Superior Supermarkets is a division of Hall Consolidated, a privately owned wholesale and retail food distributor. Hall distributes food and related products to some 150 company-owned supermarket units and about 1,100 independent grocery stores in the U. S. through 12 wholesale distribution centers. Hall’s sales in 2002 were $2. billion. Superior is the smallest of the three supermarket chains owned by Hall, with sales of $192. 2 million in 2002. Superior serves small towns in the South Central U. S. , and is number one or two by market share in each of its trade markets. Sales of the three Centralia stores were $14,326,700 in 2002. Their gross profit margin was 28. 8%, while the median for the U. S. grocery industry was 26. 4%. Randall Johnson, the District Manager for the Centralia stores, has recommended that they implement everyday low pricing (ELP).
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The reasoning behind his desire to implement the ELP strategy is that Superior’s prices are higher than the competition at a time of growing price consciousness, and that the price differential could cause them to lose market share. Superior President James Ellis suggests that their recent consumer research should be studied to assist in the pricing decision. If the research suggests that an ELP strategy should be used, it would then be applied to all three of the Centralia stores.
One company official suggests that the pricing strategy should be part of a broader store positioning strategy, and it should be supported with advertising. It is known Superior is does have the highest prices in the area. To the extent that price knowledge exists, it is thought to be category dependent. This adds a dimension to the ELP implementation decision, specifically whether ELP should be applied across the board, or just for certain categories. If an ELP strategy is adopted, it is important that Superior decide how much prices should be lowered.
Superior prices are estimated to be about 10% higher than Harrison’s, the current low price leader, and about 7% higher than the other major competitors. There is a consensus that they should not attempt to outprice Harrison’s. Problem Identification There are 2 major problems that have been uncovered by the company’s district manager. The first problem is the low sales in Centralia. The second problem is the extremely high prices that have been a source of complaints among Centralia customers. According to many studies by Superior Market, the company had the highest prices in Centralia.
As a result, Superior Supermarkets must decide whether or not to pursue an everyday low pricing strategy in its three stores servicing grocery shoppers in the Centralia service area. Case Analysis Superior operates three stores in Centralia, MO, the primary trade area in Scott County. Food and beverage retail store sales in Centralia were $62. 3 million in 2002, a 4. 6% increase over 2001. Based on the 2000 U. S. Census, Centralia has 13,500 households and a total population of 41,000. The median age is 35, median household income is $36,000, and 85% of residents have at least a high school education.
Just over half of Centralia residents are employed by manufacturing, retail trade, and education, health, and social services establishments. Focus group studies have identified various aspects of food store choice and patronage in Centralia. In descending order of importance to shoppers are: price; quality of meat; produce quality, variety, and display; and, shopping convenience. Focus group participants are generally pleased with their food shopping options. Superior has a great deal of shopper information from two studies it conducted.
One establishes, by department, how $100 is spent in a typical Centralia supermarket. The other establishes, specifically for Superior supermarket shoppers, demographic information, frequency of store visits, and related shopper behavior data, including other stores shopped. The primary reason that potential customers do not shop at Superior is mainly due to price. Four grocery chain stores accounted for 85% of all food sales in Centralia in 2002. The remainder was shared primarily by two small independent grocery stores, several convenience stores, specialty food stores, and a seasonal Farmer’s Market.
Three of the chains operate one store each in Centralia, while Superior has three. Each of Superior’s stores is smaller than the other chains’ stores. Harrison’s, a 50,000 square-foot store on W. Main St. , is acknowledged to have captured most of the business of the middle and upper income group in Centralia. Harrison’s Centralia store is one of the company’s 65 locations in Missouri and Illinois. The store is well-managed, clean and orderly. Harrison’s has a very favorable customer image, and uses an everyday low pricing strategy. Harrison’s market share of 22% ranks it third in the market, just behind Superior.
Grand American (GA) operates a 39,800 square-foot store on W. Main and Fairfield. It is one of 148 GA stores serving the region. It is the most modern store in town. It serves the lower income demographic, the $20,000 to $35,000 range. GA, with a market share of 13%, is considered a secondary competitor by Hall officials. Hall officials believe GA lacks innovative merchandising appeal, and its only real strength is its dairy department. Missouri Mart (MM) operates a 120,000 square-foot store, 40% of which is dedicated to food items.
MM’s customers are middle-aged and older families with incomes over $30,000. MM is the sales volume leader in Centralia, with a 27% market share, and is considered Superior’s principal competitor. About 32% of Superior’s customers shop MM regularly. MM’s primary strength is in groceries and special purchase displays, but the store seems to sacrifice quality and freshness for production. Superior Supermarkets has three stores in Centralia which are generally older than those of its major competitors. Each store anchors a strip shopping center owned by Hall.
Each shopping center has additional shops which provide a lot of convenience to customers. Company officials believe that SS offers high-quality merchandise, but less variety than the other major competitors. Consumer acceptance of the major store departments varies between stores. SS features a value positioning in its advertising. It spends 0. 89% of sales on advertising, while it is estimated that Harrison’s and MM spend about 1%. GA is seen to invest considerably less than Superior. Market basket studies indicate that Superior is the highest-priced food store in the Centralia area.
Superior advertises high-volume items at deep discounts, and features loss leaders. Superior’s N. Fairview store is less than two blocks from MM. The W. Main store is across the street from Harrison’s and GA. The S. Prospect store has no competitors in the immediate vicinity. It prepares baked goods for all of Superior’s Centralia stores. Market share for the three SS stores combined is 23%. Recommendation Superior Supermarkets should pursue an everyday low pricing strategy in both the grocery and general merchandise categories.
Superior should reduce its prices in these categories, and increase its advertising as well; The price reduction will produce an increase in sales, and increase market share. References Kerin, R. A. & Peterson, R. A. (2007). Strategic Marketing Problems. New Jersey: Pearson Prentice Hall. http://www. cob. sjsu. edu Strengths oSuperior Supermarkets has a market share of 23% in Centralia for 2002 oSuperior Supermarkets is the number 1 or 2 ranked supermarket chain in each of its trade markets in market share. oSales for the three stores in Centralia have increased over the past three years. Each store anchors a strip shopping center which is owned by the parent, Hall Consolidated. oSuperior carries high-quality merchandise, particularly in grocery items and fresh produce. oSuperior was ranked most convenient amongst its competitors in a telephone survey. oSuperior is considered a “good neighborhood store”. oBased on Superior’s shopper interview results, 77. 9% of their customers have been patrons for three or more years. oSuperior’s West Main store draws more customers from the area south of the store than their competitors. oSuperior’s South Prospect store has no major competitors in the immediate vicinity.
Weaknesses oSuperior’s advertising costs comprise of . 89% of sales, while competitors’ advertising costs comprise of 1% of sales. oBased on Superior’s telephone survey, Superior was ranked the lowest amongst its competitors on most reasonable prices. oSuperior is ranked second to lowest on quality of meat based on Superior’s telephone survey. oThe three Centralia stores posted a 1% negative variance on sales. oThe three Centralia stores experienced a net profit margin slightly under 1%, which was shy of the budgeted 1% net profit margin for the first quarter of 2003. Approximately 32% of Superior customers also shop at Missouri Mart. oSuperior offers less variety of merchandise than its major competitors. Opportunities oThe food and beverage market in Centralia is growing. oSS could advertise on television. Threats oOur competitors may lower their prices. oNew competitors may enter the market. oOur competitors have locations in close proximity to some of our stores oPrice consciousness is growing among Centralia shoppers. oCompetitors may begin to advertise on television. oThere are twenty establishments in Centralia that sell food and beverages.