Reed Supermarkets: A New Wave of Competitors
*Exhibits discussed in the following report refer to the exhibits in the Reed Supermarkets Case Study.
Question #1: After careful deliberation and analysis of the Reed Supermarkets case, the marketing team has concluded that Mr. Jack Morrissey’s goal of attaining a market sales share of 16% as being achievable. It is important to note that market sales share is calculated in terms of dollar sales (revenue) generated as opposed to the quantity (amount) of items sold, with respect to the entire market. Reed currently has a market sales share of 14% in Columbus with 25 stores in the surrounding area. Ultimately, the team has elected to attain the additional 2% of market sales share by focusing on top line growth measures. Mr. Morrissey has advised the group that there will be no new capital expenditures for the upcoming two fiscal years and for that reason the marketing team has devised a plan that will convey the value of Reed Supermarkets to its respective consumers through a series of small adjustments in marketing and product offerings. This will translate to more customer traffic and thus, more sales.
The demographics in Columbus, Ohio are strong from the perspective of a business. Population growth is at a rate of 11%, which is above the national rate of 9%. Unemployment is at a rate of 8.5%, which is below the national rate of 9.8% and finally the median income of Columbus is right around $52,000. While this encouraging data demonstrates that the demand is there, it will not be enough on its own to meet our goal for the 2011 fiscal year. The problem that must be addressed is that the typical Reed shopper has a median income “12% higher than the area household average.” While Reed has branded itself as being a high quality supermarket, it is losing too many customers with its high prices. A survey of 250 Columbus non-customers (Exhibit 5) cited that the most important reason for not shopping at Reed were the prices. Therefore, with a series of small adjustments, which will be elaborated upon throughout this report the marketing team has developed a strategy of changing the perception of prices as well as the products carried at Reed Supermarkets. Another concern that could potentially inhibit our market sales share gain for 2011 is competition.
Research that was shared to the marketing team in the case showed that market share appeared to be capped at 3%-5% for limited selection stores and at about 3% for Dollar stores. The market sales share at Reed on the other hand, is not nearly at its limit and while competitors may be growing, they are nearing their potential market sales share. They are therefore not a direct threat. Supermarkets like Reed distinguish themselves on selection. If Reed is able adjust its product offerings successfully in order to cater to different consumers, Reed will be able to differentiate itself as a supermarket and ultimately reach its goal. Top line growth measures take into account how well an organization is able to produce sales while bottom line growth measures focus on how efficiently an organization can manage its operations (costs). Bottom line growth measures tend to depend on many different factors since the bottom line, net income, of a company is calculated after making adjustments for various expenses. Therefore even if Reed Supermarkets was able to successfully increase sales by 2%, bottom line growth may not reflect this due to some adverse change in the company’s operations like a non-reoccurring legal expense. Therefore, bottom line growth is much more risky to depend on in ones analysis of growth. On the other hand, while top line growth will give an accurate depiction of sales attained it often leaves out a lot of important information on how the sales growth was achieved. The marketing team is confident that for the particular task at hand, focusing on sales (top line growth) will be a...
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