TO: James Ellis, President
FROM: Piyush Jain, President’s Assistant
DATE: March 8, 2016
SUBJECT: Repositioning the Price Strategy of Superior
The four Supermarkets capture 85% food sales in Centralia, MO; Harrison’s (22%), Grand American (13%), Missouri Mart (27%) and Superior (23%). Centralia shoppers rely on four major supermarket attributes in making store patronage decision. These are, price, meat quality and variety, produce quality, variety, and display, and shopping convenience. Hi-Value Supermarket rates best in convenience, average in meat and produce, and worst in price. There is an inverse relationship between the importance weights assigned to the top four patronage criteria and Superior’s rating. Hi-Value Supermarket’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. After analysis, HVS price are 10% higher than Harrison and 7% higher than Grand American and Missouri Mart, the company growth rate is negative 0.53% and advertising budget is 0.89% of sales revenue compare to 1% by competitors. My recommendation is to implement Everyday Low Pricing for certain categories.
Superior is the “primary secondary grocery store” for food shopping in Centralia and is more of a convenience store than a supermarket for Centralia shoppers. Everyday Low Pricing might improve its “pricing image” but not make it the “best overall prices”. EDLP might increase patronage from more price conscious shoppers who do not presently patronize Superior, thereby, increasing visits. It may increase the quantity purchased per visit to the extent that Superior becomes the primary store for household grocery purchases among a larger portion of Centralia shoppers. However, Superior still faces a problem with shopper perceptions of “value” since meat and produce rank average in store choice patronage.
EDLP on certain categories has it pros and its cons. The pros being it can reduce Superior’s inventory and handling cost, by reducing variation in demand caused by frequent specials with large markdowns. Second, re-marking merchandise and shelf tags, including labor expense, is reduced due to fewer price changes. Third, EDLP allows Superior to focus on image-oriented advertising versus weekly price-item or promotional advertising. Lastly, it could help Superior to compete on other store patronage criteria. The cons being EDLP will likely decrease store gross profit margins even with cost savings. Superior must increase dollar sales given lower margins so as not to lose money on EDLP. And, EDLP could position HVS directly against Harrison’s that features EDLP too and rates “best” supermarket on shoppers’ criteria.