Reed Supermarkets

Case Analysis

Chaitanya K N Roll No: 1111342 Chaitanya.kn@iimb.ernet.in

Reed Supermarkets | Case Analysis

Table of Contents

Situation Analysis Problem Definition Problem Analysis Criteria for Evaluation Generation of Options Evaluation of Options Decision Making Action Plan Contingency Plan

3 4 4 4 5 6 7 7 8

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Reed Supermarkets | Case Analysis The Situation Analysis The situation opens in a scenario where the world is recuperating from one of the biggest financial crisis. Food retail industry, besides other industrial sectors, has had an impact in terms of reduced demand, shifting customer loyalties and demand of cheaper yet better quality goods. Reeds, a supermarket chain established by William H Reed in Kalamazoo, Michigan way back in 1939 has evolved from a single store to 192 stores across north western parts of America.

1939

1960

2010

1 Store Michigan

25 Stores (Michigan &Illinois)

192 Stores (Michigan, Illinois, Ohio, Indiana& Wisconsin)

Over the period of time, Reeds had earned a name for itself as the organization which supplies high quality merchandise and ideally served above the average income group of consumers. Columbus, the capital of Ohio, has good number of players in food retails business which include Reed, Delfina, Galaxy Top Val, Whole Foods Market, WalMart, Costco, Trader Joe, Aldi, Dollar General and Family Dollar between the years 2008 and 2010.

Market Share of Food Retailers in Columbus as of 4-10-2010

Reed 1.62 0.79 0.61 0.4 2.8 6.39 10.07 10.23 2.56 4.51 1.22 16.63 18.58 14 9.58 Delfina Galaxy TopVAl Other Supermarkets Whole Foods Market Walmart Target Costco Sam's Club

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Reed Supermarkets | Case Analysis Consumer Perceptions of Supermarket Chains in the Columbus market for the years 2008-10 indicate that Reed consistently maintains a high quality in merchandise sold but ranks relatively low in price index which means that though the quality of Reed supermarkets is high; their prices are on higher side.

The Problem Definition Reed supermarkets, a 71 year old super market is now facing a stiff competition in Columbus, Ohio, from several players who are relatively new to food retail market. The task at hand is to ideate and implement a broad based market strategy which would put Reed in growth path in terms of enhancing both market share and margins in Columbus. This strategy then can be implemented in Reed stores across the country. The immediate requirement is to increase the market share in Columbus to 16% in the current year as against 14% share registered in the year before.

The Problem Analysis/ Set of Objectives Meredith Collins, the Vice President (Marketing) of Reeds, is now faced with the task of increasing the market share of Reed supermarkets by 2 points. The environment of the food retail industry is dynamic with smaller retails outlets attracting increased number of consumers, adversely affecting the margins and shares of Reed. Global financial slowdown saw many loyal customers of Reed shifting to cheaper yet better alternatives to Reed. The possibility of temporary shift of customers to stick on newer pastures forever is lurking. The CEO Jack Morrissey is confident that once the economy is back to normalcy, the consumer shift could be reversed and wants Collins to plan for the consumer retention at that stage. Newer and smaller competitors are using everyday low pricing, private labeling etc as their market strategy. To compete with them, Reed had launched Dollar Special program wherein certain groceries or merchandise are sold at lowest possible rate in the market. This led to consumers cherry picking the cheaper goods. Fact that the average value of sale per transaction is coming down by 60% corroborates this point. This affected the margins of the super market as well. Reed has an established brand name for quality products and hence stooping down too low to survive competition would adversely affect the company. The company now needs to come out with a broad based market strategy to augment market share and profit margins in Columbus. Constraints to any plan include economic viability, financial implication and brand image of the company.

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Reed Supermarkets | Case Analysis Criteria for evaluation Various options/solutions to solve the problem at hand can be evaluated on the basis of following composite criteria: Any option or set of options, when implemented, should enhance the market share of Reeds and profit margin of it, without adversely affecting the brand reputation of Reeds. Options implemented need to be broad based, not mere eye wash activities and cost implication of implementation should not be very high. Brand Image as a quality product supplier cannot be compromised This can be elaborated into following points: 1. Impact on Market Share 2. Impact on profit margins 3. Impact on Brand Image 4. Cost Implication 5. Broad Based nature Generation of options Following are some options that Reed could consider towards solving the problem: 1. Increase the private label mix 2. Increase the Organic Food 3. Instilling the perception that prices are not high when compared to the quality that it provides 4. Acquiring a super market chain which has stores positioned in good locations 5. Target younger and middle income groups 6. Capitalize on increasing number of pet owners among the reed consumers 7. Start online merchandizing and boost online advertising 8. Get into price war by declaring everyday low pricing 9. Do away with Dollar Special program, as cherry picking doesnt help boost margins or shares 10. Continue and give time to Dollar Special Program 11. Capitalize on Reed brand to establish Reed Mini outlets (by buying out cheaper yet quality conscious super market chains)

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Reed Supermarkets | Case Analysis Evaluation of Options Impact of option on criteria for evaluation can be tabulated as follows: Applicability (Broad Based nature) High

Market Share Increasing the private label mix Increasing Organic food Instilling perception that its prices are not high Acquiring other super market chain which has better geographic positioning Target younger age and middle income group Capitalizing on increasing no.of pet owners Start Online merchandising and boost online advertising Resorting everyday low pricing Continuing Dollar Special program Acquiring small yet popular market chain Positive

Profit Margins Positive

Brand Image Negative

Cost Implication Marginal

Suitability High

Positive Positive

Positive Positive

Neutral Positive

Marginal High

High Relatively Low

High Relatively Low

Positive

Positive

Positive

Very High

Low

Low

Positive

Positive

Positive

High

Low

Relatively High

Neutral

Positive

Negative

Marginal

High

Hight

Positive

Positive

Positive

High

Low

High

Positive

Negative

Negative

Low

High

High

Positive

Negative

Negative

High

High

Low

Positive

Initially Negative

Negative

High

Low

Low

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Reed Supermarkets | Case Analysis Decision Making On evaluation of options as described above, the following set of option implemented together would address the problem at hand: Increasing the private label mix and organic products, while building a consumer perception that price for the given quality is low, is necessary. Targeting the youth and middle income group, while boosting online advertising by leveraging on existing brand image is key. The dollar special program can be limited and not overly advertised. Efforts can be made in due course to acquire a strategically strong supermarket chain

Action Plan Step One: Increase Private label mix and organic products Time period for completion: 4 months Responsibility: Business Development Team Step Two: Building a low price perception among consumers Time period for completion: 6 months Responsibility: Marketing Department Step Three: Target youth and middle income group by necessary advertising and addition of merchandise. Time period for completion: 1 year Responsibility: Marketing and Operations departments Step Four: Limiting Dollar Special program Time period for completion: 6 months Responsibility: Operations Department Step Five: Efforts to acquire another supermarket chain Time period for completion: 2 years Responsibility: CEO and Business Development Team

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Reed Supermarkets | Case Analysis Contingency Plan Following are the possible problems and solutions to how best to handle them: 1. Market Share and Profit Margins does not show improvement: Continue with the plan. Marketing and pricing strategies take some time to bear fruit 2. Young consumers doesnt turn up: Increase the branding aggressively. Latest developments and trends need to be reflected on the merchandise.

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