Growth Strategies — Cannibalization and Spatial Studies
How close is too close before you impact the sales of another site? How do you learn the optimal spacing for multiple sites in the same market? Going fast, without a strategy, could be detrimental to growth. That is where a Cannibalization Study and/or Spatial Analysis can help you grow intelligently and sustainably.
Having high sales volumes is every operators goal, but believe it or not there is such thing as too much revenue for one site; especially if your service level is affected. It is a fantastic problem to have but knowing there is an optimal sales volume to which your service level doesn’t suffer is key to understanding the optimal number of sites you can open in a trade area and market. The ultimate goal for a successful site, is to deliver a profitable and sustainable asset, with a high level of service from a facilities support standpoint, to your operations team while giving your investors a strong return on investment. The ultimate goal for a successful market strategy, is to build or acquire sites, spaced strategically so as to not cannibalize each other, spaced efficiently to allow for continued long term growth and market penetration in order to reach the maximum top line revenue and saturation for that market.
There are several data points you can leverage in order to gain an understanding of optimal spacing and possible cannibalization. For instance, if you have customer loyalty data, it can be a very powerful to understand how your customers move and shop within a trade area; and then at which day part they visit your site. Once you understand where your customer base resides for each site, that data can help you estimate a cannibalization rate in your customer base if you open another site within a radius or drive time parameter that you determine based on your optimal revenue targets for each site. Using a GIS mapping software such as Sites USA or ESRI can help you plot the customer data and create the visualizations for the studies to present your findings to your executive committee. Another data point you can leverage if you have existing sites already open in a market, is your current and historical sales data. Leverage the sales data to chart sales trends and identify impacts when additional sites were opened after the initial site within the market.
The more detailed the data you have at the site level the more detailed the analysis. There are pros and cons to each approach and data points; knowing which one to use and when is the key to properly assessing the impact. What parameters are right for your business?
These are some of the questions restaurant and retail companies ask when creating a growth strategy in a market where they have existing locations; and emerging markets where they want to find new sites.
If you need advisory services regarding your restaurant and retail site selection please reach out!
Malik Hammack