Reed Supermarkets: A New wave of Competitors

Group 6
Background
Reed Supermarkets is an up market supermarket chain, recognized and renowned for its exclusive customer service. It operates in several states of Midwestern United States. An average reed customer is somewhat different from a typical customer with respect to age, affluence and household size. The median income of a Reed shopper is 12% higher than the typical customer. The Columbus market (with largest share), is comparatively stable. However, Reed has experienced modest share declines in the past and is presently facing new threats to its position from the regions supermarkets and from other competitors like dollar stores and limited-selection who offered enticing bait prices. In 2010, Reed led food retailers in the Columbus area with a 14% market share which was slightly less than the 15% Reed accommodated five years earlier. The company had continued to mushroom its revenues by an average of 1% to 2% perannum across the market. Reed had worked hard to maintain its margin over the past decade by adding specialty items, widening the selection of higher-end prepared foods, increasing the private label mix, and using weekly promotional specials to drive traffic. Columbus housed 25 Reed stores presently and the company had no recent plans of any addendums. Reeds CEO had set a Columbus market share target of 16% by 2011. Reed's market research showed that owing to the economic downturn (2008-2010), customer loyalty was dwindling and consumers were willing to go to multiple stores to get the best budget deals. In US, the growth of warehouse and superstores attracted bulk-buying budget shoppers whereas the low priced promotions drew customers to specific supermarkets, discount merchandisers and dollar stores. The private label goods had higher margin potential, and retailers were adept at shedding away the low quality image of these goods. Also, the American consumers had grown more health conscious with time thereby enabling the growth of stores like Whole Foods. Reed launched its dollar special campaign in June 2010 to revise its only for the opulent image and reposition itself as an affordable brand with a hope to win back its loyal customer back. Also, as the food retailer margins were low, individual company profitability depended on maintaining high sales volume and operating efficiency.

OBJECTIVES:
Short term:
The objective of the Reed management is to guard its share position, push up the sales and generate enough profits to keep the shareholders happy by defending itself against the companies which offered

attractive price discounts (low prices). In other words, the objective is to reverse the trend of declining market share (14% in 2010 vs15% five years ago) by reclaiming the lost customer base.

Long term:
The main objective is to gain 16% market share by 2011. It also aims to continue delighting its opulent customers with its exclusive services. So, the long term objective of the company is to exploit the growth in the purchasing power of customers after recovering from the economic downturn and hence increase its profitability by maintaining high sales volume, increase the market share and build a strong and loyal customer base.

Options
The options which can be considered for evaluation by Reed are as follows: 1. Maintain Status Quo: Maintaining dollar specials program and wait for the increase in the footfall and hence in revenues assuming that the customers change their perception about Reed as a high priced store 2. Expand the low price models: Focus more on wider discounts as customers value the low prices the most. Expand the dollar specials campaign without limiting it to certain days in a week and certain products, expand the private label brands and introduce double couponing 3. Differentiation based on value and services: Maintain the high end brand image by scraping the dollar specials and appealing to customers who are looking for a quality shopping and who are ready to pay a premium 4. Increase footfall by adding new stores: Adding new Reed stores in the areas with potential population growth and in locations where there is dearth of supermarkets 5. Differential segmentation: Experiment by dedicating separate stores where Reed can concentrate only on the price sensitive customers by moving to daily low priced models. Maintain the high end image in the other stores (preferably in the affluent areas) 6. Variety/ One stop shopping: As dollar stores supply only limited items, Reed can focus on moving towards one stop shopping by increasing the ambit of its products.