As a business leader, I hold a seat on our town’s Planning and Zoning board. My most asked question by neighbors and friends, “Why doesn’t the town build a Chick-fil-A or Outback Steakhouse?” And second is, “Why are there so many grocery stores in town?” The complexity and detail used in retail location and overall business success can be overwhelming. Understanding the capital investment, builder cost, store up-fit and future value are just some of the considerations.
Have you ever noticed two neighborhood grocery stores pretty much next to each other? Ever wonder why the second one chose to open yards away from the competition? If two grocery stores are right next to each other, chances are it’s a great spot to have a grocery store and many determining factors were applied, for example, scientific analysis using synthesis, mathematical and customer interview methods.
To get more in depth, one of the most important strategic decisions made by retail organizations is where to locate their operations. Customer base does play a huge part. What kind of person are they? What do they do for a living? When do they work? What do they do in their free time? This information might not seem relevant but for many businesses a great location is one that weaves itself into the average customer’s day-to-day life, their income and if they travel for work or work from home.
Another technique is Geographic Information System (GIS) techniques. Potential input variables are extracted from such data sets as Census, consumer spending categories, and point data sets representing location of competitors or location of other important facilities. Selecting the most suitable and relevant variables for further analysis is time consuming but critical in the final site selection decision.
I recently attended a conference where representatives from Starbucks Coffee, Chick-fil-A, and Wendy’s all spoke about how they use GIS to determine where to build new outlets. It was incredible how fast food chains compare all sorts of data overlays which allow them to see auto traffic, consumer demographics, safety information, commercial mix, and other factors which saves them significant money when deciding which locations to open next.
Many of the answers to why some of your favorite restaurants are not located just down the road are found online. Some franchise operations have demographic requirements of 50,000 for a market area and a location with an average daily traffic count of 21,500 to 45,000, depending on the size of the restaurant. It can cost anywhere from $1.8 million to $5.7 million to open a franchise, according to their websites. For anyone with aspirations to open a local Hooters, there’s a sizable population requirement, plus investors need to have $2.5 million net worth and $1.5 million liquid assets on hand.
So, next time you see land being cleared and a sign placed in the dirt, believe there have been countless man hours, thousands of data files, and mathematical methods used in why the location was picked. And always remember this, small towns and rural areas can be a good place for investment, because city folks are often attracted to the country life.