The Science of Retail Site Selection
By Tom Ryan
A new crop of modeling tools and data analysis applications are making retail site selection much more of a science for retailers.
Wegmans is supplementing its traditional gravity modeling approach with deeper data such as income level and ethnic makeup. Kroger is staying on top of population trends by using a demographic package that’s updated quarterly. Lifestyle segmentation and psychographics are also playing an increasing role in site selection.
More chains are also relying on in-house data from loyalty card programs to estimate the impact of building new stores in markets where they already operate, thereby helping avoid cannibalization. There are even tools measuring store loyalty to gauge how a new store will steal sales from an existing one.
Like other retailers, grocers are also beginning to realize that real estate decisions are “joined at the hip” with merchandising and marketing, notes Matt Germain, Acxiom’s client representative for the retail industry.
“Companies like Whole Foods and Trader Joe’s understand,” he noted. “The closer a retailer gets to a neighborhood concept, the more they need distinct household-level data.”
Site selection has become much more complicated for grocers in recent years, due to factors such as encroachment by alternative retailers, fiercer competition in general, and the drastically longer times it takes from initial site selection to store opening.
“It’s challenging. The easy sites are gone,” Paul Gilbert, director of real estate at Wegmans, told Progressive Grocer. “And if you’re looking at a high-growth area, you can almost guarantee that your competitors are going to build there, too.”
Yet with all of the promising new tools, retailers must also walk the market.
“The amount of data available from different vendors doesn’t substitute [for] the amount of time an analyst or consultant must spend in the field reviewing competition, understanding strengths and weaknesses, knowing where the growth areas are, and knowing what the pricing in a certain market is like,” Bob Gorland, VP of Matthew P. Casey and Associates, told Progressive Grocer.
This involves getting to know the intricacies of a market from local builders and developers, websites that offer information about building and construction permits, and real estate specialists.
“As sites get more scarce and building costs and break-evens go up, it becomes even more important that you’re getting good, competitive data, and good data from planning agencies,” Mr. Gorland said. “The last thing you want to do is look at a site and not dig hard enough to see that a Wal-Mart Supercenter, Costco, Trader Joe’s, or an independently owned ethnic grocer is looking, too.”
Discussion Question: What do you think of the promise of some of the new tools being used for retail site selection? What are some tried-and-true factors in site selection that may be getting overlooked?