Reeds Supermarkets

Executive Summary

Reed’s VP Marketing Meredith Collins needs to develop a plan to increase the market share (MS) of this company from 14% to 16% in the Columbus Market. The Reeds actual expansion plan does not consider any new store opening. The competition in the retailers market is intense and the profit margins are low, therefore Collins has a minimal margin of error.

Reed is the actual leader of the retailer Columbus Market but the Executives of the company are worried that Reed lost 1% of MS in the last five years. They just have implemented the dollar Weekend Campaign with no considerable important results.

Reed Business is in the High end segment and it has differentiated by offering high quality products and excellent customer service. In this market price is the most important factor, but location, quality, diversity of products and customer service are also points of differentiation.

In the latest years in Supermarket Industry the private labels have not been perceived anymore as low quality and their presence in the market has increased in 3% since 2005. Customers have become friendlier towards healthy and organic food. The customers are not as loyal as 20 years ago; nowadays is a trend of savvy customers. Reed’s customers are affluent, old and owned small medium houses, also more likely to have a pet.

Based on the facts above my recommendation is maintaining focus in its actual customer segment, improving the product mix offered by developing private labels, focusing in organic and healthy foods, and taking advantage of Galaxy’s slum to transfer market share from them. Finally we should stop the dollar special Campaign as it is detrimental for Reed in the long term.

Main Problem

Reeds VP Marketing, Meredith Collins needs to develop a market plan in order to increase market share from 14% to 16%. Opening more stores to do so is not an option and competition is intense.

Situational Analysis

Industry

The industry of Supermarkets is characterized by high volume sales and low profit margins, actually from case Exhibit 2 we see that Reeds made a 2.1% of operating profit as % of gross sales. The average Household in the U.S. spends $5200 on grocery items and made 2.1 supermarkets trips weekly.

Prices in the industry in 2012 stayed flat, it is mentioned in case facts and in exhibit 5 and 6 that customers are high sensitive to prices. So customers have moved from loyal weekly consumers to savvy consumers searching for deals, again importance of price. That’s why Wholesaler stores (like Costco) and the dollar stores have become important players in industry.

Also private labels’ developing has growth aggressively according to the case because the attractive profit margins. Is also worth to mention that American consumers have become more health conscious, so retailers focused on these necessities have been successful.

From Industry Analysis facts it is know that customers have become more and more aware to price, and they are not as loyal as before to a supermarket chain. Other important learning is that private labels are profitable and that to focus on healthy and organic foods can be a good approach.

Reeds Business

Reed has distinguished itself as a Business for its High Quality level of service to customer and is considered part of the High end Super Markets segment. Reeds offer attractive stores, opened long hours with elegant displays and top of the notch customer service. Reed is also well known for the quality of their produce and emphasis on organic produce. Those are the facts that explain the Reeds point of distinction as a Retail Business.

Competition

The competition in the industry is high; entering in the U.S. retailing food industry is characterized for minimal returns and minimal space for error. So that is why Collins must develop the wiser decision possible. Actually reeds is the leading the market with a 14% of M. Share in Columbus Market. In the High end segment also Reed is the leader with a 56.45 % market share of the high end segment (See appendix 1), being his nearest competitor Delfina with 38.63%, again in the high segment only.

Reed main Competitors are Top Value 10.23% MS (Market Share), Galaxy 10.07% MS and Delfina 9.58% MS. The MS are from Exhibit 1 and refer to Columbus Market only. In order to determine if we can gain market share from Reed competitors, we shall analyze their characteristics.

Top Value is in the medium special segment, and it has become an aggressive competitor in response to Wal-Mart and Cotsco strategies. I certainly think that based on Reed’s Actual strategy business there is no need to move to the middle end segment in which price is king and not customer service quality, which is Reed’s Strength.

Galaxy is a Low segment retailer focused in Everyday low prices strategy, although owns a high Market share they are on trouble and it is mentioned that they will be on sale. As this business moves in a different segment does not represent a major threat but it seems a good opportunity to get some new customers from Galaxy, leveraging Reeds advantages in the higher segment over the Galaxy’s areas of opportunity, more of this will be discussed in the action plan section of this paper.

Reed third highest competitor in terms of MS is Delfina, which is in the same high end and characterizes for offering a balance of conventional and gourmet/organic items in bright, clean large stores. Nothing about the quality of customer service in Delfina is pointed in the case so we can assume a standard customer service or a lower standard than the one from Reed.

Although dollar stores gained some market share in 2008-2012, I do not think that will represent a major treat to Reed, as the combined MS of this segment is 1.8%, and based in the recession that caused customers to go more often to dollar stores, that increase in MS seems to be more cyclic that granted. Moreover CEO of the company Jack Morrissey advised Collins that the customers taken with the downturn will return after things get better and their tastes upscale, based in his experience this will be assumed as a fact.

Whole Wheat foods is competing in the same Segment as Reeds, as it has only 3 stores and his participation is only 1.22% we do not need to worry a lot about them at this stage of maturity of this business, and is also mentioned they have slower their expansion. But I cited them because they confirm the case fact that the customers are more focused in purchased healthy products than before. Reeds might consider developing more its organic and healthy products advertising, promotion and product mix.

Aldi stores, who excel the lean operating model, are growing aggressively but in the low and medium price market, actually they only represent 1.62% with limited selection of private labels. Based in research this segment is normally roofed at 5%, so Aldi does not represent a major treat in the short term also, but it is a good example that Lean operations models can reach us to lower prices. According to Research in Exhibit 3 Aldi's Price Index consumer perception is the highest with 8.5 out of 10. Aldi stores also are good evidence that private labels strategy is successful, as 95% of merchandise offered in Aldi is private labeled.

Customers

Customers in average spend $5,200 annually in grocery shopping; they made 2.1 trips per week to the Supermarket. Taking in account the fact that the average state income for a median household is $52,000, the wallet share that supermarkets own of the average customer is 10%.

From the data in Exhibit 5 and 6 in this case it is clear that the customers are very sensible to price, mentioning as the first reason for not shopping at reeds and as the most important factor for them in choosing a retailer. Customer also mentioned that selection of productions and brands is the second reason that they do not shop at Reeds, so increasing Reed product mix could be a good strategy. Customers also cited coupons and discounts as an important factor in deciding where to buy.

Reeds customers’ annual income is 12% greater than the state average (58,200 vs. 52,000) and in general the value per transaction for reed’s is 31.48 USD (18% more than the national supermarket average). From the figure behind, it is conclude that the national average is 26.67 USD per transaction. From this figure it is implied that Reeds customers are willing to pay more for the outstanding service and quality.

Nonetheless the perception of customers that do not buy in Reed chain is that prices are too high. To counter this image Reed launched since January 2010, the dollar special campaign, which consists in offering 250 items with significant discounts

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