Running Head: Superior Supermarkets Superior Supermarkets Davenport University MKTG 610 Date Case Synopsis A quarterly review by Hall Consolidated is scheduled to discuss performance in District III. District III includes fifteen Superior Supermarkets located in Centralia, Missouri. The district manager for these stores, Randall Johnson, has requested that these three locations implement an everyday low pricing strategy since these stores are the highest priced supermarkets in the Centralia market. His is concerned that because of increasing consumer price consciousness, they may lose market share.
Centralia store’s sales have been below budget for the last quarter of 2002 and this first quarter of 2003. Still, operating margins are near plan due to sales of slightly higher gross margin items and a reduction in operating expenses. They have also had a higher customer count for this first quarter (Kerin & Peterson, 1998/2010, pp. 484-495). Market Conditions Centralia, Missouri had food and beverage sales of $62. 3 million in 2002, which was a 4. 6 percent increase over the previous year. Superior and three other major competitors, Harrisons, Grand American, and Missouri Mart account for eighty-five percent of food sales in Centralia. 1. 6 percent of Centralia’s population is between the ages of twenty-five and fifty-four. 30. 6 percent of household income is between $15,000 and $34,999 and 39. 6 percent is between $35,000, and $74,999. In 2002, Superior held an estimated twenty-three percent of the food sales market, Missouri Mart had twenty-seven percent, Harrison’s had twenty-two percent, and Grand American had thirteen percent. However, these competitors draw customers from larger geographic areas than Superior (Kerin & Peterson, 1998/2010, pp. 484-495). Competition Superior executives consider Missouri Mart to be their primary competition ince thirty-two percent of Superior’s customers shop there regularly. Missouri Mart’s customers are middle aged to older families with incomes above $30,000. Sixty percent of their space is allocated to general merchandise (Kerin & Peterson, 1998/2010, pp. 484-495). General Merchandise is considered to be all nonfood items, except health and beauty aids. This includes: housewares, toys, greeting cards, hardware, etc (McGraw-Hill Companies, 2004). Missouri Mart’s primary strength is in grocery and special purchase displays. Forty percent of their floor space is dedicated to food items (Kerin & Peterson, 1998/2010, pp. 84-495). The store is cluttered, and their products lack quality and freshness. However, their advertised sales items are priced extremely low and are well stocked at the end of their isles. They are located at the north edge of town near Superior’s N. Fairview location. Missouri Mart is situated within a complex which houses a drug store, furniture store, and a bakery. This location is managed as a single-owner franchise. Customers consider Missouri Mart to have the greatest variety of items; however they are unhappy with their meat department and overall customer service (Kerin & Peterson, 1998/2010, pp. 84-495). Grand American is considered Superiors secondary competition. This store opened in 2001 and is the most modern of all Centralia’s supermarkets. It has wide aisles, fancy decor and is easy to shop. However, Superior considers the store to be lacking in merchandise appeal. It has a modest variety of meats, produce and groceries, but has very little general merchandise. This store also has its own small pharmacy. Customers particularly like their dairy department. Their advertising emphasizes high-volume items and emphasizes competitive pricing on advertised items.
They also offer double coupons and manager specials. They are located near Superior’s Main Street store and Harrisons’ Supermarket. This store attracts residential customers with incomes between $20,000 and $35,000, and received mostly neutral or low comments on a recent customer survey. Shoppers felt this store was often out of stock, over advertised, and advertised specials were not really a deal (Kerin & Peterson, 1998/2010, pp. 484-495). Harrison’s was remodeled in 1999 and allots fifteen percent of its footage to a large assortment of general merchandise.
They have captured most of the middle and upper income groups with annual incomes of over $40,000. Harrison’s is well managed, orderly, clean, and attractive with a balanced variety of groceries, meats, and produce. Their promotional theme is “Save on the Total,” focusing on everyday low prices. Customers perceive Harrison to have the best overall prices, the best quality, and best variety of meat and produce (Kerin & Peterson, 1998/2010, pp. 484-495). Centralia’s Superior Supermarkets Each of Superior’s Centralia stores is older than their major competitors.
Each is anchored in a strip mall, owned by Hall Consolidated, which also house a drug store plus two or three other shops. Sales have steadily increased since 2000 and operate with a 28. 8 percent gross margin, higher than industry average of 26. 4 percent. Below is a breakdown of sales and gross margins for all three stores in Centralia (Kerin & Peterson, 1998/2010, pp. 484-495). (Kerin & Peterson, 1998/2010, pp. 484-495) Corporate believes that although Superior offers a more limited variety of merchandise than its competitors, they carry a higher quality product particularly in grocery and fresh produce.
However, consumer acceptance of their fresh meat, poultry, and seafood departments varies by store. Like their competitors, Missouri Mart and Harrison, Superior has a multi-media communication mix which includes: newspapers, radio, and outdoor mediums. In 2002, they spent $127,500 in advertising, which was slightly less than their competition’s one percent. Their slogan has been “Superior Supermarkets = Superior Value. ” Although they have the highest retail price in the market area, they use high-volume, deeply discounted loss leaders as a push marketing strategy (Kerin & Peterson, 1998/2010, pp. 84-495). A recent market survey of Superior’s customers revealed that price was the most important determinant in choosing where to shop. This was followed by convenience, meats, produce, service, canned goods, variety, store layout, bakery and deli. Below, is a chart that shows where Superior ranks in comparison to the other competitors based on some of these characteristics (Kerin & Peterson, 1998/2010, pp. 484-495). (Kerin & Peterson, 1998/2010, pp. 484-495). Superior -West Main has the largest sales of the three stores in Centralia, with 2002 sales of $5,374,517.
Their location has two other major competitors in this downtown area. The store was last updated in 1992, when they expanded the frozen food and dairy departments. A mini-deli was added in 2000 that prepares and sells items on the premises. These products are also delivered for sale to the North Fairview and South Prospect stores. Deli products are last on the list of important shopping determination characteristics. However, nine percent of customers choose to shop at Superior because of their deli. Only Harrisons is competitive with Superior stores in the Deli area (Kerin & Peterson, 1998/2010, pp. 84-495). Superior- South Prospect sales for 2002 were $4,514,551. This store was updated in 2000. No major competitors exist in their immediate vicinity. This store has an on-site bakery which produces high-quality items, although not as great a variety as the typical Centralia bakery. This store also delivers bakery items to the other two branches. Bakery products are next to last on the list of important shopping characteristics. Twenty-five percent of shoppers choose superior for bakery items and they are ranked highest among competitors in the area.
Superior-North Fairview had 2002 sales of $4,437,632. Improvements to the store were made in 1990 and 1995. It is on the opposite edge of town from the South Prospect store and Missouri Mart is located in its vicinity. Twenty percent of its business comes from shoppers outside Centralia, who live within three to four miles of the store (Kerin & Peterson, 1998/2010, pp. 484-495). Root Issues Although these Centralia stores are performing as planned, their sales are slightly down for the quarter and gross margin increases were just short of the budgeted one percent.
Gross margin percentages were the result of an increase in sales among higher gross margin items in grocery, general merchandise, and bakery/deli. The district manager, Randall Johnson, perceives a future risk of losing market share due to Superior’s high prices. Evaluation of the market indicates shoppers are more price conscious and shop accordingly. Sales were already down by three percent from budgeted sales for the first quarter, on top of a slower than projected fourth quarter. Johnson has proposed an everyday low pricing policy for Centralia stores. Hall consolidated has experience using everyday low pricing in selected areas.
Their previous experience has shown this strategy works better as part of a broader store positioning and must be supported with advertising. They have also found, for this strategy to be effective, they don’t have to be the lowest priced supermarket in the area. Executives agree that any strategy employed in the Centralia market would need to include all three locations (Kerin & Peterson, 1998/2010, pp. 484-495). Everyday low pricing could erode profit margins, but there could also be a reduction in inventory and handling costs due to a steady predictable demand.
It could also reduce labor costs, by decreasing the necessity for constant price changes. The expected decrease in cost could add 1. 1 percent back to the gross margin or be allocated to additional advertising (Kerin & Peterson, 1998/2010, pp. 484-495). If a low pricing strategy were to be adopted, several things need to be considered. Should the lower pricing strategy be employed storewide? Previous research indicated that few shoppers know prices by specific brand. If they do, it is based on frequent purchases of that item.
What pricing cuts would be necessary to change Superior’s image of having the highest prices in the market? Randall believes across the board price cuts are necessary. However, the vice president of retail operations prefers limiting the price cuts to grocery, dairy, seasonal, general, and health and beauty aid items, which account for fifty-seven percent of Superior’s sales in Centralia. The controller agrees, pointing out these categories have the most potential for reducing operating costs (Kerin & Peterson, 1998/2010, pp. 484-495).
Market research shows that Superior’s non-promotional items were ten percent higher than Harrisons and seven percent higher than the other two competitors. However, Grand American and Missouri did so much discounting; it is hard to determine what the regular price really is. Executives agree whatever their decision, they are unwilling to start a price war (Kerin & Peterson, 1998/2010, pp. 484-495). Superior also has the opportunity to enhance its image outside of price values. Customers have suggested they improve the variety and quality of meats and produce.
They recommend increasing stock levels on private label items and improve the appearance of the dairy department. Superior Stores were rated best on overall appearance, cleanliness, friendliness, service and convenience (Kerin & Peterson, 1998/2010, pp. 484-495). Problem Definition Superior Supermarket needs to address the recent decline in sales and the increasing price consciousness of the Centralia Customers. It has been suggested, by the district manager, that they re-define the store’s image to an everyday low-price value store.
If a low pricing strategy was implemented, it would need to be determined which items to discount and by how much. A recent customer surveys suggests there are other ways Superior could improve its image and increase sales. The review board has been challenged to consider Superior’s present competitive position and decide if the Centralia’s stores image needs to be adjusted and what, if any, new marketing strategies should be implemented. Alternative solutions To be competitive, Superior Supermarket needs to attract and maintain loyal customers.
They need to capitalize on their strengths and create the perception of value in shopper’s minds (Imlay, 2006). Since the most important decision making factor when customers choose where to shop is reasonable prices, one way to create value is to cut prices across the board. This option would result in a reduction in gross margin and a necessary increase of promotional costs. A strong marketing campaign would be needed to change the shopper’s perception of Superior Supermarkets as being the highest priced grocery store in the area.
Since management has agreed they do not want a price war, they could choose a strategy that reduced pricing by seven percent to meet Grand American and Missouri Marts retail prices. Although this would reduce the competitions price advantage, it will not necessarily increase sales. For the most part, price cuts don’t automatically increase gross profits. It would take approximately an eleven percent increase in sales to make up for the gross margin lost in a storewide reduction. This is demonstrated by a simplistic example which assumes any reduction in costs would be applied to increased advertising: Current priceValue priced 10. 00$9. 70 X 1000 unitsx 1110 Sales volume $10,000Sales Volume$10,767 Gross Marginx 28. 8%Gross Marginx 26. 8% Gross profit$2880Gross Profit$2886 Doing selective price decreases is also an option and can improve shopper perceptions on Superior’s price value without reducing overall gross margins. The recommendation of the vice president of operations and the controller is to lower prices on key grocery items and general merchandise to create the impression of value pricing and optimize the best labor and merchandising reduction possibilities.
These two areas account for fifty-seven percent of store sales and have a least a thirty percent gross margin, which is above the store’s current average of 28. 8 %. Superior Supermarkets received the highest rating for convenience, so having three locations within this market is an asset. To keep continuity, all stores would have the same pricing structure. It is important for customers to feel they are receiving value when shopping at Superior stores, but value is not only perceived by price. Service and loyalty also create a sense of value.
In order for Superior to increase and maintain customer loyalty, they could develop a loyalty program which awards and entices customers to continue to shop at Superior. In order to accomplish this, Superior may have to invest in a Customer Relationship Management (CRM) program which tracts retailer purchases. This would also allow Superior to monitor market changes. Regardless of loyalty, supermarkets need to have what customer’s want, when they want it. They have to provide an easy shopping experience so customers can find what they are looking for.
Information must be provided in order for them to make quick buying decisions. Having helpful and friendly sales staff will help ensure a pleasant shopping experience. Still, stores must consider controlling operation costs so they can offer the shopper fair pricing and keep the store profitable (Imlay, 2006). Other than pricing, Superior Supermarkets out performs Missouri Mart in all other important decision making areas, while Harrisons out performs them in every area but convenience. Maybe Superior should reevaluate who their primary competitor is.
Instead of focusing on price reductions, an emphasis on market segmentation and specialization could improve market share. Some supermarket chains have been successful and profitable in targeting smaller unique segments of the market rather than attempting to be everything to everybody (Imlay, 2006). Other decision making factors rated by order of importance are: convenience, the meat department’s quality and selection, the produce department’s quality and selection, and service. Currently Superior stores out rank their competition in service, convenience, bakery, and deli items.
Focusing corporate strategy to emphasize these strengths could bring in more customers. However, it needs to be taken into consideration that bakery and deli items are currently only seven percent of sales, but have the highest gross margin of fifty percent. Even if increased variety is added, it may not be enough of a draw to bring in customers since it is ranked next to last on important decision characteristics. Since meat and produce products have a higher customer importance ranking, improving quality and selection in these two areas could be considered.
Meat, however, only has an 18% gross margin, while produce has a thirty percent gross margin. Superior currently ranks lower than all their competition, other than Missouri Mart, in meat quality and variety, and produce quality. They rank last in variety of produce. The meat department has an unsurpassed importance in the US grocery store. Improving customer service through meat counters instead of self-service is viewed as a compliment to any meat department. Using meat counters and customer server can be used to win back sales and meet consumer demand (Dowdell, 1990).
Produce is an important part of retail psychology. Produce is usually placed at the front of the store because a clean produce department signifies a clean fresh store. Presentation is another important part of retail psychology. Ninety percent of a consumers purchase selections based on presentation. Color is a huge part of how people buy and produce is a good way to enhance the effects of colors (Hodge, 2002-2010). Enhancing store selections and focusing on Superior Supermarkets strengths are important, but advertising also needs to be considered.
In order to change the store’s image, new advertising should be put in place by possibly adding another marketing channel through television and radio advertising. Plus, updating their slogan to emphasize value, but not focusing on just prices can also enhance the store image. Specifically targeting shoppers within a fifteen mile radius to the north and south of Centralia should also be considered, because of Superiors close proximity to those areas. Recommendation Superior Supermarkets should capitalize on their strengths in convenience, customer service, and bakery/deli.
They also need to change their store image from the highest priced store, to the store that offers overall value to their customers. This should be done by carefully selecting common grocery and general merchandise items, rather than doing across-the-board price cuts. Superior should also target niche markets for their deli and bakery items. Since they have the facilities to produce these products themselves, they also have the ability to select items that would be enticing enough to draw customers specifically to their stores.
The locations with the facilities to make the goods will have to continue to ship items to all locations. They should also look at improving areas which are considered weaknesses. They should improve the cleanliness of the dairy department. Even though the area may meet official requirements, the appearance is apparently not appealing to the customers. Investing in a fresh coat of paint is a relatively inexpensive way to update the department. They should also evaluate flooring and equipment to see if improvements are necessary and if the Return-on-Investment would be worth making further improvements.
To enhance their already strong service image, utilizing a meat counter with a wide selection of high quality meat should be considered. Since gross profit margins are relatively low, meat prices could be raised by offering customers special cuts, service, and a variety of quality meats. An evaluation of competitor’s meat selections should be done to determine what products to carry and if possible differentiate by carrying some unique items. Improving their quality and selection of produce is a worthwhile investment. With more and more health conscious shoppers, produce can potentially attract a large target market.
Offering a selection of organic foods would also encourage customers to deliberately seek out Superior stores. Superior needs to realign marketing channels to create a new store image. They also need to do a media splash to introduce their changes. Television could be a great opportunity since competition is not using it. In addition, promoting the convenience of locations should be emphasized in areas to the north and south of Centralia. It is important to create a slogan that it is associated with value in quality rather than value in price because people are often more willing to pay extra for quality.
Superior should also seek to create and maintain loyal customers through a loyalty program. Customers should receive some reward for shopping at Superior stores. This can be in the form of a discount, free items, a special shopping day etc. To encourage repeat visits, a points system could be established to encourage customers to make more purchases to attain a reward. A CRM system should be established that allows easy customer tracking and understandable results. This will assist management in monitoring shopping trends, producing leads for direct marketing advertising, as well as managing the loyalty program.
Conclusion Superior Supermarkets have a good reputation in the Centralia market, however, they are also known for having the highest prices. The store’s image has to be restructured to attract customers on value not price. Still, a price cut on selected items will help change the image of being overpriced. Superior has the opportunity to improve in some areas and to develop new niche markets with higher gross margins. By making these changes and doing a large media splash, Superior can change their corporate image and create interest to draw shoppers into their stores.
Customers to the north and south of Centralia need to be targeted as well, promoting the convenience of Superior’s locations. Once the customer has chosen the store; service, selection, quality, and a loyalty awards program should keep them coming in. References Dowdell, S. (1990, April 2). Service meat case can win back sales. (consumer preference for meat department service vs. self-service counters). Retrieved from http://www. accessmylibrary. com/? article-1G1-8931489/? service-meat-case-can. html Hodge, C. (2002-2010). The importance of a retail store’s design and atmosphere. Retrieved from http://www. elium. com/? items/? 1344961-the-importance-of-a-a-retail-stores-design-and-atmosphere Imlay, T. (2006, May). Challenges in today’s U. S. supermarket industry. Retrieved from http://msdn. microsoft. com/? en-us/? library/? aa479076. aspx Kerin, R. A. , ; Peterson, R. A. (2010). Strategic marketing problems cases and comments (12th ed. , pp. 484-495). Prentice Hall. (Original work published 1998) McGraw-Hill Companies. (2004). Food marketing. Retrieved from http://www. glencoe. com/? sec/? busadmin/? marketing/? dp/? food_mktg/? gloss. shtml Superior Supermarkets SWOT Analysis
SWOT | Sales Force | Marketing Mix | Advertising | R/D | Segmentation | Offerings | Internal Strengths | ~Superior Supermarkets has a competent sales force with a good knowledge of their products. | ~Distributed in Centralia, Missouri, and South central U. S. ~Strong market share in Centralia. ~Uses company sales force. | ~Advertises directly to potential customers in the Newspaper, circulars, and radio spots and outdoor. | ~Continual improvement to their products and produced highest quality. ~Products are considered as the highest quality product in the Centralia stores. ~Caters to customers directly ~Specializes in bakery, grocery, deli, dairy, fresh produce, sea food, and merchandise. | ~Offer unique, high-quality product with superior quality features that are not offered by other companies. | Internal Weaknesses | ~Very few sales force in Centralia. | ~Uses only three-company retail stores in a large market in U. S. | ~Advertisements feature very low price on particular items. | ~All research is done on the three stores concerning consumers research initiatives. | ~Cannot compete well for consumers who base their purchase decision on price rather than quality. ~Superior Supermarkets product is priced higher than competition. | External Opportunities and Threats SWOT | Economic | Competition | Consumer Trends | Technology | Industry Market Share | Legal regulatory | External Opportunities | ~Superior Supermarkets profit margin for the three stores is 28. 8 percent in 2002. ~Superior Supermarkets tends to be doing well in Centralia in the past three years. ~Growth trend for Superior Supermarkets Industries from 2000 to 2002. | ~A company with a quality preference in the whole Centralia. ~ | ~Consumers’ approval of Superior Supermarkets products has always been gained in the past. The parent recommended product is often bought by individual consumers. | ~Superior Supermarkets can introduce modern technology to assist them in their bakery products so that they will be able to produce different variety for consumers. | ~Superior Supermarkets products is accepted and recognized by consumers and is regarded as the best products in Centralia. Growth tends to be for food and beverage stores in Centralia and Scott County. | ~The European Union has no internal barriers. | External Threats | ~No International threats are noted. | ~Various Supermarkets Industry are in competition. ~Consumers tend to be unaware of the new products that are available. | ~No external technology threats are noted. | ~Pricing is another challenge facing the organization. | ~No external Foreign risk or threats are noted. | Suggested Marketing Strategies 1. Institute price cuts to change store image of being overpriced. 2. Develop niche marketing for deli and bakery items 3. Promote value besides just pricing 4. Take advantage of advertising on television, since competitors don’t use the medium. 5. Improve areas that customers are dissatisfied with. 6. Concentrate on areas where Superior ranked the highest.