Reed Supermarket Case

Problem Statement : Meridith Collins, VP of marketing of Reed Supermarkets, is asked to increase the current market share of 14%(2010) to 16% by 2011.The following constraints are evident : 1. The market is fragmented with multiple players.

2. The operating margin is merely 2.1%, no scope of any error. 3. No investment plan for increasing the no. Of stores.
Options available:
1. Increase margin/increase revenue – It will increase profitability. 2. Introduce Niche products – Healthy food items, organic products. 3. Increase operating efficiency – It will lower the operating cost. 4. Loyalty programs – It will help in retaining the customers. 5. Introduce mid-range products – It will attract non-affluent consumers. 6. Make tie-ups with corporate houses/ partners – It will add to the consumer base that may remain loyal. 7. Convert to Dollar store/ open dollar stores as a separate brand – New brand. 8. Introduce private labels – New range of products.

Recommendations:
1. Closure of Dollar Special service – As per the given data, the Dollar special products were being offered at a price 44% lower than the average price which was not generating money at all. Infact it was creating a loss of 80%.Also this Dollar scheme had hit the image of Reed (Quality product seller). 2. Reed customers were older and affluent players, so Reed should extend its services further to create an altogether new class for itself. The affluent class had high earnings which could be tapped through enhanced and out of the world shopping experience. 3. Mix products- Increase in the mix of products, especially private levels and healthy products will actually improve the operating margin. These products can be introduced as an alternate to high end products. 4. The sales target needs to be stretched to achieve the 16% market share.This can be achieved by assuming the overall market size remains same over the year(4.74Bn). The sales target need to be 775Mn. 5. Reed can attract more customers through advertising through print media or internet with highlight o organic and healthy products. This can help Reed in attracting customers of Galaxy.

Reasons for recommendation:
1.Maintain the current customer base:

Reed’s currentcustomer segment is composed of affluent and older customers with, smaller householdsize. Their annual income is 12% higher ($58000) then state’s median household income of$52,000. On Average Annual spend by customers in US is $5,200. Hence on average walletshare of Reed’s customer is 8.93% (refer Appendix) as compared to 10% wallet share of anaverage customer. Additionally, on average customer in US spends $47.62/trip to a supermarket and currently Reeds Average Sales Value is $31.42/transaction. This must be leveraged to increase the average sales value and wallet share. Having said that, it seems that current downturn has impacted the spending habits of Reeds customer segment.

2.Private labels: They are not considered cheap products.

3.Grab a share of Galaxy (around 1%) – Almost same line of products but its location is remote.It is easy to attract the Galaxy customers to Reed.

4.The average purchasing per transaction per customer is $47.62 per trip which provides a scope of $16 further purchasing at Reed supermarket.