Reed Supermarkets: a New Wave of Competitors

Reed Supermarkets. Spring 2013

Meredith Collins faces the problem of choosing the most appropriate marketing strategy for Reed Supermarkets to implement so that the company increases its market share in the Columbus, OH market from 14% in 2010 to a target of 16% in 2011. This goal should be accomplished in spite of the new competitive challenges posed by the rising prominence of dollar and limited selection stores in the food retailing industry.

SWOT Analysis

Internal Strengths

1. Reed’s quality image and exceptionally attentive customer service;
2. Full range offerings;
3. Attractive stores, long hours, and elegant service? case displays.

Internal Weaknesses

1. Many consumers perceive Reed’s prices are high;
2. Capital expenditure policy freezing; 3. No consensus within management on what strategy to implement for market share growth.

External Opportunities

1. The new consumer is more savvy, health and cost? conscious;
2. Growth of private label merchandise; 3. Columbus’s economic environment is more favorable than state’s and nation’s economic environments;

External Threats

1. Dollar and Limited Selection Stores increasing market share / Aldi’s projected new stores;
2. Economic downturn; . Significant dwindling of customer loyalty.

Reed’s management is currently assessing the following alternatives to increase its market share in the Columbus market:

• Continue its ongoing “dollar special” campaign;
• Terminate the “dollar special” campaign and implement an everyday low pricing model;
• Convey the value created to consumers by reinforcing the range and quality of offerings;
• Increase low priced specials, expand private label brands, and introduce double couponing.

In addition, I would also consider the following alternative: Make an offer to buy some of Galaxy’s troubling Columbus stores.

In evaluating the aforementioned alternatives, Reed’s management will have to take into account that, in order to meet the targeted market share of 16% in 2011, they will have to increase their sales volume by $94 million, which represents a 14% increase compared to 2010 (see appendix). The present “dollar special” campaign was an attempt from Reed’s to change consumer’s perception that they have higher prices. Some Reed’s managers are confident that in another six months they will be able to change this perception while, at the same time, they reinforce customer loyalty.

However, some executives believe also that the campaign detracted from Reed’s quality image as it seemed to be too close to the offering of dollar stores which could damage Reed’s image through association. The scope of this campaign (250 out of 50,000 items) does not seem sufficient to generate the additional sales required. Other executives suggest implementing an everyday low pricing model in order to tackle, in a more aggressive fashion, the high? priced image that Reed carries. This would likely require a complete switch of the company’s positioning from a high? nd store to a medium, more value? focused positioning. Reed’s image, as a quality and customer service oriented, could be extremely damaged by such a switch. Additionally, it would be expected that other discount stores would be reacting aggressively to this strategy. Another option is to reinforce Reed’s current positioning as a high? end store by emphasizing the range and quality of its offerings. Such strategy appeals to the more affluent households, which are more keen on premium private labels and organic produce.

This customer segment has been the backbone of Reed’s growth in the past 20 years, and the company wants to be ready to satisfy its upscale tastes as the economy recovers. Operations Director Jane Wu offered yet another alternative: increase low? priced specials, expand private label brands, and introduce double couponing. The new consumer that emerged from the 2007? 2009 recession is more savvy and cost? conscious, which is demonstrated by the increasing share of wallet captured by dollar and limited selection stores.

By acknowledging this new reality and resorting to the strategy suggested by Director Wu, the company can potentially attract new customers and appeal to both fill? in “trippers” and full grocery “runners”. This seems to be a sound strategy in order for the company to capture, in the short? term, the $94 million additional sales required to meet the target market share. It is unclear, however, if this strategy could hurt the quality image recognized to Reed’s supermarkets and as a result drive high? nd customers away. On the other hand, during difficult economic times, such as the downturn of 2008? 2011, consumers tend to opt for value. Finally, we should not discard the introduction of new stores as a strong alternative for increasing sales. The company has consistently expanded the chain in the past, with the new stores accomplishing similar results to existing ones. Reed’s management has made it clear that it does not wish to have capital expenditures in form of new stores in 2011.

But, a struggling Galaxy chain in the Columbus market could represent an interesting opportunity for Reed to acquire some of its stores at a discounted price, and this way meeting the sales volume required for the 16% market share. Given the resistance from Reed’s management to resort to additional capital expenditure, my recommendation is that the company implements the alternative suggested by Director Wu, i. e. increase low? priced specials, expand private label brands, and introduce double couponing. For the