Superior Supermarkets (SS) must decide whether or not to pursue an everyday low pricing (ELP) strategy at its three Centralia MO locations. Strategic Issues & Marketing Mix
Pricing: Current prices are reflective of a high-end branding strategy. SS everyday (non-promotional) prices are approximately 10% higher than Harrison (Hr) and about 7 percent higher than Grand American (GA) and Missouri Mart (MM). Subsequently, higher prices have become a competitive concern due to their declining market share in Centralia. The negative growth rate, based on 1995 to 2002 figures from Figure 2, is -0.53%. Product line: SS are supermarket stores. The stores’ products may be divided into 5 categories: 1) grocery (including diary); 2) fresh meat/poultry/seafood; 3) produce; 4) seasonal and general merchandise; and 5) bakery and deli. Promotion: The 2002 advertising budget was 0.89% of sales revenue, or $127,500. Competitors spent an estimated 1.0% of their sales revenue. If ELP is adopted, SS would increase the advertising budget (discussed later). Location: SS’s three locations (North Fairview, West Main and South Prospect) provide a competitive advantage. As cited by the VP of Operations: “we offer greater convenience of shopping with our three stores and that is worth something (implying higher prices)”. Further evidence is indicated in Exhibit 6 customer survey ranking “most convenient”: SS -35%, MM -25%, Hr -21%, and GA -18%. Goals & Objectives
Increase market share in Centralia.
Maintain contribution margin while offering an expanded selection of loss leaders. 3.
Understand customer needs to improve consumer image of and experience with SS. 4.
Develop an advertising campaign commensurate to objectives 1-3. Concerns & Constraints
Concern1: SS relatively higher prices and the growing price consciousness among Centralia shoppers. 2)
Concern2: Loss in market share in Centralia “since store sales were below budgeted levels in the 1’st quarter of 2003”. 3)
Constraint1: Geographic distribution –best performing store, South Prospect, is 2 blocks away from a competitor. The other 2 stores have competition either across the street or within the same shopping centre. 4)
Constraint2: Implementing ELP strategy while maintaining current contribution margin.
History: SS is a division of Hall Consolidated (HC), a privately held wholesale and retail food distributor. HC distributed food and related products to some 150 company-owned supermarket units operating under three supermarket chain names through 12 wholesale distribution centers. These distribution centers also supplied about 1,100 independent grocery stores in the US. HC sales in 2002 were $2.3 billion. Products: Products fall into 5 categories and have sales(%) and profit margin(%), respectively: 1) Grocery (including diary) -50%, 30%;
2) Fresh meat/poultry/seafood -20%, 18%;
3) Produce -18%, 30%;
4) Seasonal and general merchandise -7%, 33%; and
5) Bakery and deli -5%, 50%.
Size: SS stores capture 23% of Centralia’s supermarket market share. Only MM, with 27%, had more market share.
Strategic organization: Maintain high-end brand as indicated by their slogan “Superior Supermarkets = Superior Value”.
Managerial organization: James Ellis –Sr. VP of HC + President of SS; Randall Johnson –District 3 Manager of SS (Centralia); Controller (unnamed).
Strengths: Strong financial backing from HC, gross profit margins of 28.8% exceed industry average of 26.4%, 12 distribution channels/network from HC distribution centers, open management communication. Weaknesses: Store physical size relative to competitors (implied); store layout (indicated by Exhibit 6); inadequate review process –measured quarterly as opposed to monthly. Market Characteristics
Demand: Relatively elastic, with multiple opportunities for competitors to ‘steal’ market share. Exhibit 5 shows how $100 is spent in...
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