Stanley Brett Yunker
Professor Andrew Makar
October 18th, 2010
Superior Supermarkets (SS) is a division of Hall Consolidated, a privately owned wholesale and retail food distributor. SS is the smallest of three chains which caters to the South Central United States and is ranked either No. 1 or No. 2 in each of its markets. SS has been considering an ‘Everyday Low Prices’ strategy for many years. It is felt by due lower than expected sales based on budget targets, that revisiting the issue of a new pricing strategy is warranted. A management meeting is scheduled to discuss this matter and a decision is expected on this topic.
Superior Supermarkets (SS) in the Centralia market are being faced with a potential loss in market share as reflected in the last two quarters of declining revenue, even though the net profit margin was only slightly lower than the budgeted target. It is proposed that the three stores in the Centralia area implement an ‘Everyday Low Pricing’ program to better position itself competitively, reduce operating costs, and cater to the growing price consciousness of its consumer base. Currently, SS is viewed as having the highest priced items among its competitors and is inferior to its competitors in a number of store characteristics, except convenience, quality of bakery goods, and store service (as determined by a customer survey). In order to consider a new pricing program, a number of factors need to be considered. In particular, customer value perception, buyer price sensitivity, product demand, product differentiation (among competitive offerings), life-cycle stage of products, and break-even analysis.
Customers will be more willing to respond to price reductions on items they perceive as having a higher value (value increases with decreased price or increased perceived benefit). Also, not all supermarket items have the same price sensitivity (elasticity); implementing a pricing strategy that ignores elasticity may have little to no impact on demand and actually hurt profit margins. Product demand factors in, since pricing on high volume items have a higher impact on gross revenues. Also, items that are less differentiable among competitors would be better targets for pricing strategies. Finally, life-cycle stage is highly impacted by pricing, since early in a cycle greater price discretion exists; later in the cycle, discounting is almost mandated. All of these factors much be taken into account if an effective pricing strategy is to be successfully implemented. It is unlikely that an across-the-board ‘Everyday Low Pricing’ program can address each of these issues; thus, a more creative pricing solution will have to be developed by Superior Supermarkets.
Hall Consolidated acquired Superior Supermarkets in 1975. It is one of three major supermarket chains that it directly owns and supplies. In addition, Hall Consolidated supplies over 1,100 independent grocery stores through its 12 wholesale distribution centers. Hall Consolidated grossed over $2.3 billion in sales in 2002, of which Superior Supermarkets accounted for $192.2 million.
Superior Supermarkets serves small cities and towns in the south-central part of the U.S. Superior Supermarkets (SS) has three main competitors in its service area - Harrison’s, Grand American, and Missouri Mart. Superior Supermarkets has three stores in the Centralia municipal area, with each of its competitors having one store each. SS has no competitor stores in its S. Prospect territory, two in its W. Main territory, and one in its N. Fairview territory. Missouri Mart is SS’s main competitor, which operates in store complexes, has a large floor plan, and significant general merchandise. Harrison’s is SS’s secondary competitor, caters to the high-income consumer and is known for its ‘everyday low...