James Ellis, the senior vice president of Hall Consolidated and president of Hi-Value supermarkets, must decide whether to pursue an everyday low pricing (EDLP) strategy at its three Centralia MO locations. After much analysis, I believe that my recommendation would be for Superior stores (Hi-Value) to most definitely adopt this new method. First let’s look into some details about Hi-Value, and their competition:
Product: The stores’ products are divided into 5 categories: 1) grocery (including diary); 2) fresh meat/poultry/seafood; 3) produce; 4) seasonal and general merchandise; and 5) bakery and deli.
Price: more of a high-end branding strategy. Hi-Value everyday (non-promotional) ...view middle of the document...
But Hi-Value must understand that; the growing price consciousness among Centralia shoppers could hurt their image of having higher prices, and that they are seeing decreasing figures in the future (“since store sales were below budgeted levels in the 1’st quarter of ”). Also their best performing store, South Prospect, is two blocks away from competition. The other two stores have competition either across the street or within the same shopping center.
The competitive environment that Hi-Value is in right now also effects their decision of EDLP. The demand in this supermarket industry is elastic, with multiple opportunities for competitors to steal market share. Exhibit 5 shows how $100 is spent in Centralia supermarkets: 49.67% perishables, 30.95% food grocery, and 19.38% on miscellaneous (health care, general merchandise, etc.). Also, who shops where effects the effectiveness of pricing; the median age of the Centralia population was 35 years; the median household income was $36,000; and 80% of residents had a high school education or more. Will these customers want another “cheap” supermarket? Exhibit 7 says yes (with the exception of meat quality and price). Hi-Value is considered reasonable with price, and quality produce/meat, overall variety of foods (Exhibit 6). Therefore, products must be consistently available and reasonable customer service is expected.
Missouri Mart is considered their closest competition. Their food sales volume are the highest for Centralia and offer more general merchandise, which makes up 60% of its floor space. Harrison’s captures sales from middle/upper-income groups with incomes in of $40,000 or more. The store is clean, orderly, and well managed. General American is “the most modern store in Centralia and has the finest fixtures and décor –its wide aisles make it relatively easy to shop.” All competitors have more floor space, attractive stores, greater overall variety, customer awareness and contact (through their advertising).
But Hi-Value has strengths help justify the use of EDLP. For example, providing on-time delivery of goods is critical for Hi-Value to maintain good customer service. They also have an extensive ‘in-house’ network. There are opportunities to buy out smaller competitors, develop a price conscious advertising campaign aligned with customer expectations, and participate as a member of the community (mentioned hosting local charity events, etc.). The only threat against them is the pricing wars as a result of Hi-Value adopting an EDLP strategy.
So James and Hi-Value have multiple roads to go down to try and increase sales, and...