Reed Supermarkets Cast Study
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Executive Summary: We recommend that management of Reed Supermarkets (RSM) unify behind a strategy that targets quality conscious/higher income customers in order to grow market share. By focusing on the higher margin products and services,  implementing a loyalty program, expanding their private label brand, and further enhancing the customer experience, RSM will position itself as a market leader. Analysis: Company: Over the past 20 years, RSM has been able to transform its image from a lower-end retailer to a high-end supermarket chain by adding a variety of specialty services. The combination of their wide range of services and selection with their exceptional customer service established RSM as the premiere destination for the best supermarket shopping experience. However, their attempt to attract their previous price conscious customer base resulted in a lack of market focus and brand erosion. In addition, the recent economic downtown caused potential customers to perceive RSM’s prices as too high and to shop at other lower priced retailers, preventing RSM from attracting new customers and ultimately growing market share in Columbus.Competition: RSM faced extreme competition from both ends of the price spectrum, from dollar stores to premium supermarkets.  While RSM’s marketing team had been promoting “dollar specials” to combat dollar stores, these dollar stores were not the serious threat. Between, 2005-2010, 12 new dollar stores were added to Columbus, but total dollar store sales only increased by 1.93%, an average of 0.16% per new store[1]. While it may seem that RSM was losing traffic to the dollar stores, their impact has been minimal to RSM as they were likely going to lose these price sensitive customers. In fact, RSM’s main competitors are the other high-end supermarket chains (Delfina and Whole Foods), yet these competitors do not offer the array of services and superior customer experience that RSM is known for.  Customer: The Great Recession of 2008 split the consumer population of Columbus into two different types of customers: lower-income (price-elastic) customers and higher-income (price-inelastic) customers. Reeling from the impacts of the recession, coupled with the above national average family size[2] in Columbus, consumers, particularly families, were still frequenting low cost and bulk warehouse clubs. Since RSM had always catered to their higher clientele (older, affluent, smaller households), they were slightly less affected by the recession, maintaining a stable market share of 14% over the past 2 years[3]. These customers remained loyal to RSM due to the versatility of  services and superior quality.
Strategy: Segmentation: Our recommendation is to segment the market between the quality conscious (Foodies) and the price sensitive (Families) (see Table 1). The juxtaposition between the results shared in Exhibit 3 regarding happiness with quality and unhappiness with price supports our segmentation.  These are appropriate segments to identify because both Foodies and Families are large enough segments to matter, identifiable, accessible via different marketing strategies, and exhibit shared predictable behaviors. Lastly when looking at the competitors, they are focused on either cheap deals, the dollar stores and Walmart, or quality products, Delfina and Whole Foods. Based on Reed’s current position, it’s competitor’s positions, and consumers’ desires, we suggest segmentation to be  based on quality and price. A vulnerability to our market segmentation is that it assumes a mutual exclusivity between foodies and families when in reality the market may be more dynamic in nature.Table 1 Customer Segments:Quality conscious (Foodies)Price sensitive (Family)Potential Market Size160,000 (8% of population)820,000 (41% of population)Annual Margin / household$496.80$96.00Advertising Cost / household$95.00$55.00Acquisition Cost / household$110.00$25.00Retention Rate72%38%CLV per household$1,325.00$41.13Total Potential Revenue$212,000,000$33,726,600Targeting: RSM should target the quality conscious segment (Foodies) over the price conscious segment (Families). This segment aligns well with RSM’s internal corporate view; CEO Jack Morrissey states that Columbus’ most prosperous customers are the demographic to focus on in the drive to increase market share. With a higher return rate (72% vs. 38%) and margin per purchase, the Foodie segment provides a higher customer lifetime value ($1,325 per household) vs. the Family segment.  RSM is already well positioned to compete for Foodies and by offering quality conscious consumers the products they want at the competitive prices,  RSM can edge out competitors like Delfina and Whole Foods. For the unknown 51% of the Columbus population, we can assume they are either extreme brand loyalists to competitors or are consumers that lie between the Foodies and Families segments. These individuals will be indirectly targeted due to RSM’s overall positioning of great quality at competitive prices.