The Basic Strategy Followed by Reed - Case Study Example

?SWOT analysis for Reed Strengths Reed is well-known for the quality of products offered by it and has maintained the quality standard since its inception in the year 1939 without defaulting. The company emphasizes on offering organic produce and customers are also therefore willing to pay a premium price for such goods. This makes the average sale value for each transaction higher than that of the national average of the supermarkets by 18 percent. Reed is a significant participant in the intense fight for market share among the different grocery stores in Columbus. The competition is boosted by presence of outlets of major three supermarket chains accompanied with some smaller local chains and independents as well. The company mainly targets the wealthy and high income customers that have an average income that is at least 12 percent higher than the rest of the population and currently Reed owns 14 percent of the market share. Reed Supermarkets has a reputation of around 80 years for its service as a supermarket chain. Reed is now known nationwide and is serving a huge population. This creates a competitive advantage for the company and places them at an upper position relative to its competitors. The layout of the stores of Reed Supermarkets is attractively planned. Attractive stores and good service allowed Reed to differentiate itself from other competitors in the industry. Among the factors the most distinguishing are long store hours and short time for checkout, adequate number of staff, elegant and creative serving-case displays, extensive customer service and runners carrying bags of the customers to their cars. Customers are not required to provide tips to the staff while leaving. The places in which the stores are located show high population growth and even in many of these places, the growth rate of population is above the average rate of growth in the rest of the country. This shows that there is high prospect for the company to increase store traffic. The store visibility is also enhanced since large number of customer would visit the store and they would act as word of mouth promoter. Weaknesses Reed offers high quality products to its customers, but, according to the perception of a considerably large segment of the target customer, prices charged by Reeds is high. Therefore only a selected slice of the market can buy products from its stores. There is no harmony among the management of the company about the appropriate strategy that must be implemented for increasing market share. Contradiction exists among managers about discounts, high-margin items, introduction of low price specials and double couponing. On this issue, they have not been able to choose the most apt solution from the different opinions provided by each of them. The company has drawn a line on its capital expenditure for at least the coming two years starting from 2011. Such freezing on capital expenditure would affect the operations and growth path of the company. In order to meet higher revenue objectives more stores have to be opened. However, stringent capital expenditure policy might hamper such ambitions and impair the growth of the business. Opportunities Political/Legal The supermarket industry in the USA faces the support of strong lobbying form farm groups, transporters, and food processors. This facilitates the supermarket by removing barriers to trade, maintaining symmetry in information sharing across the market and allowing smooth expansion. Economic The economy of the USA has the GDP of 15.94 trillion (according to 2012 estimate). It is a developed country and therefore has the ready ground for development of flourishing supermarkets. Columbus, being situated in the largest state in the United States of America therefore offers a good opportunity for growth to Reed. The average citizen in the state has a high purchasing power. Socio-cultural There is an increasing trend among the American consumers that they are gradually becoming more health conscious besides being price sensitive. The emerging trend shows that the products, such as organic food items and other high quality products find good market among these consumers. The Reed Supermarkets offers high quality products and the emphasis it put on organic produce. Technological Highly advanced R&D department of the company shows that the company is innovative. Reed is a leading brand in the United States and hence enjoys the advantage of operating in an economically advanced and health conscious marketplace. Therefore the company has the opportunity to introduce technologically advanced products to this market and grab higher share of the market. Environmental The business environment of Ohio is set mature and supermarket tradition exists in the state since the beginning of the 1900s. The stores of the company are user friendly and are designed in such a way that they attract large number of customers. Threats Political/Legal The federal government has reduced public spending which might affect the purchasing power of the population, especially the beneficiaries. This would reduce sales for the large supermarket chains. If the corporate tax rate is increased the company would be negatively affected. It would hamper the profitability of the company. Economic The financial downturn in the United States has clipped the prospects of rapid expansion for such supermarket enterprises. Sales are being affected since Reed’s products are evaluated as high priced and it faces a challenge in this economic environment to increase its profit. The company is not facing very flexible financial policy and there is tightening of capital expenditure policy. Following its growth plan of increasing its market share from 14 percent to 16 percent has become a difficult path to traverse. Socio-cultural The average customer has become price conscious and too significant difference in price from the other stores and the Reed would discourage them from shopping from Reed. Although shoppers are attracted to good quality products, they would be more rational and buy from the other retailers if similar quality products are offered to them. Technological Advancement in technology has improved communication and also greater amount of research in this field has made these technological tools cheap for use by many manufacturers. Producers other than Reed are open to using these technologies and they are therefore well placed to compete with brands like Reed or Walmart. This creates the threat of new entry for the existing companies. Environmental The supermarkets stores are generally located in the city area and the goods sold in these stores are transported to these locations from faraway places in large cargo vans. This causes environmental pollution. The supermarket is a bulk purchaser and there are no other big buyer left in the market. Hence the agricultural farmers are often forced to accept low price for the raw materials and it ruins the economic life of the countryside. Therefore there is a rising consensus against the ethical practices of the supermarkets. Others Reed Supermarkets would face strong price competition since other competitors are quite actively promoting their low price products in the market of Columbus. Greatest Threat All these threats are serious and deserve serious consideration, but the biggest and most immediate threat for the company is the economic position in which the supermarket is stranded. The market share for the supermarket has remained stationary at 14 percent since 2009. This market share, although stable, is not satisfactory since the company’s Vice president, Meredith Collins, has not seen any positive scope for satisfactory expansion. On the contrary, she has pointed out to the CEO that the market share has reduced over the span of last five years; five years ago Reed used to hold 15 percent share of the market. The CEO has set the goal of increasing the market share by 2 percent, which as described by Collins, is hard to realize. Increasing the number of stores in the country would act as a possible solution since this would directly increase the sales by catering to higher number of customers. But freezing of the capital expenditure policy has ruled out this option. On the other hand the prices of products are high, due to which they are not consumed by customers lying out of the niche high income target group. Dollar Specials Many consumers perceive Reed’s prices are high. Price sensitive buyers are therefore repelled away from the stores. Since there is common notion about high price of the products offered by Reed, the managers have taken initiatives to eliminate this high price image. Reed had launched a new campaign named ‘dollar special’ in 2010 with the aim of removing the high price tag from its products. Under this campaign, every week almost 250 products used to be offered at unbelievably high discounts. These objects flaunted attention getting signs of discount and the campaign had become the prime focus of the company’s advertising over the print and online media as well as broadcasting. However, it brought a new problem; customers bought those items that were offered on discounts and the other items did not see much sales increase. Strategy to be adapted However, the discussion shows that although the program had its own cons, the dollar special program must be continued since after the prolonged period of time devoted to this strategy, it is time that the high price image would be removed from the company’s name. Besides, given the slow rate of financial recovery in the US, keeping low price is crucial for maintaining the market share and remaining competitive. Strategic Options The basic strategy followed by Reed is that they emphasize on the product quality and organic products and maintain high quality in their services and make strong marketing for their products. The stores of the Reed Supermarkets have been strategically positioned across the Midwestern United States. The company differentiates all of its stores by getting them designed in a unique way. However, the other strategy options open to the company are reinforcing brand image and emphasizing on the convenience of shopping. Strong marketing helps to improve brand image, but promotions have to be made in more convincing manner to increase the level of customers’ perceived value for the products. Advertising strategies should aim at changing customers’ perceptions and not only attract them by offering high discounts. Market segmentation would help the company to offer their products to multiple market segments (both value oriented customers and price sensitive customers) at differentiated price. This can be done by offering private label merchandise; however, quality standards must be kept unchanged. Read More