MKTG600_Solved_Reeds_Supermarket

Reed Supermarket: Case Analysis

Reed Supermarkets - Case Study Analysis By: Jayant Mehta Course: MKTG 600 Semester: Fall 2017

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Background and Situation William H. Reed in Kalamazoo, Michigan originally established Reed Supermarket as a low-end grocery store in1939. Now with a headquarters in Kalamazoo and 71 in business, Reed Supermarket has grown to 192 retail locations, two distribution centers and a workplace for 21,000 employees with presence in 5 Midwesterners United states, i.e.

Michigan, Illinois, Ohio, Indiana and Wisconsin. For the last 20 years, Reed has been considered a high-end supermarket with emphasis on quality and service, having varied product offerings with latest variety and higher-margin departments that include fresh seafood options like live lobsters & crabs, floral department and prepared frozen foods alongside everyday groceries, bakery, meat and health & beauty supplies that has helped Reed gain popularity for its emphasis on organic and quality of fresh produce.

A welcome to the store with a smile & cookies on weekends; an attractive, well-lit and organized store setup; extended store timings accommodating customers at their preferred time; creative and eye catching serving-cases displays that induce impulsive purchase; knowledgeable and enthusiastic staff and customer service make the purchase/return process easy; adequate/high staffing with distinctive checkout cashiers with red aprons ensures time spent is efficient, productive and justified; and to conclude the experience a runner to shuttle the shopping bags to customers cars (with no need for a tip) are all attractive benefits exclusive to Reeds customers over its competitors.

From 1939 until 1960 Reed operated successfully, slowly building its brand and business model and by 1960 it operated in Illinois and Michigan with 25 outlets. Then it faced competition by widespread local grocery retailers but nothing on a level like today (2010). Today, post the recession; the US food retail industry has drastically evolved with

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new trends recognized in shopping behavior like: wavering customer loyalty, savvy customers willing to shop at various outlets to maximize value for money proposition, emergence and growth of warehouse and supercenters with the concept of buy-in-bulk at discounted prices, steady growth of private label merchandise and increase in consumer awareness regard to healthy and organic produced and ingredients.

Reed is now, in a highly concentrated industry with competitors of all various scale and sizes, different targeted markets and differentiated price models. Ideally, Reed would like to be a one-stop-shop for all grocery and household needs but with wide-ranging competitors like supercenters (e.g. Walmart and Target), warehouse clubs (e.g. Costco and Sam’s Club), dollar stores (e.g. Dollar Tree, Dollar General and Family Dollar) and limited selection stores (e.g. Aldi and Trader Joe’s) this unfortunately, is not the case. For Reed, Columbus, Ohio is the largest market with maximum impact on revenue and its growth, along with intense existing competition. Collins particularly feels that the dollar store and limited selection stores like Aldi are taking away market share from the 25 Reeds outlets there and are spoiling its above average income customers and expanding population of 2 million.

Exhibit 1 shows various competitors and the numbers herein signify Delfina, Galaxy and TopVal as major threats to Reeds market share with more or less number of storefronts. With respect to sales per-store, Delfina is like Reed, but Walmart and Costco lead the way with 3 and 5 store locations respectively which proves that customers demand better prices, large variety along with quality. Reeds research indicates that market share for supercenters ad warehouse stores can grow up to 17% in Columbus. The % change in sale of Wholefoods reinforces that customers are conscious of their

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consumption and positive grown of dollar stores reminds of the price sensitive market.

Market share wise, Galaxy at 10.07% and SuperVal at 10.23% rank second and third which brigs back the price-quality conscious customer mindset. Trader Joe’s and Aldi pose a real threat with just 3 stores but commendable sale per store, which highlights the modern trend of carrying quality private labels. Each competitor above has unique traits. Delfina is high-end, large, bright and clean with well-balanced organic, gourmet and conventional items. Galaxy and TopVal play on price, but TopVal strategically plays on inventory turnover and offers low prices everyday on its top 2,000 selling items. Wholefood’s growth was rapid in past 5 years but now it stagnant, so not an immediate threat but sure an encroacher into Reeds high-end market share. Dollar stores work on a lean cost structure, avoided perishables and smaller sized stores with a select verity of items, priced at $1 or in multiples.

Reeds high-end customers base in Columbus, Ohio have higher than average income by 12%, each sale transaction of an average value of $31.48, which is 18% higher than the average of a national supermarket. As per Reeds consumer research coupled with data mining of its loyalty program, it is observed that Reeds customers are slightly older, highly affluent and prosperous with a small household size than typical families. Also, it is analyzed that Reeds customers have 20% higher than average pet ownership that led to an executive decision of carrying expanded lines of organic pet food.

Marketing Objective, Marketing Strategy and Promotional Campaign Meredith Collins, VP-Marketing at Reed has been assigned with developing a marketing strategy that will increase the companies market share from 14% in 2010 to 16% by 2011, knowing that for the next 2 years the company will not open new stores. This

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means, Collins strategy needs to acquire 24,327 new households or 973 per store based on annual spend of $52,000 to increase sales from 660 millions to 786.4 million.

Collins shouldn’t forget the history at Reed Supermarket but not restrict herself developing an ambitious future strategy, think and access the present day scenario while seriously considering and analyzing what the numbers depict in Exhibit 2-6. A new, hybrid strategy should be adapted where Reed maintains its high-end supermarket position, while competing on price, enhancing value proposition (not necessarily monitory) and enhancing customers’ experiences from start to finish. Best practices, not restricted to food retail industry should be inculcated now. Reed’s should create a space of its own in a consumer’s schema and should be the choice for the affluent and an aspiration for the middle class.

To meet the primary objective of 16% market share by 2011, the 4P’s (Price, Product, Place, & Promotion) shall be modified and strategically restructured. Consumer perceptions in exhibit 3, price index in exhibit 4 and research surveys in exhibit 4-5 state that product price needs to be competitive. Reed should have everyday competitive to low prices and by leveraging suppliers and adding a warehouse for better scale in procurement (exhibit 2: supplies), prices offered or store margin may be altered depending on Reeds quarterly strategy, adding to average ticket value, as customers will not go elsewhere due to price. Data mining on its loyalty program, Reed should come up with bundle pricing (inspired by warehouse centers) for top 100 essential commodities in various sections like meat, fresh produce, dairy and bakery needs. Eg: 1 pound each- Onions & Tomatoes @ $4, etc. Private labels products should be given priority, as they offer higher margins and are relatively cheaper. From the Place perspective which will not grow in store count but can improve on site - Reeds should build upon and further enhance on its core competencies of

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quality, services, in-store ambience, while strategic aisles set up directing footfall through high margin products, leading to discounted section of the store adding to its competitive uniqueness. The added option/ services like: Gas station, valet parking for high value tickets, kids play area, exclusive organic aisle, Reeds Café- a drinks section, alcohol section and pharmacy section will lure and attract customer and better optimize high staffing at reed and justify the high payroll/benefit expense on exhibit 2. Reed should be dog friendly as much as possible (except where fresh produce or meats are kept or where federal regulation for hygiene have to be met) to make an otherwise chore a fun and engaging experience for the entire family, considering high pet ownership among its existing customer. Technology can also used as a differentiator by updating/developing the website and mobile app which enables and helps customers to establish a wish list, add items to cart and a recurring list may display frequently purchased items coupled with the option home delivery or drive-through/in-store pick and payment option of cash or card online, adding to customer convenience.

From the promotional aspect Reed should remember that marketing has a cost associated to it thus strategically focus on re/acquiring new neighborhoods, non-frequent, irregular or lost customer. Dollar special should now be less frequent but absolutely compelling when available. E.g. RFM 555 model can be adapted to customers with a minimum score of 223. In store product sampling of new private labels can help overcome the perception of them being inferior and may even convince a consumer to switch to them.

Cash back for loyalty card members can be introduced such a 3-2-1 (%) cash back on gas, pet food and fresh produce and everything else bought at Reed nationwide which can be redeemed in increment of $25 or $50.

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If some of the above strategic changes are implement, Reed can successfully position itself as a go-to or one-stop-shop for targeted high end, yet for all family and household needs without the feelings of being lost in an airport hanger or having to choose from selective variety and without being forced to pay for its privileges. Loyal customers will be reinforced of their right choice of shopping at Reed coupled with enhanced conveyance/ experience increase their consumption. Lost, irregular and price sensitive consumer will be happy moving up to an aspirational brand with added facilities without feeling overcharged.

Positioning Statement: “Reed Supermarket is an upscale store that offers the best quality products and a fun grocery shopping experience for everyone.”

Slogan: “Quality made fun and affordable!”