How would you describe Reed’s position in the Columbus market? How do their customers differ from the competitors and where are they satisfying and dissatisfying them? Reed Supermarkets (RSM) currently has an established position in the Columbus market with 25 total stores that hold 14% of the market share, the highest of all of its competitors. Their current sales, as of 2010, are $660 million (slightly lower than in 2009) and they are currently maintaining a profit margin of 2.1%. The RSM brand is known for being high quality in terms of the store atmosphere and for its food products. It is also known for charging very high prices relative to its competitors. This is reflected in the average RSM customer as they are typically older, more affluent, pet owners, and usually have a smaller household. Lower priced competitors, like Dollar General, cater to lower-income customers that are likely priced out of stores like RSM. Below is a chart created using 2010 survey data that shows where RSM stacks up against competitors in terms of customer perception of both quality and price. It can be seen that RSM’s main competition, in terms of its current customer base, is most likely with other high quality brands like Whole Foods and Delfina. While RSM’s customers appear to be pleased with their quality of products and stores, but the relative high price is giving them angst. Surveys data indicates that current RSM customers value low prices and sales above all else, and non-RSM shoppers site price as the biggest reason for not shopping at RSM. How serious is the threat from Dollar Stores and Aldi?
Both Aldi and the Dollar Stores present a very minor, but not entirely insignificant threat to RSM. Dollar Stores currently have a Columbus area market share of about 1.8% and are rapidly expanding nationally. Their operating model is structured around their merchandise being bought “on-deal” from suppliers which resulted in the stores being a cheap “fill-in” rather than a full shopping stop due to their limited brand and product availability. Dollar stores pose little threat to RSM as historical data has shown that once dollar stores establish themselves in a market, they often only gain a niche position resulting in a market share of only 3-5%. Aldi also maintains a lean operating model, and when combined with their diverse selection of private-label products, they are to offer relatively low prices. In addition, Aldi stores are often very clean and pleasant, as opposed to the cluttered feeling of a typical dollar store. These two factors make Aldi a stronger threat to RSM than dollar stores, but research data indicates that, like dollar stores, Aldi’s market shares is likely capped around 3%. Even though Aldi has significant overseas funding and has the ability to aggressively pursue market share, they are not currently a large threat to RSM’s market share in the Columbus area. Should Reed continue ‘Dollar Specials’? Please include a calculation of the financial impact. In short, RSM should not continue the ‘Dollar Special’ program. Below are the summarized financials that explain why.
It can be seen that the potential benefit of 3% additional sales volume would not be enough to account for the lost revenue from the associated price drop. As the discounted units are not purchased by RSM “on-deal”, neither COGs nor expenses change. Therefore, the discounted units eat directly into RSM’s profit margin. It can be seen that, on an annual basis, selling 4% of all units at a discount would result in a total loss of $11.5 million in profit relative to selling the units at the current price, effectively reducing RSM’s profit margin from 2% to 0.3%. What strategy would you recommend for Reed? What are the keys-to-success? RSM’s goal of increasing total market share to 16% is a lofty one. It would require that sales increase $94 million in one year. Below are some strategies that RSM can and should employ in an effort to meet this goal....
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