Hi-Value Supermarket

Hi-Value Supermarkets

Major Issue/Problem:

Should Hall Consolidated transition to the everyday low pricing strategy in the 3 Hi-Value Supermarkets in the Centralia, Missouri area?

Alternative Courses of Action:

Alternative One: Implement Everyday Low Pricing with a 5% reduction across ALL product lines

Advantages

* Prices become more competitive to a price conscientious market

* Doesn’t exclude a product line

* Not low enough to start a price war

* Price is closer to Grand American and Missouri Mart (7% lower currently)

* Reduce cost from lower inventory and handling costs

* Reduce costs from labor expense from remarking prices

Disadvantages

* Could damage current image (although it is weak) of offering high-quality merchandise

* Requires 20.08% increase in sales volume to break even

* Lowers gross profit margin to 26.2%

* Additional costs for advertising to promote new pricing concept

Quantitative Implications:

5% Price Decrease on ALL Categories |

Category | Gross Profit Margin | VC | Price | 5% Decrease | Percentage of Sales | Weight GPM (5%) |

Grocery (w/ dairy) | 30% | 70% | $1.00 | 27.42% | 50% | 13.71% |

Meat/Poultry/Seafood | 18% | 82% | $1.00 | 14.78% | 20% | 2.96% |

Produce | 30% | 70% | $1.00 | 27.42% | 18% | 4.93% |

Seasonal & General Merchandise | 33% | 67% | $1.00 | 30.57% | 7% | 2.14% |

Deli | 50% | 50% | $1.00 | 48.47% | 5% | 2.42% |

| | | | | 100% | 26.2% |

Alternative Two: Implement Everyday Low Pricing with 5% price decrease on Grocery, Seasonal & General Merchandise

Advantages:

* Combining these categories hits a high percentage of sales (57%)

* These categories have high profit margins (30%, 33%)

* Price conscience consumers will notice the different because it is what people are buying the most

* We only lose 1.5% gross profit margin overall

* Will be able to avoid price wars by reducing only 2 categories

* Reduce cost from...