Reed Supermarkets

Background and Situational Analysis

Reed Supermarkets was founded in 1939 by William H. Reed. It started as a small and lowend retailer but now Reed has grown to be considered high-end in the supermarket business. It
now has 192 retail stores, two regional distribution centers and 21,000 employees in five states in
the Midwestern United States. In addition to a full assortment of standard groceries, a typical
Reeds featured a selection of mostly fresh seafood, including live lobsters and crabs. Reed
imported packaged goods ranging from 27 kinds of mustard to three different brands of snails;
and an array of 20 different prepared entrees available for takeaway. The chain was well-known
for the quality of its produce and its emphasis on organic produce. Reed also differentiated itself
by offering attractive stores, long hours, elegant (and often creative) serving-case displays, and
exceptionally attentive customer service. Competition is present in the Columbus market with
Reeds market share distributed on multiple levels and the fight for market share among grocery
retailers in Columbus is intense. Reeds management was smart and did the right thing by going
out and doing a sufficient amount of market research regarding the recent trends in the
supermarket business. Since sales were declining and there was increasing competition in the
Columbus area, Reed needed to find out how and why they were losing customers. The most
important research that they did in my opinion was the analysis on their customers survey, survey
on people who do not shop at Reed, comparison of prices with other supermarkets and the
estimation of operating costs for their main competitors.
Strategic Options

There are four main strategic options that Reed could do to bring back the customers and
increase market share.

Do nothing. Reed is actually not performing terribly. The estimated total sales change
from 2005 to 2010 is only -0.05% compared to its main competitor Delfina -0.06%
(Exhibit 1). Also, the company is still producing positive profit. The decrease on sales
was mainly caused by the economic downturn; some consumers were looking and going
for better pricing options. Once economy is recovered, the customers will go back to
quality products because Columbuss household income is above the average. Therefore,
Reed should be patient and just maintain what they have been doing.

Open more stores. This is important for Reed to capture more customers, especially
those who live far from the supermarkets, to increase sales as well as market share.
Customers mostly go to stores where are only 1 to 3 miles away from their house for
grocery (page 4). Thus, Reed should open more store if they can afford.

Lower the prices. Reed has lost customers because there have been more and more
dollar stores enter the market. Those dollar stores attract consumers by offering really
low prices. If Reed can afford to lower its prices there would be a good chance to bring
back its old customers and also new customers.

Improve Marketing; keep the current model and make some changes. Sales can increase
without lowering the prices and opening more stores if marketing is well done and
implemented correctly.

Recommendation
In my opinion, Reed should invest more in its marketing to gain the 2%. Looking at 2010
sales data, if every other company had flat sales in 2011, Reed would need an extra 93 million in
sales, or an increase of 14%. That is a huge gap to fill when there are no new stores being
opened. Reed needs to stick with their current model and continue to add premium private
labels, create loyalty programs, expand current customer base, and shut down the dollar
campaign to compete with stores like Trader Joes and Whole Foods.
Introduce new private labels: Reed should introduce more private label products as an
alternative to conventional name brands. Private label products currently account for 17% of
sales and are on the rise. By selling a higher proportion of these products, Reed will reap the
benefits of a selling relatively higher margin products and as these products have been able to
successfully shed any low-quality stigma, Reed will be able to maintain its reputation as a toptier supermarket. In addition, offering a higher proportion of these lower priced items will help to
relieve some of the Reed customers angst concerning Reeds pricing. By offering a more diverse
array of products, Reed will be able to take advantage of the recent trend of fill-in shopping.
Shoppers are making more trips to the grocery store for less items rather than make few large
all-in-one stops. Conveniently having all potential products available will allow Reed to cater
to this trend. The expansion of these products should also coincide with the expansion of Reeds
health food aisle/department. As American consumers are becoming more health-conscious,
stores like Whole Foods are gaining market share. Having a higher proportion of healthy and
organic labels should help to retain Reeds customer base.

Expanding current customer base: Reeds current customer base consists of older, more
affluent people. On average, the Reed shopper has an annual household income that is 12% than
the average Columbus resident. However the average Reed customer spends less per grocery
transaction than the average US shopper. If the average person in the US spends $5,200 per year
on groceries and makes, on average, 2.1 trips per week to the grocery store, then the average
transaction amount in the US is $47.62 per trip, which is far more than the average Reed
transaction amount of $31.58. Narrowing this discrepancy would have a significant contribution
towards obtaining a 16% market share. To put this into perspective, if transaction amount were to
increase just 14.3% to $36.09 per trip (still well under the national average), this would result in
total sales increase of $94 million, which would bring Reed to their goal of obtaining 16%
market share.
Loyalty programes: Reed can keep their current customer base and grab new customers by
adding coupons and loyalty programes. The loyalty program would include signing up for a card
and either getting discounts on items at checkout; or building up points with every purchase and
getting cash back. If they can make small changes like this while adding to their premium private
labels they can take share away from other stores that are based on private labels and position
themselves for growth.
Shut down dollar campaign: Reed should stay away from low price models because it will
ruin their image and it will not differentiate them as a company. Currently they are not fighting
against these low end stores for market share and this is proven in that 10% of the current stores
that were opened in the last 5 years have been low price value stores and rather than take away
sales from Reeds, who only lost .05, they took it away from Galaxy, the largest value store who
lost 11% and one store.