Hi- Value Supermarkets
Everyday low pricing (pg.500)
October 24, 2012
Dr. Aboulnasr
Group 2:
Amanda Melymuka
Jason Stowe
Elard Yong
Dale Ward
Case Summary:
In 1975, Hi-Value Supermarkets became a division of Hall Consolidated, a
privately owned wholesaler and retail food distributor. Hi-Value Supermarkets is
considered to be the smallest of the three supermarkets chains owned by Hall
Consolidated, with a small store distribution for its category. Hi-Value was the number
one or two ranked supermarket chain in each of its trade markets (as measured by market
share).
Hi-Value is known as “most convenient”, having three stores in Centralia
compared to its top competitors only having one each. Hi- Values three are major
competitors are: Harrison’s, Grand American, and Missouri Mart. The three major
competitors in Centralia contain stores all subsequently larger in size than those of HiValue. The four major supermarkets in Centralia make up 85% of all food sales, with the
remaining 15% stemming from smaller, independent grocery stores and convenience
stores. All 3 major competitors contain a feature attributes and a unique position in the
market. Because of Hi-Value Supermarkets having three locations throughout Centralia,
they provide a level of convenience that the competition simply cannot mimic without
substantial investment.
Although Hi-Value Supermarkets does offer the highest level of convenience,
there overall prices are the highest. Residents of Centralia prefer a lower price factor
mainly due to the average income, which falls between $35,000 and $74,999. Price is the
most important store determinant for the residents, which poses a problem for Hi-Value.
With price being the most important store determinant for the residents, the current
situation poses a problem for Hi-Value.
The major question described in the case is whether or not Hi-Value should
implement a low-pricing strategy. With the examination of Hi-Value’s current state, it is
evident that their future falls in between several courses of action that executives must
examine and choose whether or not to integrate them. This process must be done in order
to maintain a strong position in their served market and prosperous future.
Problem Definition:
The Primary Problem that Hi- Value Supermarkets face is that they are the
highest priced in comparison market studies of supermarket competitors within the
Centralia region. Endowed with proof in the Hi-Value Supermarket Shopper Interview
Results (Exhibit 7) that when asked the question “Liked most about other regular store”,
the number one answer provided was “Price”.
The cause of this is their commitment and value of high quality and limited
variety of merchandise particularly in grocery items and fresh produce.
Symptoms of this problem can be viewed within the 3% loss revenue within the
first quarter of the 2003-year.
Situational Analysis:
Challenge:
The challenge for Hi-Value is weather or not to make the imperative decision to
implement “Everyday low pricing” into their sales structure. And if implemented, decide
if and how the decision will influence Hi-Value Supermarket’s brand image and
positioning.
Company
In 1975, Hi-Value Supermarkets became a division of Hall Consolidated, a
privately owned wholesaler and retail food distributor. Since then, Hi-Value has been
serving trade areas in small cities and towns in the South Central United States.
Hi-Value Supermarkets is considered to be the smallest of the three supermarkets
chains owned by Hall Consolidated. With a small store distribution (for its category) of
20,730 square feet, Hi-Value have demonstrated an outstanding performance, achieving
sales of $192.2 million in 2002 and reaching top rankings in market share scores.
 Strengths
Hi-Value Supermarkets, in comparison to their competitors, counts with three
strategically positioned locations in Centralia, Missouri, making them more accessible to
their customers. This positions Hi-Value on top of the list of customer preferences
regarding shopping convenience. Each one of those three stores is located in a strip
shopping center owned by their mother company, Hall Consolidated. At the same time,
Hall Consolidated have managed to strategically introduce drugstores, barber shops, and
dry-cleaners in the same shopping centers, in order to enhance their customer’s
experience and add value to their service.
Hi-Value Supermarkets also counts with high scores in customer loyalty. Studies have
shown that 77.9% of their customers have been loyal patrons for 3 or more years.
 Weaknesses
Being price the most important store choice determinant, Hi-Value’s main
weaknesses could be considered their highly perceived prices. After an elaborated
consumer research, they concluded that consumers perceived Hi-Value Supermarket’s
prices to be “above average” in comparison to their competitors.
In addition to high prices, executives agreed on that Hi-Value supermarkets offer a more
limited variety of merchandise than their competitors. Overall variety is also perceived as
one of the weakest components of store characteristics falling 72% behind Missouri Mart.
 Opportunities
The most important opportunity for Hi-Value Supermarkets is the growing price
consciousness among Centralia shoppers. The increase on price elastic customers should
be carefully taken into consideration when developing new strategies, or taking new
courses of action.
One of Hi-Value’s opportunities could be identified in the customer spending habits.
Company records point out fresh meat, poultry, and seafood to be among the items
people in Centralia spend the most money on. This representative 14.32% average plus
the fact that meat quality is the second most important determinant of store choice must
be seen as an attractive opportunity for Hi-Value executives to improve the quality of
their butcher in order to attract more customers.
 Threats
Some threats were identified during the customer research performed by Hall
Commissioned. Hi-Value prices were perceived to be relatively higher over their
competitors. This could be considered a major threat for Hi-Value in an increasing pricesensitive market like Centralia. The 2002 research results recognized Harrison’s for
having the best prices, courtesy, quality of merchandize and service.
A similar result was also obtained from the research studies. Considering that
produce is the third most-important determinant for store patronage, Hi-Value faces
another problem regarding customer perception. Customers consider Harrison’s to be the
“produce store” in Centralia, and this could definitely compromise Hi-Value’s sales and
customer patronage.
Competition
Hi-Value’s competition could
be divided into two groups according 40
to competition significance. Its three 35
Hi-Value
immediate competitors: Harrison’s,
30
Grand American, and Missouri Mart,
Grand
contribute 85% (including Hi-Value 25
American
Supermarkets) of all the food sales in
Missouri
Centralia. The other percentage is 20
Mart
primarily composed by: North
15
Fairview,
West
Main
Street,
Harrison's
convenience stores, specialty food 10
stores and seasonal farmer’s markets.
Others
5
Each competitor has adopted different
strategies to attract and retain
0
customers and maintain business.
1996 1998 2000 2002
As we can see in the chart, HiValue Supermarkets has been recuperating from a crash in the late 90’s. This sudden gain
in market share for several companies including HI-Value in the late 90’s, could be a due
to a change in customer’s preference and perceptions. As we mentioned before, Centralia
shoppers have became more price conscious;
therefore, they go after relatively low prices.
Age Distribution
Customers
19 yrs &
under
20-24 yrs
25-34 yrs
Centralia, Missouri, the primary trade area in Central-Missouri is home for 41,000
habitants with an average income of $36,000 and an average age of 35 years. Residents
of Centralia represent great opportunity for Hall Consolidated.
Alternative Courses of Action:
Hi- Value Supermarkets Alternative Courses of Action:
1) Implement “Everyday low-pricing” strategy to all Hi-Value Supermarket products:
By choosing to implement “Everyday low-pricing” strategy to all Hi- Value
Supermarket products in Centralia, Missouri, Hi- Value would begin direct competition
with Harrison’s via most reasonable prices. According to the Association of Store
Characteristics with Major Food Stores in Centralia’s data, Harrison’s is a market leader
with 36% of customers agreeing that Harrison’s has the most reasonable prices leaving
Hi- Value only valued at 7% (the least favorable in the category). With 13,500
households retaining an average income of a mere $36,000/ year, consumers of Centralia
are shopping smart and becoming more money conscious. As Harrison’s is favored 29%
higher, over Hi-Value on pricing, they are undoubtedly the average consumer’s penny
stretching, go-to supermarkets. Because price is believed to be the most important store
choice determinant for customers, this may be a strategy that Hi-Value should consider.
By implementing the “Everyday low-pricing” strategy, Hi- Value Supermarkets
would promise customers a low price, without the need to wait for a sale price or other
comparison. It is proved that this strategy has proved to work well with a broader store
positioning strategy and if it is well supported with advertising. In this case, because HiValue has 3 stores to the other retailers 1 in the Centralia area, it is positioned as the
“most convenient” and uses a value approach when advertising. With the current
positioning as Hi-Value= Superior Value, in convenience, service and bakery items, HiValue falls short in the pricing category and also typically spends .11% less on
advertising annually than the average advertising sales (which is 1% of annual revenue).
Implementing this strategy may confuse Hi-Values image and positioning. However, if it
is implemented, the “Everyday low-pricing” strategy has the potential to reduce operating
costs and increase profit (.9% of annual sales), which the company could then use to
bolster a new advertising campaign featuring Hi-Values new “Everyday low-pricing”
strategy.
2) Implement “Everyday low-pricing” strategy to Grocery and Seasonal/General
merchandise only
By choosing to implement “Everyday low-pricing” strategy limited to Grocery
and Seasonal/ General merchandise only to Hi- Value Supermarket products in Centralia,
Missouri. Hi- Value would limit the pricing strategy to all grocery (including dairy) and
general merchandise (including beauty care and health care items). With these categories
representing 57% of Hi-Values annual sales, this limited approach on the “Everyday lowpricing” strategy should convey the image they want to project as well as enter Hi- Value
Supermarkets into a different level of competition (reasonable pricing) where they were
last in the category before. This would mean more direct competition with all 3 other
Supermarkets in Centralia (Grand American, Harrison’s and Missouri Mart). However,
this change does alter Hi- Value’s positioning as “superior value and convenience” and
may begin to confuse shoppers.
Some supporting factors to this argument according to Hi- Value Supermarket
Shopper Interview Results are that 77.9% of all Hi- Value customers are dedicated
patrons that have stayed and shopped with Hi- Value for 3 or more years. Of these
customers 51.7% purchase about half their total food needs with Hi- Value Supermarkets
and of that 51.7% of food needs, 36.9% purchased grocery only and 23.4% purchased
Grocery, meat and produce. Of these customers interviewed, 27% of them stated that the
things they liked best about other stores were the “prices”. This information allows a
conclusion to be drawn that because of the strong base of loyal customers, who mostly
purchase grocery items, prefered most stores with lower pricing and shopped most
regularly for other groceries at Missouri Mart (whose ad’s feature “very low prices”), that
the strategy of implementing “Everyday low-pricing” limited to Grocery and Seasonal/
General merchandise only, to Hi- Value Supermarket products in Centralia, Missouri to
be successful.
3) Do not implement the “Everyday low-pricing” strategy whatsoever
By choosing not to implement the “Everyday low-pricing” strategy whatsoever to HiValue Supermarket products in Centralia, Missouri would allow Hi- Value Supermarkets
to maintain their prided image and positioning as the “greatest convenience for
shoppers”. Their 3:1 ratio of stores located throughout Centralia gives them a competitive
edge against the other leading stores in the area. Hi-Values W. Prospect store, being the
only Supermarket in that section of town is a definite advantage for the organization. By
choosing to focus directly on their existing positioning they will be sure to not confuse
customers, also with their large base (77.9% of loyal 3+ year customers) they are not to
worry about switching. It should however, be a concern that most customers stated they
liked other stores prices better. But if Hi-Value was to change their positioning, it may
change the way they are overall perceived. Higher prices indicate higher value and
superior service. This is a trend seen worldwide. These categories of high value and
service are what Hi- Value (hence the name) Supermarkets was built upon. The option of
lowering price tends to contradict these written values.
In a well-defined market area, for “Everyday low pricing” to work, you do not
have to be the lowest priced supermarket in the trade area. This allows the option to
always be considered to only slightly lower prices. With Hi-Value’s pricing to be 7-10%
higher than its competitors, if Hi-Value lowers prices by a mere 2-3% they can still be
positioned as the most convenient and superior value supermarket, while satisfying their
customers price concerns.
Recommendation:
The more appropriate and responsible course of action Hi-Value Supermarkets
should take, given the market’s standing at this point in time would be to not implement
the “Everyday pricing strategy” whatsoever. By choosing not to implement the
“Everyday low-pricing” strategy whatsoever to Hi- Value Supermarket products in all 3
stores located in Centralia, Missouri would allow Hi- Value Supermarkets to focus on the
already respected positioning as the “greatest convenience for shoppers”. Because of their
3:1 ratio of supermarkets located throughout Centralia, Hi-Value gains well-recognized
competitive edge against the other leading stores in the area (especially having direct
store competition at the N. Fairview and W. Main Street locations and having a complete
territory sectioned and conquered with the S. Prospect location). Deciding to solely focus
HI-Value’s existing positioning they can be confident that customer confusion will not
occur. Hi-Value Supermarkets cannot be “everything to everyone”, they should focus on
their strength and satisfy disputes with marginal tweaks. With that being said, because of
Hi-Values large base (77.9% of loyal 3+ year customers) there is no doubt the trend will
alter as Hi-Value maintains their image.
The largest concern with this recommendation would be that most customers
surveyed stated they “liked” other stores prices better. Because of the somewhat
struggling market of Centralia, this should be a point of concern for Hi- Value
Supermarkets who are already down 3% of their first quarter sales in 2008. However, if
Hi-Value was to change their positioning, and introduce the “Everyday low pricing
strategy” it may change the way they are overall perceived. The higher prices shown in
their products available to consumers indicate higher value and superior service. This
strategy is a trend that can be viewed in products from handbags to cheese. The
categories of high value and service that Hi- Value has chosen to associate them with are
the values Hi- Value (hence the name) Supermarkets were built upon. Meaning, the
option of lowering prices tend to contradict these written values.
The following statement can effectively prove the chosen alternative.
“If a low-price strategy is implemented it has to be used by all stores in a trade area.
Otherwise, the store's positioning and image may become confused”. Although the other
3 main competitors have ideally lower prices, they are not all on board with the
“Everyday low pricing” strategy. It is proved that “In a well defined market area, for
“Everyday low pricing” to work, you do not have to be the lowest priced supermarket in
the trade area”. This allows Hi-Value to consider only slightly lowering all product
prices. In the case of Hi-Value’s pricing to be 7-10% higher than its competitors, for HiValue to lower product prices by a mere 2-3% it allows them to continue to be positioned
as the most convenient and superior value supermarket, while satisfying their customers
price concerns. This being done, and also increasing the advertising to 1% of annual
revenue, creating awareness about price drops (whatever the percentage) will satisfy the
large base of loyal consumers with economical driven price concerns, yet maintain the
“High-Value” image and convenience advantage.
Case Questions:
1-How would you characterize the supermarket competitive environment in Centralia?
The competitive environment for supermarkets in Centralia is mostly based upon
four major grocery chain stores that accounted for 85% of all food sales in 2002. The
remaining 15% is shared by two other small independent grocery stores, as well as
several convenience stores and specialty stores. Hi-Value's main competition stems from
Harrison's, Grand American, and Missouri Mart.
Harrison's is believed to have captured most of its business from the middle and upperincome groups in Centralia whose incomes are in excess of $40,000. The store is clean,
orderly, and attractive with a warm decor and friendly staff. Harrison's has a very
favorable image in the mind of consumers, and the store has a well-balanced variety of
meats, produce, and groceries. Harrison's focuses on a low priced strategy as described
by their slogan, "Save on the Total."
Grand American is a new store in Centralia, and is one of 148 Grand American
supermarkets. The store is the most modern store in the city, with the finest fixtures and
decor, as well as wide aisles, but Hall officials to be a secondary competitor regard the
store. It's variety of meats, groceries, and produce is modest but the dairy department is
highly regarded by Centralia shoppers. Grand American's price strategy is also one of
low-cost, but does this by highlighting the competitor's prices in their advertisements.
Customers of this store also come from residential areas, but have lower incomes in the
range of $20,000-$35,000.
Missouri Mart is regarded as Centralia's food sales volume leader, and is Hi-Value's main
competition. Almost 32% of Hi-Value customers also shop at Missouri Mart on a regular
basis. The store's main clientele is middle-aged and older families with incomes in excess
of $30,000. Missouri Mart's main merchandising strength is in groceries and special
purchase displays. A manager from one of the three Hi-Value stores in Centralia is
quoted as saying that " orderliness and cleanliness are sacrificed for production, and the
store lacks the quality and freshness present in the other supermarkets in Centralia."
2-How would you characterize Hi-Value Supermarkets' competitive positioning in
Centralia?
Hi-Value Supermarkets in Centralia were believed to offer a more limited variety
of merchandise than the major competitors, but carried more high-quality merchandise,
particularly grocery and produce items. Hi-Value trailed both Missouri Mart and
Harrison's in terms of overall advertising exposure. No advertising in Centralia was done
on television. Instead, newspapers, circulars, radio, and outdoor advertising was used.
The highest-priced food stores in Centralia were those of Hi-Value Supermarkets, but
nevertheless, Hi-Value advertises high-volume items at deeply discounted prices and
features "loss-leaders."
The North Fairview store is the oldest of the three stores in Centralia, and is located about
two blocks from Missouri Mart. About twenty percent of the North Fairview store's
customers come from outside of Centralia.
The West Main Street store opened in 1977 and had substantial renovations done in 1992
and 2000. The deli prepares items for sale at this location, as well as the other two HiValue stores in Centralia. Harrison's and Grand American stores are both located across
the street, but most of the customers of the West Main Street store come from the area
south of the store, where Harrison's and Grand American draw fewer customers.
The South Prospect store, built in 1982, was substantially remodeled in 2000. This store
has no immediate competition in the vicinity, and 23% of the store's sales come from
people living outside of Centralia. This store features an on-premise "scratch" bakery,
which offers high quality items, but less variety than other retail bakery shops in the area.
3-How might everyday low pricing affect Hi-Value Supermarkets' competitive situation
in Centralia?
In a time of growing price consciousness in Centralia, a low pricing strategy could
potentially increase sales and the market share of Hi-Value Supermarkets. In the first
quarter of 2003, sales of Hi-Value were already down 3%. By switching to a low cost
strategy, Hi-Value could possibly reverse this effect, and prevent any loss to its market
share.
4-What are the pros and cons of an everyday low pricing strategy for Hi-Value
Supermarkets in Centralia?
The controller for Hi-Value Supermarkets pointed out that by implementing a low
pricing strategy, Hi-Value could potentially lower its operating costs by two ways. It
could reduce handling and inventory costs due to a more steady and predictable demand.
Secondly, labor costs could also be reduced by less frequently changing temporary price
reductions. Both savings could be added to the company's gross profit margin. The
savings could also be used to fund a new advertising budget featuring the new low pricing strategy.
If a low-price strategy is implemented it has to be used by all stores in a trade area.
Otherwise, the store's positioning and image may become confused.
Strengths
 Hi-Value Supermarkets counts with
three strategically positioned locations
in Centralia, Missouri.
 Hi-Value on top of the list of customer
preferences when it comes to shopping
convenience. Stores are located in a
strip shopping center owned by their
mother company, Hall Consolidated.
HiSupermarkets
Weaknesses
 Hi-Value’s main weaknesses could
be their highly perceived prices.
 More limited variety of products
than their competitors.
 Hi-Value Supermarkets counts with a
very strong customer loyalty. Research
has shown that 77.9% of their
customers remain loyal patrons for 3
or more years.
Opportunities
 The most important opportunity for
Hi-Value Supermarkets is the
growing price consciousness among
Centralia shoppers.
 Research has shown that quality of
meat is the second-most important
determinants of store choice and
patronage.
Threats
 Harrison’s is perceived as having
the best overall prices.
 Customers perceived Harrison’s to
be the “produce store” in
Centralia.