[Reed Supermarkets] CONFIDENTIAL

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TEAM Case Analysis Company: Reed Supermarket A New Wave of Competition
Names: Nicolle ******, Rose *****, Cody Link
Date: May 14, 2014
Advanced Marketing Management Kuehl

When opening a business, in any industry, positioning oneself effectively amongst your
competitors should be at the top of your priority list. If an entrepreneur cannot do that, the
businesss chances of attaining market share and building a strong and loyal customer base is
very small and often spells the demise for that business.
I. SWOT
Strength
Emphasis on Quality: To continue its long standing model of being an upscale provider
of consumer goods for Midwestern residents, Reed Supermarkets wanted to retain its
high-end position. Within the past two decades, the grocery store chain had diversified
their product offerings with newer, higher margin departments which included expanded
seafood options, floral department and wide variety of specialty offers like 27 types of
mustard (2).
Long Operating Hours: Reeds provided a convenience for their customers by having
longer operating hours than competitors. This convenience allows consumers to shop at
their preferred time and not need to worry about rushing home or missing the opportunity
to purchase family necessities (2).
Elegant Display Cases: For Reed Supermarkets, the days of drab display cases no longer
exist. In an effort to continue their trend of upping the quality of their products and the
value-added dynamism of the high-end retail mentality, Reed Supermarkets improved
their display areas to add both quality and esthetic appeal for consumers. We felt this
particular differentiator could appeal to consumers sense of style and increase the number
of impulse purchases made by consumers (2).
Free Delivery to Vehicles: A trend which has increased to a national scale is a concept
Reeds began delivery of purchased goods to the consumers car free of charge (with no
need for gratuity). This 100% free service increases the high-end perception that Reeds
wants to provide for its customers while adding convenience and thoughtful touches to
the end of the purchasing experience (2).
Market Penetration: Compared to the other high-end retailers located in Columbus, Reed
had 25 locations boasting 26.4 million dollars in annual sales for each one of its stores. Its
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closest competitor, Delfina, only had 18 stores to choose from for Ohios 3
rd
largest city
with sales that are lower, albeit comparable of 25.1 million annually (10).
Weakness
Perceived as being High Priced: Reed Supermarkets was used as the baseline for
comparison when consumers were asked about price sensitivity. Whole Foods, who can
arguably be called the closest competitor along with Delfina are 104.1 and 99.5
respectively with regards to a pricing index. Superstores and warehouses are often an
alternative that have a price sensitivity of between 95 and 96. But proliferation of low-
cost alternatives should not be ignored as they stand at less than 90 on the consumer price
index evaluation and make up a considerable amount of market penetration (12).
$1 Special could Confuse Consumers: A weekly dollar special was run at Reed
Supermarkets showcasing 250 items to attract customers. This campaign, which was
launched in June 2010, was aimed directly at its low-cost leaders so as to combat the
perceived high-price image it retains. Signage and promotional campaigns spread the
word of the new pricing strategy but some feared that the consumers would be confused.
The reputation of being high-end was being muddied and now Reed has to decide
whether to move down market or to remain a higher pricing structure. What was
sacrificed was overall margins even as in-store traffic had increased 3% overall. One
might argue that the cost of discounts and lower profit margins is not worth the extra
foot-traffic the promotional materials aroused amongst consumers (7).
High Pricing/Cost Structure: Reed Supermarkets made only modest profits yearly with
only 2.1 million in net revenue. Comparatively speaking, dollars stores, who make up a
majority of the low-end competition earn 8.5 million dollars after all expenses have been
accounted for. Remarkably, total operating expenses were only marginally higher than
Reed with 23.6 million for all dollar retailers. Thus, dollar stores have the capacity to
operate at a lower cost and pricing structure creating a high margin for success compared
to Reed (11).
Opportunity
Focusing on Private Label Merchandise: Private label merchandise has emerged as a
growing segment in the grocery store environment; an upward trend suggests that if a
retailer wishes to remain competitive, the inclusion of more private labels will need to be
incorporated. At 17% of overall sales, private labels had grown by 3% since 2005. The
private labels also provide retailers with a high overall profit margin. What Reed and
other retailers should be keen to watch is the consumer perception of this type of product.
Although it has become less of an issue, private labels have been perceived as cheaper
and of a lower quality than the mainstream labeled merchandise (3).
Expand Organic and Health Product Selection: Where competitors like Whole Foods
have excelled is through the offering of an extensive variety of health conscious products
which has attracted an almost cult-like following. Reed, during its repositioning to the
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high-end, did include a large number health options but nothing close to the variety
offered by Whole Foods. Even though they have only three locations, Whole Foods
makes an astonishing 19.1 million in annual sales only 7.3 million shy of Reed who has
more than eight times the buying locations (3, 10).
Threats
Competition: As in any market segment, competition remains a companys largest threat.
Low-end, high-end, warehouse, superstore all providing a rivalry for the traditional
group environment, and specifically Reed. In the Columbus market there are 180 grocery
stores, ranging across 15 different companies, including the 25 Reed locations. Two
competitors, Delfina and Whole Foods where Reed still commands the market. The
biggest threat that remains is dollar store locations and low-end competitors; seven of the
15 companies compete in the low-end segment where consumers now flock to for the
sake of saving money even at the sacrifice of convenience (10).
Reduction in Consumer Loyalty: As trends in consumer buying habits changed and
positioning amongst competitors became more fierce, so too did consumer loyalty.
Supermarkets, like Reed, were not able to rely on consumer loyalty for many reasons
most notably because a savvier modern consumer had developed. People are more apt to
shop at multiple locations in search of deals across all different types of stores (3).
Growth of Warehouse and Superstores: Shoppers have also become less likely to make
regular trips to the traditional grocery store setting. With the growth of the superstore and
warehouse sector, consumers have become more inclined to buy in bulk while utilizing a
budget. While superstores and discount locations drew in a large customer base due to the
low-price model and promotional strategy. It has been observed in recent poll data that
60% of shoppers are more likely to make frequent trips to pick-up things here and there
while the remaining population still makes the traditional stock-up trips (3).
II. Case issue:
In the case of Reed Supermarket, a grocery store operation that has long been a staple for
Columbus, Ohio consumers, the issue has become retaining a competitive edge over the now
flooded marketplace and providing customers - both previous and new customers - with a
valuable and enjoyable shopping experience. As a team, we have formulated a plan that we feel
will provide Reed Supermarket with the ability to regain its once formidable position in the
Columbus grocery store segment while continuing to exceed the standards that it has set for
customer service and product offerings.
Reed Supermarkets has a longstanding history amongst consumers in the Midwest; the
chain which was opened by William H. Reed originally establishing itself in 1939 in Kalamazoo,
Michigan (Quelch 2). Reed would not be the owner of a sole supermarket which held his sir
name for long as his empire grew to more than 190 retail locations, multiple distribution centers
and was place for employment for some 21,000 Midwesterners less than a half century later (2).
As his empire constantly evolved through acquisition and expansion, Reeds position among his
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competitors changed too. When William Reed opened his first grocery store locations, he had
positioned his business as a low-end retailer and as time progressed so did his companys
positioning model (2). More than 80 years later, Reed Supermarkets had gone through a fierce
period of diversification by offering its customer base an expanded selection of higher-end and
higher margin products(2).
For the past 20 years, Reed Supermarkets has considered itself no longer be in the low-
end retailer segment it once was. During the period of reinvention, the supermarket chain wanted
to provide guests with a more high-end and unique customer buying experience. Upon reviewing
the case, which was published by the Harvard Business School, we put together a comprehensive
SWOT analysis for Reed Supermarkets that profiles what we think they do well, what they do
poorly and where they could improve their business models to make higher margins:
III. Relevant Factors & Analysis & IV. Recommendations?

In order for Reed Supermarkets to succeed and potentially increase market share in
Columbus, Ohio, the company needs to lower their pricing structure in order to compete with
other retailers. One way the company can do so is to offer more private label brands in their
stores. Private labels have become an increasing trend, with an increase in market share from
14% to 17% since 2005 (3). There is a low cost involved with private labels yet they yield high
margins for supermarkets. According to the Reed email survey in March 2010 of 400 Columbus
areas customers, 75% of those customers indicated that better prices were an important factor
when it came to grocery shopping followed by 62% indicating that better discounts and coupons
were most important to them. Reed Supermarkets have definitely differentiated themselves
amongst other supermarkets with their attractive stores, long hours, elegant (and often creative)
serving-case displays, and exceptionally attentive customer service (2) but it seems as though
customers are more concerned with value these days as opposed to the exquisite shopping
environment.
Switching over to more private labels could also increase foot traffic, even if the company
continues to promote unique store experiences. The case study states, Everything were doing to
build up our premium private labels and organic produce selections positions us for growth when
the 10% to 15% of Columbuss most prosperous customers get tired of big boxes and picking
their cans off pallets (8). Provided that Reed Supermarkets continue to push and expand their
private labels, they can regain customers that they have lost to their competitors while gaining
higher margins.

The recommendation above was made with the assumption that past, current and future
Reeds customers will see the value in the supermarkets private label and all that the
supermarket has to offer and want to shop at this store. Evidence from the case points us in the
direction to stress price and value in our recommendation. The pro of the first recommendation is
that the store can retain its current customers, while attracting new customers with the high
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quality private labels offered. Customers will see that the company is trying to do what the
customers want, which is providing better and more competitive prices. Reeds wants to attract
the 10% to 15% of customers that currently shop at other stores and with high quality private
labeled goods they can do just that (8). Another pro to the recommendation listed above is the
ability to position Reeds as a regular trip store as opposed to simply a fill-in store. The added
value of private labels should entice individuals to not necessarily buy in bulk but to make
Reeds their one-stop-shop. Currently, per transaction, Reeds customers spend $31.48, which is
18% higher than supermarket averages across the nation (6). Increasing private labels will
hopefully increase the average transaction of Reeds customers.

A potential con to this recommendation is that competitors can begin to offer specials on
their own private labeled goods, which might end up costing less than those at Reed
Supermarkets. If competitors do this, then Reeds will have a difficult time selling their private
labels. Another con is that Reeds may not be able to attract the 10% to 15% from their
competitors. Loyalty programs, convenience and habit might keep those potential customers at
the stores where they are currently shopping.
Reed Supermarkets needs to do away with the Dollar Specials that have been
implemented. It might have seemed like a good way to generate foot traffic, which it did increase
store traffic by 3% (7). The company must also ask one question and that is at what cost? The
case study stated, the average price reduction was from $2.70 to $1.50, and since few if any of
the items were purchased on deal, they lowered overall margins (7). Reed Supermarkets
cannot afford to have even lower margins and that is what this promotional program is causing
the retailer. In 2010, the quality index for Reeds in Columbus was 8.4 while Whole Foods
Markets was 8.6 (11). Doing away with the Dollar Specials can keep their quality and image
high. One benefit of getting rid of the Dollar Specials campaign is that it will separate itself
from its dollar store competition. As stated in the case, the offering seemed to be too close to
the offerings of dollar stores, and several executives worried that this would at least confuse
customers, and at worst muddy Reeds image through association (7). Reeds is already having
a difficult time regaining market share in the Columbus area and the dollar specials do not help
because Reeds is taking a loss by promoting the campaign. Discontinuing the Dollar Specials
will continue to promote Reed Supermarkets as being a high-end grocer. A con to discontinuing
the campaign is that Reeds could potentially lose the 3% of increased foot traffic that was
brought in and the additional 4% in sales. The increased foot traffic is beneficial, but if
customers buy numerous dollar specials, Reeds is not benefiting in the long run and will be
losing money.
Another recommendation for Reeds Supermarkets is to implement a loyalty/reward
program. This could be done via birthday coupons where it is $5 off their next purchase coupon.
Also, each time a customer was to scan their rewards card or input their phone number at the
checkout line, they would be collecting points. Contingent upon other promotional campaigns
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and Reeds advertising budget, there can be various reward tiers. When a customer reaches X
amount of points, they will receive $5 off their next purchase and when they reach XX amount of
points, they will receive $7 off their next purchase. Almost 50% of the 400 Columbus area
customers surveyed reported that promotions and coupons that are mailed to the home are
important factors when deciding to shop at a given grocer (12). Oftentimes, individuals forget
coupons at home or will misplace them, missing out on the opportunity to save a few dollars.
Using a phone number at the store or a card can be easily used and will not be left at home. The
pro of such a program is its ease of use for customers and the increased loyalty of customers.
Whole Foods Market, Trader Joes, warehouse stores and dollar stores do not have such a
program so that would differentiate Reeds from their competitors. A potential downside is that
Reeds competitors can implement the same loyalty program if they feel that they will lose
customers.

Smaller, yet still specialized stores, can help bring down Reeds costs. The company
should roll out smaller stores going forward. Looking at the square footage of competitor stores
and the sales per square foot, if Reeds attracts and retains customers and provides the experience
that Reeds customers desire, the company can do with smaller locations. Aldi locations are
typically 15,000 square feet and it is believed that the same store could generate the same
amount of sales in a 35,000 to 40,000 square foot supermarket size location (5). It is not the size
of the store that is attractive for customers, yet the quality, price and variety of the goods offered.
Locating in smaller facilities will allow Reeds to specialize in private labeled goods and save on
rent. Smaller locations can have a negative effect on Reed Supermarkets by swaying customers
to the other grocers, dollar stores and warehouse stores because smaller stores might indicate a
lesser quality in goods and services.

V. Marketing Plan

The Marketing Plan that our team has proposed for Reed Supermarkets contains target
market, product, price, promotion, and place.

Target Market:
We have concluded that Reed Supermarkets will have a target market composed of the
middle class and people who are health conscious.

Middle Class Consumer:
We have chosen the new target market to be the middle class because we have
recommended Reed Supermarkets to lower their pricing structure and increase private labels, due
to the statistics of the Columbus Ohio market. Columbus's 2010 median income of $52,000 was
11.6% higher than the state average and slightly higher than the national median (2). Also, in
December 2010 the unemployment rate was 8.5% compared to the national rate of 9.8% (2).
Looking at these statistics, it seems like the Columbus Ohio Market does not have a lot of money
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to spend on groceries or in that case have income coming in to be able to spend on groceries.
This fact is why the Dollar General and Aldi, the stores that Collins' visited, seem to be doing
just fine and doing better than Reed Supermarkets because of their everyday low prices and
people are able to afford them. In order for Reed Supermarkets to compete, they need to make
their products affordable to the middle class. Our team also discussed that the only reason that
Reed's typical consumer is affluent is because they are the only ones who can afford them and
they do not care if Reed Supermarkets has higher prices. In addition, the target market should be
the middle class because there is already a crowded upper end of the market (6). It is hard to
compete because it is so crowded.

Health Conscious Consumer:
The next aspect of the target market is people who are health conscious. Another key
trend is that Americans had also become more health conscious in recent years (3). Since this is
a growing trend in America, it would be a perfect opportunity for Reed Supermarkets to
capitalize on the trend. Reed Supermarkets is also known for emphasizing its organic produce
and the health conscious consumer would be the consumer who would buy organic foods and
produce.

Product:
Our team believes that Reed Supermarkets should continue what it does best - that is to
produce high quality products, have great customer service, as well as to place emphasis on their
organic produce. We also believe that Reed Supermarkets should expand their health and organic
products and departments to fit the needs of their health conscious consumers. Our team also
believes that their products and merchandise should be private labels. According to the case,
private labeling has been growing and a trend in many supermarkets. Private label foods were
17% of total food and beverage sales in 2005 (3).

Pricing:
Reed Supermarkets should have everyday low prices to fit the budget of their target
market - middle class and health conscious consumers. This will also allow them to compete
with other stores nearby such as the Dollar General Store as well as other competitors.

Promotion:
Reed Supermarkets should emphasize in advertisements on the ways that they
differentiate from their various competitors. As mentioned above, Reed Supermarkets should
focus on their strengths of high quality and organic products as well as their exceptional
customer service.

Television Commercials: Reed Supermarkets should have commercials on stations like the Food
Network, Cooking channel, local team sport stations, and also fitness channels.

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Magazines:
We believe that Reed Supermarkets should advertise in health and wellness magazines to
reach their target audience of health conscious consumers. The titles of these magazines include
Women's Health, Living, Family Health & Living Magazines, and Organic Living.

Direct Mail:
In order to reach their target market and to raise awareness of their new positioning, Reed
Supermarkets should send out postcards to their consumers. On these postcards, Reed
Supermarkets should give out special promotions such as double couponing to entice this new
target market to the store. According to the case, the loyal weekly shopper has been replaced by
a savvy consumer who shopped several different stores and formats in search of the best deals.

Website:
Reed Supermarkets should redo their website to fit their new target market. On their
company website, they should have blogs and organic food recipes. Reed Supermarkets will use
inbound marketing, like Hubspot, to have their customers come to their stores instead of pushing
information on their customer.

Social Media:
Reed Supermarkets should use sites such as Facebook, Twitter, and Pinterest. Like the
website, these social media sites could also show organic food recipes. In addition, there could
be a campaign where customers can take a picture of their organic dishes and then post and share
them on the social media website.

Place/Distribution:
As recommended in earlier sections, we believe that Reed Supermarkets should open
smaller stores. This will lead to lowering the current operating costs in the future.

VI. Measurement:

In order to measure our progress, we will measure market share after a couple of months
down the line once the new prices have been implemented into the stores. Reed will also
measure the sales they get after the fiscal year. Reed can also measure social media by seeing
how many qualified likes or followers on Twitter. Also, we will conduct market research about
the demographics of our customers and conduct surveys in order to conduct a perceptual map or
a map of what consumers think about Reed Supermarket stores compared to their various
competitors. Since Reed is establishing a loyalty program, we will measure how effective it is be
by looking at the data from the program.