Reed Supermarkets needs a growth plan to increase its market share from 14% to 16% in 2011. The plan recommends stopping dollar special promotions, increasing the sales target to $775 million, focusing on the current affluent customer segment and increasing their wallet share, maintaining the brand positioning, improving the product mix with more private labels and bundled products, and increasing the customer base by targeting Galaxy store customers. Justifications are provided for the recommendations based on an analysis of the competitive industry and Reed's positioning regarding price, quality, customer experience, and product differentiation.

1. Reed Supermarkets
Growth Action Plan
Prepared By: Vishal
This document explores the Industry of
Supermarkets, Industry players and Competition and
outlines the Growth Action Plan for 2011 to be driven
by Meredith Collins, VP of Marketing, Reed.

2. Reed Supermarkets Growth Action Plan 2011
2011 Action Plan for Reed’s Growth
Background: Meredith Collins, VP of Marketing, Reed, needs a plan for 2011 to execute to
grow its current market share from 14% to 16%. Margins for error are negligible as
competition has intensified in every segment and current economic conditions aren’t looking
good.
Recommendations for Growth:
Stop the dollar special for each week: 1st step is to stop the dollar special promotion
immediately. This is not consistent with the brand equity and positioning built over the years.
It’s resulting in net operating loss of 76% on each discounted item and overall decreased the
net operating profit for 2010 to 0.4% only (details in justification). Moreover, this promotional
activity is polluting the message for regular consumers, considering that some of the dollar
stores are located nearby.
Increase Sales Target: To increase the current market share to 16%, sales target is set to
775Mn for 2011. It’s an increase of 95Mn. from 2010, on the assumption that total market
size (4.74Bn) remains same.
Focus and Maintain current Target Segment and Increase the Wallet Share: Continue
focusing on the current target segment of affluent and older customers with smaller
household size. Their wallet share is 8.93% only as compared to average supermarket
customer’s wallet share of 10.0% (details in justification). Wallet share of Reed customers
will be increased by at least 1% which will result in additional revenue of 79Mn/year.
Maintain current Brand Positioning: Maintain current brand positioning by serving to high
end of customers with good and specialised quality of products (like sea food and organic).
Continue leveraging on better customer experience by providing attentive staff, shorter
check out times, and opening stores for long hours, with clean and better lit lay outs. This will
enable Reed to defend the competition from Delfina, Whole Foods Market and Galaxy and
Top Val.
Improve Product Mix: Improve the product mix by introducing more private labels. Increase
the private labels to 25% of total products on offer while maintaining the same Gross Margin
and SG&A. Offer 2 types of product in each category, one with different brands (total 75% of
that category) as a premium product and second with private label with lower prices as
compared to branded ones. This increase in private labels will send a signal to stores like
Aldi to not to enter their territory of high end market with private labels.
Roll out the bundled products containing food and beverages. Increase the organic and
prepared food (high margin) in a product category where feasible and continue the organic
pets food for its customer (comprises 20% of existing customer).
Increase Customer Base: Reed will grab at least 1% of market share of Galaxy stores
resulting in additional sales of $47.15Mn (details in justification).
Price: There will be no change in pricing policy for all the products (dollar sp. is scrapped).
Promotion: Leverage the integrated marketing channel of online, print and ad to promote
new addition of more private labels, organic food and prepared food. Promote the message
1 Prepared for Meredith Collins, VP Marketing , By Vishal

3. Reed Supermarkets Growth Action Plan 2011
that healthy food adds to betters quality of life and for this no compromises should be made
esp. in later part of the life (for older affluent population). This will help in tackling the
perception of consumers that prices are high. Promote the excellence in customer service,
clean stores and convenient locations. These promotions will drive the increase in customer
loyalty, awareness, choice and will increase the trips to store.
Maintain Current Locations As far as distribution is concerned don’t add new stores or
acquire any new store this year. Lot of dollar stores have come up at convenient locations to
consumers but it has made only a marginal impact (increase of 0.05%) on their habit of
regularly shopping at supermarkets, so don’t react to it. Additionally there are no plans for
any capital expenditure for next 2 years as market conditions are quite tough.
Why These Recommendations
To understand how these recommendations were made, let’s first explore the current
Industry situation, followed by Industry player and competition analysis and finally the
justification of why these recommendations are made for Meredith Collins.
Porters - Industry Analysis
Entry Barriers - Matured industry with significant capital investment is required to establish
High to Moderate a retail store chain with minimal returns and negligible room for error
Bigger suppliers like Nestle, Pepsi Co, had large number of products and
Bargaining Power varieties which required lot of shelf space and quick sales turn over. They
of Suppliers - had a moderate bargaining power as they needed these stores to reach to
Moderate to low customer. Smaller niche suppliers had minimal power and hence less
bargaining power.
Bargaining power of buyers increased by the fact that there are numerous
Bargaining Power
chains and niche stores competing for the wallet share of the customer.
of Buyers - High
Customers have more choices and hence giving them high power.
As bigger players like Walmart & Costco, Discount stores, Limited
Threat of selection stores enter; more substitutes are available for consumers on
Substitutes - High the lower and middle end of the market. Since switching costs are none or
minimal hence high threat of substitutes.
Industry Comp. – Competition is intense in all the segments of the industry with minimal
High returns
Industry Players & Competition
Players in this industry make money by applying high volume and low margin strategy. The
onus here is to leverage the economies of scale driven by operational efficiency to reduce
the cost. They buy large number of products across various categories in bulk from different
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4. Reed Supermarkets Growth Action Plan 2011
suppliers and sell them at lower prices as compared to a smaller store which have limited
shell space, product range and category. Net Operating Margins are quite thin, 1.5% - 2.5%,
room for error or slag is nearly negligible in operations. There are 5 types of player in the
industry competing in 3 segments, from high end to low end of market. They are
differentiating with each other on the following parameters:
Pricing as a strategy (shown below in perceptual map) is used by retailers to differentiate.
Some are positioning their price low (Dollar stores) and some at premium like Reed, some
use discounted pricing or everyday low prices (TopVal).
Product specialisation and variety is another way of differentiation being employed. Some
retailers are offering specialised products, like Reed specialises in organic and fresh sea
foods and some differentiate on packaging. Some retailers are selling various products in a
category by different manufactures and some retailers like Aldi sell only 1 product
exclusively (private label) in a category.
Quality is another way of differentiating the product, higher the quality, higher the price.
Reed and Whole Foods are leading the pack when it comes to quality.
Customer Experience driven by customer service and presentation plays a bigger role in
attracting customers. For customer service, stores like Reed open for long hours, have more
staff on check outs to reduce the servicing time, have runners for shuttling the baggage.
Some stores (like Dollar stores) have less/minimal staff (reduced cost) for help and check
out. For presentation stores are leveraging cleanliness, bright and better lighting (Aldi, Reed)
and a better layout
of shelves and 10 Perceptual Map
Whole Foods Reed
Quality Index (Higher Index is better)
stores. 9
Market
8 Wal
Delfina Mart Trader
Distribution is a 7 Costco Joe/Aldi
another lever being Galaxy 6
5 Family
employed, players Dollar
TopVal
4 Dollar
are using strategic General
location of stores, 3
2
some stores like
High 1 Medium Low
Reed are located 2-
0
3 miles from home 0 2 4 6 8 10
and some are Price Index (Higher Index Means Low Price)
further 5-10 miles Reed Delfina Galaxy
TopVal Whole Foods Market WalMart
away like Wal-Mart. Costco Dollar General Family Dollar
Size of stores also Trader Joe/Aldi
Size of Bubble Represents Market Size
plays a bigger role
in this, as bigger stores leverage more shelf space, hence more products, more variety and
quantity; some have limited space hence less products & variety for distribution. Retailers
like Reed are using integrated marketing and numerous channels like, print, online,
broadcast and some use 1 or 2 channels.
In terms of market positioning perceptual map of price vs quality (shown above) clearly lays
out the market position of Reed in comparison to other industry players.
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5. Reed Supermarkets Growth Action Plan 2011
Justification for Recommendations
Focus on current Customer Segment and Increase Wallet Share: Reed’s current
customer segment is composed of affluent and older customers with, smaller household
size. Their annual income is 12% higher ($58,200) then state’s median household income of
$52,000. On Average Annual spend by customers in US is $5,200. Hence on average wallet
share of Reed’s customer is 8.93% (refer Appendix) as compared to 10% wallet share of an
average customer. Additionally, on average customer in US spends $47.62/trip to a
supermarket and currently Reeds Average Sales Value is $31.42/transaction. This must be
leveraged to increase the average sales value and wallet share. Having said that, it seems
that current downturn has impacted the spending habits of Reeds customer segment.
Competition and Brand Positioning: Reeds main competitor is Delfina, Whole Foods
Market, Galaxy and TopVal. These players together comprise 45.10% of total market and
Reed is leading overall. Since they are in same segment of market (except Top Val), its vital
Reed maintain its current brand equity and position (defending the territory) which has been
built over the years. Whole Foods which is competing with Reed on same positioning in
same segment, but it has only 3 stores and has 1.2 % of market share. Reed need not worry
about them at this stage. As far as threat from Galaxy (supervalu) is concerned, they don’t
have good locations and only some stores are marginally profitable. They are in trouble and
it’s a matter of time when they are up for sale. Reed doesn’t need to react to them, in fact
there is a potential for Reed to get some customers from Galaxy.
On competition from TopVal it is positioned as low price player in the middle market
segment. It’s very aggressive and is reacting hard to maintain its presence in competition
with Walmart & Costco, this is not sustainable, and therefore there is no need to react to
their everyday low pricing discount roll out. To further defend against competitors, continue
leveraging on better customer experience by providing attentive staff, shorter check out
times, and opening stores for long hours with clean and better lit layouts.
It’s neither attractive and nor possible for Reed to move to middle end of market (in middle of
perceptual map) where bigger players like Costco and Walmart hold the place with total
share of 13.46%. Any signalling (using Game Theory)/movement in that segment can drive
the price wars leading to a disaster for Reed as they have bigger pockets and global
capacity to sustain the price war.
On the lower end (extreme right on perceptual map) of market it’s evident from perceptual
Map that dollar stores doesn’t impose any serious threat as they have combined market
share of 1.2% and can reach up to maximum of 3%. They have a different customer
segment and market positioning. Similarly Aldi/Trader Joe has 1.62% of market share today
and can reach up to maximum of 5%. Store like Aldi rely heavily on lean operating model
and efficiency. It leverages private labels (95%) and limited products (14,000 only) compared
to 50,000 in a supermarket) by Reed. Aldi targets niche customers with low and medium end
of price market. In short term it doesn’t pose any threat to Reed, in longer term they can
pose some threat as they have the expertise to compete and can grow aggressively by
introducing private labels for high end of market.
Improve Product Mix: Currently 17% of sale is attributed by private labels in food and
beverage and has grown since 2005. Private labels aren’t perceived a low quality product
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6. Reed Supermarkets Growth Action Plan 2011
anymore because of aggressive campaigning over the years in industry. These are being
used successfully at lower and middle end of price market by Aldi/Joe Traders. It will be
wise for Reed to increase its product mix by increasing their intake of private labels in high
end of products (high price and quality). This will add more choice for consumers along with
branded ones. Negotiate with the bigger suppliers and tell them that they need to
increase/add private label offerings as consumer doesn’t perceive them low value anymore.
If they don’t come to the party then look for new suppliers in private label category.
Bundling of food and beverages must be done as they complement each other and goes
well with target customer base. This will help in driving the sales and margin. Organic and
prepared food is high margin as a product category and goes well with the health conscious
and affluent people (less time for cooking). So these products need more attractive shelf
space and intake by Reed and it will help in driving the increase wallet share. Organic pet
food is a good way of retaining (loyalty) affluent segment and increasing the trips to store as
they take their pets when they go out for shopping.
Increase Customer Base: Reed need to target to grab at least 1% of market share
($47.15MN) of Galaxy. These stores are poorly located & are in trouble as they can’t sustain
these promotions. Addition of more private labels, more prepared food, good customer
service & convenient locations will help in driving the customers to Reed.
Scrap Dollar Special Promotions: Since June 2010, 250 items have been offered on a
dollar special on weekly basis where prices have been reduced by 44% (refer Appendix).
This sale constitutes 4% (12.69 Mn.) of total sales in a week, which is 0.51 Mn/week of
sales. This has increased the traffic in some stores by 3% but each sale is registering a net
operating loss of 76% on these discounted items and decreasing the overall net profit of
Reed for 2010 to 0.4% only (refer Appendix). This is not sustainable from economic point of
view, if this is run for 12 months Reed will make a loss. Secondly from brand equity point of
view it is destroying the equity built over the years. It is sending mixed signals to target
customer segment as dollar stores are nearby. The 3% increase in traffic at some stores is
driven by bargain hunters, which is opposite to Reeds Positioning.
Price: There is no need for change in pricing policy for all products as COGS and Expenses
are built in using economies of scale. It’s already a very low margin business (NPM of 1.5%
to 2.5%); further reduction of price (only and having same GM and S&A) will impact the
economic model and the bottom line of Reed. This is also evident from the Dollar Special
Promotions.
Recommendations on Distribution & Promotion don’t need further explanation as they are
justified while making the recommendation.
Conclusion: These points above provide the justification for recommendations. Reed must
stay the course on what it has done successfully over the years. This current cycle of
downturn and increasing competition must be used to focus on target segment & defend the
territory and grow on what Reed does well. Reaction like weekly Dollar Special without a
thorough analysis and plan can be detrimental to business. Soon there will be more
opportunities as some players will burn themselves by employing unsustainable practices.
So Reed must stay the course with sharp focus.
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7. Reed Supermarkets Growth Action Plan 2011
Appendix
Wallet Share of Reed and Average US Customer
Income in $USD %
Median income of Customers 52,000
Annual Income of Reeds Customer (% Higher than median) 58,240 12.0%
Annual Spend By Each Customer in US 5,200
Wallet Share of Reed Customer 8.93%
Wallet Share of Avg Customer 10.0%
 On average each customer make 2.1 trips/week to a supermarket
 Annual spend by each customer is $5,2000
 Therefore each customer spends $47.62 on each trip. [47.62 = 5,200/(2.1*52)]
 Reeds Average Sales Value is $31.42/transaction.
 Other supermarket Average Sales Value is $27.7/transaction (12%lower)
Sales & Market Share of Industry Player
Estimated Estimated 2010 Estimated Estimated
Annual Total Sales Columbus Columbus
Sales Per (millions) Market Market Share
Store Share 2005 2010
(millions)(a)
Reed 26.4 660 15.3% 14.00%
Delfina 25.1 451.8 10.7% 9.58%
Galaxy (Supervalu) 22.6 474.6 11.8% 10.07%
TopVal 20.1 482.4 10.5% 10.23%
Other Supermarkets 24.5 784 17.0% 16.63%
Whole Foods
19.1 57.3 0.4% 1.22%
market
WalMart 42.5 212.5 3.8% 4.51%
Target 30.2 120.8 1.9% 2.56%
Costco 100.4 301.2 6.3% 6.39%
Sam's Club 66.1 132.2 2.8% 2.80%
Dollar General 1.6 28.8 0.5% 0.61%
Dollar Tree 1.9 19 0.2% 0.40%
Family Dollar 1.7 37.4 0.7% 0.79%
Trader Joe's/Aldi 25.5 76.5 1.0% 1.62%
Other (drugs,
- 876 17.2% 18.58%
convenience, etc.)
Total 408 4714.5 100% 100%
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8. Reed Supermarkets Growth Action Plan 2011
Impact of Dollar Special on Reed’s Net Operating Profit
 Dollar special sales are 4% of total weekly sales.
 COGS for Dollar Special Sales is same as Normal sales as price was reduced from $2.7
to $1.5
 Dollar Special ran for 7 months (28 weeks) starting in June 2010
Weekly 4%
Normal
Dollar Special Dollar Sales Dollar Sales in USD Million
Price Sale
Sale in USD in USD for 7 Months (28 weeks)
in USD
Millions
Sales 2.7 1.5 0.51 14.28
COGS 2.09 2.09 0.7 19.9
Gross
0.61 -0.59 -0.20 -5.62
Profit
Gross
22.7% -39.3% -39.3% -39.3%
Margin
Total
0.56 0.56 0.19 5.33
Expenses
Net Profit 0.05 -1.15 -0.39 -10.95
Net Profit
2.1% -76.7% -76.7% -76.7%
Margin
Total loss 10.95
Impact of 7 months of Dollar Sale on overall Bottom Line
Dollar Special
Normal Sales in in Combined Sales (Dollar
Sales in $USD
$USD Million & Normal)
Million
Total Sales 14.28 645.72 660
Gross Margin -5.61 146.58 140.96
Expenses 5.33 133.02 138.34
Net Operating
-10.95 13.56 2.6
Profit
NPM -76.7% 2.1% 0.4%
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9. Reed Supermarkets Growth Action Plan 2011
Mind Map
Glossary
 Mn - Millions
 Bn - Billions
 GM - Gross Margin
 NPM - Net Profit Margin
8 Prepared for Meredith Collins, VP Marketing , By Vishal