011.
The main problems being experienced by Reed Supermarket may be narrowed down to two aspects. These are a decrease in sales and threats from competitors who on a steady rise. These problems have been brought about mainly by wrong operational strategy. For Reed to achieve its goal of market share to 16 percent from 14 percent, it has to work intensively on enhancing such aspects as convenience, storing high quality products, reinforcing the brand image as well as promotion and improving its marketing strategies.3
Quality: For a long time, Reed has been associated with a model of upscale provision of quality consumer products for the Midwestern dwellers. For instance, for the past 2 decades, the supermarket grocery store chain had continued to offer various products such as seafood options, different types of mustard as well as floral department.
Long working hours: The supermarket offered convenience for its consumers by operating long extra hours compared to its competitors. Such a convenience enabled its customers to purchase products at their own preferred time thus eliminating them the worries of missing the chance to shop for their family necessities
Elegant display cases: In bid to maintain the quality operation and service delivery, Reed Supermarket eliminated the traditional display cases and replaced them with modern display cabinets and shelves that not only add value to the its dynamism of high end retail perception but also make the store more appealing to the eyes of the customers.
Free delivery to vehicles and some added after sales services: Although currently provided by almost all supermarkets, this culture of free delivery of goods to the customer vehicle was started by Reed Supermarket.4 This service increases the customers perception that the company wants to offer for its consumers while at the same time enhancing convenience as well as thoughtful touches to the customers
Market penetration: With 25 different stores in Columbus region alone and annual sales averaging $26.4 million for each single store, no competitor would threaten such a giant. The closest supermarket was Delfina which operated 18 different stores with $25.1 million per store.
Perceived as being high priced: The supermarket is ‘expensive’ from customer’s point of view. Consumers used it as a baseline for comparison when enquired on price sensitivity. For instance, the supermarket sells whole food for 104 against the closest competitor Delfina who sell the same for 99.5.
One dollar special could confuse consumers: A weekly dollar special campaign was run at the supermarkets involving 250 commodities to attract consumers in 2010. The campaign was directed to its low cost leaders in order to change the notion of high price it had. The information spread too many but they feared that they might get confused.5 The bad reputation of the company being high priced was now being muddied and Reed had to determine whether to move further down market or maintain its high pricing structure since what was sacrificed was overall margin although the outcome resulted to a mere 3% overall increase in consumer traffic.
High pricing/cost structure: Compared to Dollar General, Reed operates at a higher cost and pricing structure thus creating a low margin for success.
Focusing on Private Label Merchandise: An upward trend shows that private label merchandise incorporation is a vital step for any retailer to remain relevant a competitive. At Reed, 3% private labels had grown over 17% of overall sales since 2005. However, the company should be careful to watch customers perception of this product
Expand organic and health product selection: Some of the competitors like Whole Foods have succeeded in the market by providing a diversified variety of health conscious items which ha attracted a lot of customers. With only 3 locations, Whole Foods makes an incredible $19.1 million in annual sales, less $7.3 million of Reed who operates in more than 8 times locations of what Whole Foods operates. In its repositioning, Reed incorporated a high number of health alternatives and need to increase even more because most consumers are becoming health conscious on the products they use.
Competition: Just like any organization, competition prevails as the major threat. In the Columbus region market, there are over 180 grocery stores operated by 15 different organizations comprising the 25 Reed locations with Delfina, Aldi, Whole Food and Dollar General as the main competitors even though Reed command as the market.
Reduction in customer loyalty: Consumer loyalty changed with the changes in trends in customer purchasing habits as well as positioning among amongst competitors grew fiercer. Reed could therefore not rely on consumer loyalty for various reasons including the need for consumers to shop at different locations in search for fair deals.
Growth of warehouse and superstores: With the development of superstore and warehouse units, customers have become more inclined to purchase in bulk while utilizing their budget instead of visiting the traditional grocery stores.
For Reed Supermarket to overcome the hurdles it has been going through of late and potentially boost its market share in Columbus, Ohio, the organization needs to reduce its pricing structure for it to compete effectively with its rivals.
The organization should provide more private label brands intheir supermarkets since private labels have become an increasing trend with market share sift from 14% to 17% since 2005. Private labels offer a high margin for supermarkets despite the low cost involved. Therefore, switching over to more private labels could raise food traffic and regain more consumers that they have let go to competitors while at the same time increasing their margins.6
According to a survey conducted by Reed, a massive 75% of customers stressed the need for better prices when it comes to grocery shopping. Although the supermarket has done a great deal in differentiating itself from other supermarkets through attractive stores, exceptionally attentive customer care, long working hours and elegant serving case display, it looks clear that customers are rational wit value nowadays as opposed to elegant shopping environment. The other benefit of adopting the strategy of private labels is that customers will see that the company is listening to their cry on high prices and therefore become loyal to the supermarket. It will also position Reed as a regular visit store as opposed to just a fill in store because the added value of private labels will encourage customers to not only buy in bulk but also make Reed their frequent one stop shop.
Reed Supermarket should also focus on customer insight through programs such as loyalty and reward program. This could be achieved through birthdaycoupons and through initiative that would reward customers by offering them points the moment they scan their rewards or input their mobile number.
Another recommendation for this supermarket regards the general marketing plan. The soul target on a target market composed of middle classconsumers and individual who are health conscious in order to overcome competition posed by such rivals as Whole Foods.
Pricing is another significant factor that Reed needs to incorporate in order to overcome competition from rivals like Dollar General and Aldi. In addition, the company should d engage in massive promotion through television commercials, magazines, website and direct mail as well as social media.
The company should also determine its sales after fiscal year as well as seeing the number of likes and followers in Facebook and Twitter respectively when measuring the social media promotion.7 This is the most effective strategy for the organization. This strategy is quite defensible since it will assist in determining the progress of all the other strategies implemented. That way, the company should measure the market share it has over a couple months after the new prices and marketing recommendations have also been implemented.
In conclusion, Reeds supermarkets have been undergoing through critical issues especially in its strategic management sector. Despite its high performance in other markets, it has been facing a low market share in Columbus. That has been due to increasing threats of competition among other issues. It has been facing these threats from Dollar General as well as Aldi Stores. It has tried to outdo these competitors by providing specialty products and developing private labels. However, that has not worked quite well for it. The company will need to change the price structure in order to enhance market expansion. Developing of royalty programs and reward initiatives for its customers will also play a vital role in this process. The best strategy is to monitor its progress since it will be able to measure its market share and notice if its strategies are really working.