Reed Supermarkets: A New Wave of Competitors

Reed Supermarkets: A New Wave of Competitors

At 4:30 p.m. on December 6, 2010, Meredith Collins, VP of Marketing for Reed Supermarkets, walked down the sidewalk of the 10-store strip mall that housed Reed's Westgate Plaza branch in Columbus, Ohio. Collins didn't shop; instead she took mental notes about store traffic, first at the Reed store and then at an indirect but increasingly worrisome kind of competitor--a dollar store. The Reed was predictably well lit and inviting, and Collins could see three registers open and two or three customers in line at each. "Not too bad" she thought, "but not what I would hope for at this time of day, this close to the holidays." She'd felt the same way at two other Reeds she'd visited that day .

Collins walked on to the Dollar General (DG). A fairly steady stream of shoppers entered DG's doors, their progress slowed by families exiting with plastic bags jammed full. When Collins looked inside, she noticed workers filling what was obviously a new freezer case--the first freezer she had seen in a dollar store that day. This DG was doing just as well, to judge from this glimpse, as the Family Dollar she'd walked past half an hour earlier at North Valley--but no better than the Aldi store she had visited in the morning. That Aldi trip was interesting: a bright and spotless mini- supermarket, run by a giant firm from Germany that carried one-tenth the food items that a Reed did and sold virtually no brand names, only private-label--but still posed a threat to Reed due to its remarkably low prices.

As she drove out of the parking lot, thinking back to last week's discussions with the management team about the newest threats to Reed's position as a leader among the region's supermarkets, Collins wondered how Marketing could target competitors like DG. It seemed clear to her that dollar stores and Aldi both were taking bites from the Columbus region's family food budgets. Moreover, as she recognized from the diverse range of advice provided by her management peers at Reed, defending against these competitors would not be as clearcut a mission as positioning Reed versus other area supermarkets--or even against WalMart and Costco--had been. Nevertheless, with all these competitive challenges, Reed CEO Jack Morrissey had held firm in his mandate that Reed needed to grow its Columbus share in the coming year. Collins frowned as she drove to another strip plaza to look around.

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HBS Professor John A. Quelch and writer Carole Carlson prepared this case solely as a basis for class discussion and not as an endorsement, a source of primary data, or an illustration of effective or ineffective management. This case, though based on real events, is fictionalized, and any resemblance to actual persons or entities is coincidental. There are occasional references to actual companies in the narration.

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4296 | Reed Supermarkets: A New Wave of Competitors

Company History

Reed Supermarkets was established in 1939, when William H. Reed opened his first grocery store in Kalamazoo, Michigan. By 1960, Reed operated 25 stores in Michigan and Illinois; by 1980, Reed had purchased two medium-sized chains serving Ohio, Indiana, and Wisconsin; and by 2010 the firm had grown to encompass 192 retail stores, two regional distribution centers, and 21,000 employees in five states in the Midwestern United States.

While Reed had started as a lower-end retailer 80 years ago, it had continually expanded and upgraded its stores, adding new departments and expanding higher-margin offerings like prepared foods and flowers. For two decades, Reed stores had been considered high-end in the supermarket business. In addition to a full assortment of standard groceries, baked goods, meats, seafood, paper goods, and health and beauty items and a pharmacy, a typical Reed's featured a vast case of mostly fresh seafood, including live lobsters and crabs; imported packaged goods ranging from 27 kinds of mustard to three different brands of snails; and an array of 20 different prepared entrees available for takeaway. The chain was well-known for the quality of its produce and its emphasis on organic produce. Reed also differentiated itself by offering attractive stores, long hours, elegant (and often creative) serving-case displays, and exceptionally attentive customer service. The checkout clerks wore distinctive red aprons, greeters offered free cookies to customers on the weekend, high staffing levels ensured short checkout times, and runners shuttled bags to customers' cars--no tipping, please.

The Columbus Market

The Columbus, Ohio, market was relatively stable, but Reed had experienced modest share declines in the past--which was why Collins had taken a week away from the home office to eyeball shopping centers there. The Columbus metropolitan area, where 25 Reed stores were located, was the third-largest in Ohio, with a population of about 2 million. Columbus's 2010 median household income of $52,000 was 11.6% higher than the state average and slightly higher than the national median. Population growth from 2000 to 2009 was 11%, slightly above the national rate of 9%, and in December 2010 the unemployment rate was 8.5% compared with the national rate of 9.8%

The fight for market share among grocery retailers in Columbus was intense. The metro area contained outlets of three large supermarket chains as well as some smaller regional chains and independents, including lower-priced TopVal, mid-range Galaxy (owned by large player Supervalu), and top-range Delfina. Also in the