Reed Supermarkets: A New Wave of Competitors Presented by: Prianka Jhingan Sandra Gaganiaras
Reed must eliminate dollar sales and enhance the customer experience to reinforce its position in the market. Estimated Total Sales Change % (2005-2010) Reed -0.05 Delfina -0.06 Galaxy (Supervalu) TopVal Other Supermarkets Whole Foods market -0.11 0.01 0.02 2.17 WalMart 0.25 Target 0.39 Costco 0.05 Sam's Club 0.03 Dollar General 0.32 Dollar Tree Family Dollar 1.38 0.23 Trader Joe's/Aldi 0.72 Experienced a growth in sales Influx of lower priced competitors has driven traffic away from Reed The recession has contributed to the increase in popularity of cherry picking deals Target market has been alienated due to dollar sales and the wrong audience has driven traffic into stores Reed lost customers because competitors are more inline with market trends and have increased perceived value 2
Increasing Reed s market share by 2% would mean increasing annual sales by $94.29MM, which is not feasible. Increase of $6.6 MM in Total Sales, resulting in 0.139% of market share gain 1 additional % point 1 additional % point 14% of the Columbus Market Share Increase of $47.15 MM in Total Sales Increase of $47.15 MM in Total Sales $660 MM in Total Sales (Target) (Target) This is not a realistic target because: Total sales are driven by the number of stores and estimated annual sales per store Sales will increase year to year by approximately 1% - 2% as they have in the past (across all markets) Predicted increase of $6.6MM per percentage point is 14 times that of the target increase 3
To maintain an ideal position in the market, Reed needs to increase its competiveness. High Consumer Involvement 1.22% 9.58% 14% The typical Reed shopper profile is on par with the demographic in Columbus: Somewhat older, more affluent, smaller household size, median income is 12% higher than the area household average. The Reed shopper doesn t mind paying a premium for quality products and services 1.62% 10.07% 6.39% 4.51% 10.23% Low Price Sensitivity 0.61% 0.79% High Price Sensitivity Low Consumer Involvement Reed Delfina Galaxy TopVal Whole Foods Walmart Costco Trader Joe Dollar General Family Dollar Reed satisfies and delights our customers by providing them with high quality products, and extraordinary customer service through education, retail innovation, inviting store environment and 4 meaningful value. Shopping at Reed is an experience that you cannot get elsewhere.
Reed competes by offering higher end products and superior customer service and as a result should attract a target audience that aligns with Reed s position. Competitors Offerings How Reed does it better Delfina Galaxy Super Value Whole Foods Supercenters Warehouse Clubs High end Large Stores with a balance of conventional and gourmet and organic items Above average service Bright, clean ambiance Advertise weekly price reductions on selected items Old, poorly located and only marginally profitable Chain considering selling some or all of its Columbus stores High-end Healthy, organic selection Convenient one-stop shopping for multiple needs and notable for prices below those of standard supermarkets Retail prices as much as 20% below Bulk packed, requiring storage or large families Exceptionally attentive customer service Newer, attractive stores Better locations More convenient locations Wider selection of products within categories No need for bulk in our market as the typical Reed shopper comes from a smaller household size Dollar Stores Limited Selection Stores Fill-in trip Very limited range of food items Low prices Smaller store formats Specialize in private labels Better quality products Greater selection In house baked goods and meat section Bigger stores, brand names 5
Increasing store traffic is a primary driver in increasing overall store sales. Number of Stores Remains constant for foreseeable future Total Sales Eliminate dollar sales Annual Sales per store Increase Key Customer Traffic and Transaction Amounts Enhance customer experience 6
Dollar sales increased the disconnect between the perception of quality and price, leading to customers choosing other retail outlets. What dollar sales hoped to achieve... What dollar sales actually achieved... Reinforce store loyalty among regular customers Discourage customers from transferring all or part of their business to competing stores Increase store traffic Attract dollar store customers into our stores Customers came only to buy dollar sale items, leading to an average ticket of only 40% of regular sales (Wrong consumer traffic) Confusion among target market who believed that Reed was an exclusive, high-end retailer Incurred losses of $390,000 weekly 7
Dollar sales are resulting in a weekly net loss of $390,000 and should be eliminated immediately. Normal Sale (per unit) Dollar Sale (per unit) Actual Weekly Dollar amounts Dollar Sales for 7 Months Sales $2.70 $2.09/unit $0.51MM $14.28MM COGS $2.09 $2.09 $0.71MM $19.6MM Gross Profit $0.61 -$0.59 -$0.2MM -$5.6MM Gross Margin 22.7% -39.3% -39.3% -39.3% Total Expenses $0.56 $0.56 $0.19MM $5.32MM Net Profit $0.05 -$1.15 -$0.39MM -$10.92MM Net Profit Margin 2.1% -76% -76% -76% Over the 28 weeks, Reed experienced a $10,920,000 loss from the Dollar Sales 8
Reed must implement a combination of strategies with the aim of enhancing the customer experience to realign with its position in the market. Promote customer loyalty program Revamp store layout and add extras through partnerships Enhance Customer Experience Offer broader selection of healthy, organic, and locally grown offerings Offer superior private label products 9
Reed should consider implementing a combination of strategies to increase competitiveness in the market and recapture lost sales/consumers. Value for Consumers How Reed Benefits From whom Reed would be stealing sales Build and implement an attractive customer loyalty program Earn points with every dollar spent to put towards groceries and other products Through partnerships with businesses in the area, they can also redeem them for other products, helping to cut spending in the recession Not offer deep discounts, but incentivize allowing Reed to align with its position as a high-end, high-value retailer More information about consumer buying habits can be revealed and can be used to personalize programs to individual consumers Delfina and Whole Foods Highlight more healthy, organic, and local options The trend is that consumers are becoming more health conscious and are looking for products that satisfy those needs Reed will be viewed as being more in tuned with trends in responding to consumers desires Whole Foods, Delfina, and Limited Selection, such as Trader Joes Upgrade and showcase the quality of Reed s private label products Customers will trust that the private label products are of the highest quality in the market and be inclined to choose these over other brand name or private label offerings available elsewhere Customers will become loyal to the private label and seek it out Higher margins with private label products Limited Selection, such as Trader Joes and Aldi Enhance overall customer experience with restructured store layout and unique complimentary products and services Services that facilitate the perceived ease and convenience of shopping Customers can do their groceries in addition to attending cooking classes, grabbing a coffee from Starbucks, and waiting for dinner to be prepared at our wood-burning pizza oven station Encourage customers into stores Creates buzz and increases traffic into stores Encourages high transaction amounts Creates a unique opportunity to offer a differential advantage from our competitors 10
A well designed Loyalty Program offers consumers value that can drive same store sales and encourage them to return to Reed Can be linked to apps on smart phones for ease of use or through email Track consumer buying habits to target specific customers with personalized offers highlighting high margin products (ex. Purchase specific product to receive 3x points) Consumers can redeem points for products/services consumers value, especially during the current economic downturn, through partnerships with other retailers, such as Starbucks and gas companies 11
Offer broader selection of private label and healthy, organic, locally grown offerings through partnerships with local farmers to be more on trend with consumers demands. Develop unique and superior products that offer better value to Reed s customers worth switching supermarkets for Can expand to develop tiers of private label products, offering customers more options (ex. Gourmet products, healthy options) Encourage the participation of local farmers in-store and on packaging 12
Enhance overall customer experience with restructured store layout and unique complimentary products and services. The layout of the store will solidify the concept that shopping at Reed is an experience that consumers want to be a part of and cannot experience elsewhere. 13
Appendix 1: Dollar Sales Methodology Normal Sale (per unit) Dollar Sale (per unit) Sales Unit price Discounted unit price COGS 77.3% of unit price Constant from normal sale Gross Profit Unit price COGS Discounted unit price COGS Gross Margin Given at 22.7% 1 (COGS/discounted price) Total Expenses Sales*20.6% Constant from normal sale Net Profit Gross profit expense Gross profit expense Net Profit Margin Given at 2.1% Net profit/discounted sale price Actual Weekly Dollar amounts 4% of weekly sales *28 Units sold*cogs (Sales/discounted price = units sold ) Dollar Sales for 7 Months *28 Sales COGS *28 1 (COGS/sales) *28 Gross profit net profit Discounted net profit*#units sold Same as dollar sale net profit margin *28 *28 *28 14
Appendix 2: Dollar Sales Calculations Normal Sale (per unit) Dollar Sale (per unit) Actual Weekly Dollar amounts Dollar Sales for 7 Months Sales $2.70 $1.50 4%*($660MM/52 weeks) $0.51*28 weeks COGS $2.70*77.3% $2.70*77.3% {4%*($660MM/52 weeks)/$1.50} *$2.09 $0.71*28 weeks Gross Profit $2.70 - $2.09 $1.50 - $2.09 $0.51MM - $0.71MM -$0.2MM*28 weeks Gross Margin 22.7% given 1 ($2.09/$1.50) 1 ($0.71MM/$0.51MM) -0.39% Total Expenses $2.70*20.6% $2.70*20.6% -$0.2MM (-$0.39MM) $0.19MM*28 weeks Net Profit $0.61 - $0.56 -$0.59 - $0.56 -$1.15/unit*0.34MM units -$0.39MM*28 weeks Net Profit Margin 2.1% given -$1.15/$1.50 -$0.39MM/$0.51MM *28 weeks 15