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