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REED SUPERMARKETS: 1.

SITUATIONAL
ANALYSIS3 1.1
Assumptions..4 2. PROBLEM
DEFINITION.4 3. STATEMENT OF
OBJECTIVES.4 3.1 Short
term.4 3.2 Long
term.4 4. CRITERIA FOR
EVALUATION.4 5. GENERATION OF
OPTIONS..5 6. COMPARATIVE EVALUATION OF
OPTIONS6 7. DECISION
MAKING7 8. THE ACTION
PLAN.7 9. CONTINGENCY
PLANNING..7 APPENDIX: EVALUATION OF
OPTIONS8
REFERENCES9 Page | 3 (excluding
appendix) 1. SITUATIONAL ANALYSIS[1]: Reed Supermarkets is a high-end supermarket chain,
well known for the quality and exceptionally attentive customer service, with operations in several
states of Midwestern United States. A Reed customer was somewhat older, more affluent, and had a
smaller household than the typical customer. The median income of a Reed shopper was 12%
higher than the typical customer. The Columbus market (with largest share), was relatively stable,
but Reed had experienced modest share declines in the past. Reed is facing new threats to its
position as a leader among the regions supermarkets and from the competitors like dollar stores
and limited-selection stores offering very low, appealing price points. In 2010, Reed led food retailers
in the Columbus area with a 14% market share which is slightly lower than the 15% Reed had five
years earlier. The company had continued to grow revenues by an average of 1% to 2% per year
across its markets. Reed had worked hard to maintain margin over the past decade by adding
speciality items, widening the selection of higher-end prepared foods, increasing the private label
mix, and using weekly promotional specials to drive traffic. In Columbus, 25 Reed stores were
located and the company had added no new stores and none were planned. Reeds CEO had set a
Columbus market share target of 16% by 2011. Reed's market research shows that as a result of the
economic downturn (2008-2010), customer loyalty is dwindling and consumers are willing to go to
multiple stores to get the best deals. In US, the growth of warehouse and superstores had attracted
bulk-buying budget shoppers, while the low priced promotions drew consumers to specific
supermarkets, discount merchandisers and dollar stores. The private label goods had higher margin
potential, and retailers were reasonably effective at shedding the lower quality image of those goods.
Also, the American consumers had become more health conscious which enabled the growth of
stores like Whole Foods. Reed has launched the dollar special campaign in June 2010 to combat
its high price image as the customers valued better prices and discounts the most (exhibit 5&6); with
a hope that consumers would use the dollar specials for price comparisons across chains, which in
turn would reinforce store loyalty among customers. Page | 4 Also, as the food retailer margins were
low, individual company profitability depended on maintaining high sales volume and operating
efficiency. 1.1 Assumptions 2. The US market has still not completely recovered from the recent
economic downturn of 2008 to 2010 and the customers return back as soon as the economic
downturn subsides 3. The customers tastes havent changed 4. Stores have the continuous
inventory supply to meet the demand of customers, i.e., they are not losing out on customers moving
to other stores due to lack of inventory 2. PROBLEM DEFINITION: How should Reed defend against
its competitors and meet its target market share of 16% by 2011? 3. STATEMENT OF OBJECTIVES:
3.1 Short term: The objective of the Reed management is to maintain the share position, keep sales
growth up and to generate enough profit 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 vs 15% five years ago) by winning back
the customers they have lost during the economic downturn. 3.2 Long term: The main objective is to
meet the set target of 16% market share by 2011. And also, the company should be able to satisfy
the upscale tastes of the customers who would return back after the economic downturn. 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. 4. CRITERIA
FOR EVALUATION: The criteria for evaluation of options in prioritized order are as follows: Page | 5
1. Pricing model 2. Brand image 3. Increasing customer traffic (by launching promotional offers)
increase sales 4. Profitability, revenue maximisation 5. Satisfy up-scale tastes of customers The
constraints are as follows: 1. Offering steep discounts, for example dollar specials campaign, would
lead to decrease in the margins and hence the profitability decreases in the short run 2. If the higher
end brand image is diluted by introducing low priced goods and deal campaigns, then the Reed will
lose out the regular up-scale customers 3. If the higher end brand image is maintained by focusing
on the premium products, then Reed will lose out the large middle and lower class customer base 4.
Reed cannot expand its market share by adding new stores in Columbus market at least in the next
two years due to capital constraints 5. GENERATION OF 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 Page | 6 . 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 are no or not many 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 its variety 6.
COMPARATIVE EVALUATION OF OPTIONS: The evaluation of the various options on the selected
criteria is summarized in the table below: Table 1: Comparative evaluation summary Page | 7
OPTIONS CRITERIA / REVENUES No effect run in on PROFITABLITY BRAND IMAGE LOW END
HIGH END MARKET SHARE CUSTOMERS CUSTOMERS MAINTAIN STATUS QUO short No
effect in short run, might increase in long run Diluted overall revenues, might increase in long run
Low favourable impact Possibly unfavourable impact Slightly increase EXPAND LOW PRICE
MODELS Increase Low in short but when Increase Totally diluted Increased appeal Negative impact
Increase DIFFERENTIATI ON BASED ON QUALITY SERVICES AND run, probably increase
economic downturn subsides Low in short run, but increase subsides Decrease capital due costs to
in but Intact, scope for increase Slight Unfavourable probably when Increase Unfavourable
Retained, increase economic downturn subsides can when Retained, can increase economic
downturn INCREASE FOOT FALL ADDING STORES DIFFERENTIAL SEGMENTATION
VARIETY/ONE STOP SHOPPING BY NEW Increase shortrun, long run Increase Increase probably
increase in Increase High Profits likely dilution of brand Positive impact Retained, scope for increase
Increase Increase Likely to increase Increase Slight impact positive Positive impact Increase The
detailed evaluation summary of each option is given in the appendix. 7. DECISION MAKING: Based
on the evaluation of the criteria, the option to adopt differential segmentation approach coupled with

increase in variety is chosen. This choice is justified as is evident from the table 1 that it leads to an
increase in revenues as well as profits without any compromise on the brand image of Reed
Supermarkets. Also it would attract mass middle class customer base as well as the affluent
customer base. 8. THE ACTION PLAN: Page | 8 in mind the capital constraints the Reed
supermarkets management should adopt the option of differential segmentation approach by initially
renting or converting the existing stores or collaborating with other low end stores. They should
make use of its economies of scale, and by reducing the maintenance costs (payroll etc.) try to offer
attractive prices than the existing low end stores. The economies of scope can also be exploited by
offering more variety as other companies like Dollar stores offer only limited variety of items. They
should advertise extensively about the new strategy to avoid confusion among the customers about
its brand image and to attract more customers. Thus, building the brand image and customer loyalty
as well as maximising revenues and market share is a priority. Once the stability is achieved in the
market, Reed can expand its market share by adding new stores in the areas with potential
population growth. 9. CONTINGENCY PLANNING: If the management still feels that they are unable
to attract enough customers or if they are facing capital constraints, then they can collaborate with or
acquire the already existing low end stores in the market. This would decrease the risk of losing out
the entire investment made. APPENDIX: EVALUATION OF OPTIONS 1. Maintain Status Quo: The
dollar special campaign has increased the store traffic by 3% and during a typical week, 4% of the
sales were for dollar special items. This shows that the campaign was successful in attracting more
price sensitive customers, especially the middle and lower class customers and hence resulted in
increased sales. Page | 9 However, on an average, the items selected for dollar specials had the
same overall margin as total sales. As the campaign seemed to be too close to dollar stores, this
might confuse the consumers in terms of Reeds image, and the affluent customers might move
away from the company. Assuming that the consumer changes his/her perception that Reed is high
priced, this model might result in increased revenues and market share in the long run. 2. Expand
the low price models: As customers cited that better prices (75%) and the discounts and coupons
(62%) are the most important factors in Exhibit 6, Reed can consider expanding the dollar special
model to a daily based model which covers almost the entire range of products by reducing the
maintenance costs(which include employee salaries etc.). This model helps in attracting the large
middle class customer base and results in increased revenues and market share. But, the affluent
customer base who value quality shopping would be lost almost completely. 3. Differentiation based
on value and services: Reed is perceived as the high quality supermarket (quality index of 8.4 in
2010, exhibit 3). Reed can focus only on their affluent customers who are ready to pay a premium
for the quality based shopping experience, hoping that the customers would return back when the
economic downturn subsides. The brand image is retained. But, Reed would be losing out the larger
middle class customer base that is price sensitive and this would decrease the market share. 4.
Increase footfall by adding new stores: To achieve the long term objective of increasing the market
share and position itself in the lead, Reed should add new stores where there is potential population
growth to combat the rapidly expanding low end stores. Due to the capital constraints, Reed Page |
10 cannot add new stores in the next two years, but it think about collaborating with any lower end
stores or renting stores. 5. Differential Segmentation: Reed supermarkets can either rent some new
stores, or convert some of the existing stores or altogether collaborate with low priced stores to
focus exclusively on the price sensitive customers. On the other hand, it can focus only on the
premium customers in the remaining stores (located preferably in the affluent areas) to continue
attracting its high end customers and retain its high end brand image. Implementing this plan
requires some initial capital investment and might lead to dilution of the brand image and confusion
in customers in terms of Reeds market position for a certain initial period. REFERENCES: 1. Reed
Supermarkets- New wave of Competitors, Harvard Business Review, http://hbr.org/product/reed-

supermarkets-a-new-wave-of-competitors/an/4296-PDFENG last accessed at 0523 hrs, 27th July


2011 IST 2