The retail industry of US is the particular sector of the economy which is highly competitive and growing in terms of rivalry between different firms. Food retail industry of US comprises of both individuals stores and retail chains which engage in selling of branded and unbranded food products to consumers. The importance of adopting correct marketing strategy in the retail industry is high since the food retail is the second largest industry in United States accounting for almost twelve percent of employment in the country. To cumulative size of the food retail market is estimated to be almost 1.2 trillion dollars for which individual retail stores and retail chains target different segments and niches of consumers. There are innumerable strategic options for adopting marketing strategy for an organization.
Reed's Supermarket is among prominent food retail chains of USA with a strong presence in Columbus region of Ohio. The retail chain commands around seventeen percent of market share in the Columbus region. Columbus is the largest city and the state capital of the US state of Ohio. It is considered among the most important region for Reed Supermarkets with respect to the size of the market and having the greatest impact on revenue growth of the business. There is growing competition in the retail industry of this city with the emergence of newer pattern of stores, recessionary cycle of the economy and decreasing differentiation between stores.
The problem faced by Reed supermarket in the case is that the organization is faced with heightened competition in food retail sector and losing market share. Competition is offering significant discount to consumers while the target market is becoming price conscious due to recessionary cycle of the economy. Reed Superstore’s customer loyalty is decreasing and consumers are switching to lower priced option in multiple stores for better deals. The top management of the organization has to make a decision whether to sustain high-end positioning of the store or to change brand proposition of Reed Supermarket to plunge into competition. The problem statement, thus, involves deriving an overall marketing strategy for the firm in the light of brand essence of the organization and competitor analysis.
SWOT analysis is considered among the most useful methods for business analysis and for assessing a complex situation of the company. Strength of the marketing strategy of an organization depends on how well an organization can respond to various external influences which act on it. SWOT analysis is the necessary preliminary step in the preparation of any level of strategic and marketing plans. The rationale for choosing SWOT analysis for the marketing strategy of Reed is to analyze the external situation along with internal variables of the organization.
Key strengths of Reed Supermarket’s chain is a loyal customer base and a trust created by the firm in the Columbus market due to the provision of high-end services and a wide variety of brand choice made available to consumers. The retail chain acquires a positioning in the mind of consumers which associates with trust. This all translates to efficiency of operations and low cost of operations. Sustained growth of Reed Supermarket in previous years has imparted sizeable financial potency to the organization which can be employed by the organization to invest in new initiatives.
The huge volumes of procurements let Reed Supermarkets gain advantageous terms and very competitive prices from its suppliers. The volume of procurement is so huge that in several product categories the organization directly source from manufacturers located in low-cost producing countries. Thus, Reed Superstores has relations with suppliers and manufacturers so that it can procure products at favorable terms from them. Over the years, the retail chain has achieved comprehensive automation of enterprises, which enables close cooperation within different functions of the organization and facilitates the staff to quickly process orders of customers in a short time.
The major weakness of Reed Superstores is relatively high prices for most imported goods offered by the retail chain. The high cost of goods accounts for the recent fall in the market share of the firm. Concentration of sales of Reed Superstores to high-end consumers with higher disposable income is another weakness of the retail because an economic recession will directly impact cash inflows of Reed Superstores in a significant way. The retail chain has not diversified its risk by either generating alternative sources of cash inflows by investing in other industries or creating sub-brands to diversify its target market. The current marketing strategy of the firm does not take into account niches which are found within consumer market of Columbus, Ohio. Organizational culture of Reed Superstores has also diluted over the years because of the various acquisition carried out by the organization.
There are several opportunities for expansion and growth of Reed Superstore made possible through technological development and emerging trends in the industry. Online Sales is a major opportunity area made possible through technological improvements in e-commerce and other support infrastructure. Coupled with the feature of free delivery of goods within the region, this can prove to be a major attraction for the organization. Introduction of a sub-brand is another opportunity area for Reed Supermarket to extend its product offering to different segments of consumers that are not part of current market catered to by the company. A sub-brand will give an opportunity to the firm to sell some items of goods at the lowest price in the region.
Diversification is also a key opportunity presented by the external environment. Diversification will enable the organization to gain leadership in non-food retail sector, as well. Reed supermarkets can adopt hypermarket arrangement of stores and gain benefit from the emerging preference of consumers to purchase in bulk. For instance, retail of pharmaceutical products is a fragment of consumer retail which is anticipated to grow by a huge margin in this decade. Diversification to pharmaceutical retail can be a key area of growth for Reed Superstore.
A number of threats present in the external environment loom for Reed Superstores. The major threat to Reed Superstore’s success is increasing competition in the retail industry of Columbus, Ohio. A price war is anticipated due to the slow growth of demand and excess supply from retailers. Since, majority of Reed’s business is dependent on high-end market and consumers with greater disposable income, recessionary cycles in economy poses a considerable challenge for Reed. Evidence for this growing competition is aggressive tactics employed by Dollar General, Aldi Store and Costo to gain market share from established retailers in Columbus market, including Reed. These two competitors are also driven by the passion of new management and ownership.
The marketing strategy followed by Reed Supermarkets so far was to align itself with the positioning of quality products and offering a wide variety of brands to consumers for each product category. It was part of marketing strategy to focus on imported brands and be a pioneer in organic food category. To complement the perception of a high-end retail store, provisions of service were kept high for customers. For instance, cookies were offered to the customers during weekends to create the impression of high levels of service.
However, this marketing strategy is weak for it carries a number of eminent downsides. In consumer retail industry of food products, it is considerably risky to rely completely on the high-end market because during recessionary cycles, consumers immediately shift to lower cost options. This is exactly what had happened in the case, when the emergence of recessionary cycle in the economy of Columbus was followed by a modest fall in market share for Reed. Also, the marketing strategy is not synchronized with emerging trends and consumer preferences. There is a trend among consumer towards the purchase of food products in bulk, which is not taken into account in Reed Superstore’s marketing strategy.
The competition in food retail market of Columbus, Ohio can be divided into two different types of retailers. These are classified as wholesale and specialty. Wholesale retailers or department stores are those companies that offer a wide variety of bulk purchases to consumers at discounted prices. Most prominent example of such entity is Walmart. Competition in the retail market of Columbus also comprises of off-price retailers. Off-price retailers procure retail merchandise directly from suppliers. These retailer avail advantage of manufacture overruns and canceled orders to purchase retail goods at very significant discounts which are passed onto consumers. Among present competition to the Reed Superstores, the off-price retail sector has emerged as the fastest growing competition among all forms of competitive elements. The most challenging competition faced by Reed Superstore at this point is Family Dollar which is taking away majority of customer traffic with its attractive price offerings. Aldi Store, Walmart and Costo are also important competition for Reed Superstore.
Branding strategy for Reed Superstore has also been weak. The store was initially positioned as a low end store during the time of its inception. Gradually, the branding of the store was turned into a high-end store. Even though, the branding strategy does prove to be successful for a considerable time period, it didn’t create any sustainable differentiating factor for the store. The high-end perception of the store is being diluted by discounted offerings making a confused positioning of the brand.
In the light of SWOT analysis and after evaluation of marketing strategy, branding strategy and competition, key strategic initiatives are recommended Reed Superstore.
The recommended marketing strategy for Reed Superstore is to increase its product offering to merchandize to pharmaceutical products since this is a sector related to food retail and anticipated to grow significantly. Diversity into other sectors will serve to reduce riskiness of business operations. Fall in sales in one area of Reed’s business will not as much problematic, since alternate means of cashflow will be available to the firm. Pharmaceutical retail is also much more stable business than food retail because this sector is lesser impacted by recessionary cycles in economy.
Secondly, Reed should invest in online sales of merchandize to leverage its existing customer loyalty and supplement its sales. The benefit of this element of marketing strategy for Reed Superstore is that it can leverage its brand equity through a new channel of distribution. Online sales will increase the revenue of the organization without a corresponding increase in cost for the organization. Reed will only be required to create a user-friendly ecommerce website. The promotion of the website will be carried out by utilizing the existing traffic within the retail stores of the organization. Market research showed that majority of consumers tends to shop at retail outlets which are close to their residence for convenience. Therefore, the current target market of Reed Superstores is restricted by physical barriers of the location of the stores. The feature of online sales will help the organization to overcome physical barriers, as well. Feature of free delivery can be extended to the consumers since transport costs will be divided over a number of shoppers, and the organization will also save on upkeep of its physical stores.
Reed Superstore should not change the proposition of its current brand, rather it should introduce a sub-brand in the market to cater to those lower end consumers. This will maintain the brand equity and trust of existing brand, at the same time will enable the organization to increase its market share. Multi-brand strategy is a highly appropriate strategy for businesses like Reed which are required to cater to two or more different market segments. If Reed Superstore resort to include low-priced product offering under its current brand name, it is likely to create a confused positioning of the brand. At present consumers associate Reed Superstores with high-end products and services. Including low-cost products in its offering and reducing provisions of essential services will alienate existing customer base rather than generating new business.
The strategy of creating a sub-brand with lower priced product will communicate to the consumers that Reed has taken a planned initiative to introduce a proposition to a different target market rather than haphazardly reducing its prices. The net result will be increase in overall increase in the size of the market catered by Reed Superstores.
Reed should seek to differentiate itself from the competition rather than emulate the strategy of its competitors. Instead of adopting the-discount-store strategy of dollar stores, Reed should beat the competition by becoming a ‘value-provider’. That is, the store should maintain those elements of services which are most favored by customers and keep its prices slightly higher than the competition.
There is a significant difference between low-cost provider and value-based provider strategy. The strategy of becoming a lowest-cost supplier creates short-term business for an organization. With lowest-cost strategy, an organization gains very low margin business and buyers are not loyal since they are lured only by low prices. By adopting ‘value-provider’ strategy, Reed will gain consumer markets at decent profit margin and these consumers will comparatively be more loyal to the brand.
The problem evaluated in the analysis is the dilemma of top management of Reed Superstores to either change the current positioning of end-high retailer to a discount retailer or to maintain old positioning. Also, the store is faced with intense competition and shrinking market share. The recommended strategy after thorough analysis is to introduce a sub-brand in the market. Also, it is recommended for Reed to diversify into pharmaceutical sales.