In early April 2003, James Ellis, the President of Superior Supermarkets, met with company executives to discuss the ability to adopt an everyday low price (EDLP) strategy for Superior Supermarkets in Centralia and Missouri. Superior Supermarkets is a division of Hall Consolidated, a privately owned wholesale and retail food distributor. Hall distributes food and related products to some 150 company-owned supermarket units and about 1,100 independent grocery stores in the U.S. through 12 wholesale distribution centers. Hall’s sales in 2002 were $2.3 billion. Superior is the smallest of the three supermarket chains owned by Hall, with sales of $192.2 million in 2002. Superior serves small towns in the South Central U.S., and is number one or two by market share in each of its trade markets. Sales of the three Centralia stores were $14,326,700 in 2002. Their gross profit margin was 28.8%, while the median for the U.S. grocery industry was 26.4%.
Randall Johnson, the District Manager for the Centralia stores, has recommended that they implement everyday low pricing (ELP). The reasoning behind his desire to implement the ELP strategy is that Superior’s prices are higher than the competition at a time of growing price consciousness, and that the price differential could cause them to lose market share. Superior President James Ellis suggests that their recent consumer research should be studied to assist in the pricing decision. If the research suggests that an ELP strategy should be used, it would then be applied to all three of the Centralia stores. One company official suggests that the pricing strategy should be part of a broader store positioning strategy, and it should be supported with advertising. It is known Superior is does have the highest prices in the area. To the extent that price knowledge exists, it is thought to be category dependent. This adds a dimension to the ELP implementation decision, specifically whether ELP should be applied across the board, or just for certain categories. If an ELP strategy is adopted, it is important that Superior decide how much prices should be lowered. Superior prices are estimated to be about 10% higher than Harrison’s, the current low price leader, and about 7% higher than the other major competitors. There is a consensus that they should not attempt to outprice Harrison’s. Problem Identification
There are 2 major problems that have been uncovered by the company’s district manager. The first problem is the low sales in Centralia. The second problem is the extremely high prices that have been a source of complaints among Centralia customers. According to many studies by Superior Market, the company had the highest prices in Centralia. As a result, Superior Supermarkets must decide whether or not to pursue an everyday low pricing strategy in its three stores servicing grocery shoppers in the Centralia service area. Case Analysis
Superior operates three stores in Centralia, MO, the primary trade area in Scott County. Food and beverage retail store sales in Centralia were $62.3 million in 2002, a 4.6% increase over 2001. Based on the 2000 U.S. Census, Centralia has 13,500 households and a total population of 41,000. The median age is 35, median household income is $36,000, and 85% of residents have at least a high school education. Just over half of Centralia residents are employed by manufacturing, retail trade, and education, health, and social services establishments. Focus group studies have identified various aspects of food store choice and patronage in Centralia. In descending order of importance to shoppers are: price; quality of meat; produce quality, variety, and display; and, shopping convenience. Focus group participants are generally pleased with their food shopping options. Superior has a great deal of shopper information from two studies it conducted. One establishes, by department, how $100 is spent in a typical Centralia supermarket. The other...