LOCATION RESEARCH AND SITE ANALYSIS FOR NEW FOOD COOPS

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LOCATION RESEARCHAND SITE ANALYSISFOR NEW FOOD
CO-OPS

• A Presentation for Co-op 500 by
• Peter C. Davis
• Location Research Consultant
• Cooperative Development Services

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Location Research Defined

• The body of knowledge and research methodologies
  used for
• The development of strategies for market entry or
  expansion
• The evaluation of retail locations and sites
• The forecasting of expected sales levels given
  alternative scenarios/assumptions

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Site Analysis Explained

• The major location research activity associated
  with the evaluation of a retail food store site
• The market at large
• The trade area served by the store
• The competitive environment
• The location (in the marketing sense)
• The site (in the physical, real estate sense)
• The facility

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Three Levels ofResearch Analysis

• First Level Basic Q D Study
• Second Level Enhanced Q D Study
• Third Level Full Market Study

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First Level Basic Q D

• An in-office assessment of the level of market
  potential available
• A macro-level estimate of sales potential
  available to a retail food co-op
• Based totally on secondary, in-office data
• No local input of data or observations
• Results in a 1-2 page summary that helps
  determine the likelihood of go/no-go
• Price 1,000 - 1,200

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Second Level Enhanced Q D

• Everything included in the Basic Q D Study
• Also provides for local input regarding
• Trade area size and configuration
• Population history and growth
• Competition
• Site/Location characteristics
• Any other insights into the local market
• No fieldwork is conducted
• Provides for a somewhat more reliable evaluation
  of a natural food store opportunity, presented in
  a 2-3 page summary report
• Price 1,500 - 1,800

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Third Level Full Market Study

• Utilizes both primary and secondary data
• Includes extensive fieldwork in order to
• Evaluate site location characteristics
• Evaluate competitive environment
• Evaluate patterns of accessibility
• Evaluate extent of retail synergy
• Utilizes detailed analog sales forecasting
• Generally acceptable by potential lenders
• Results in full report (25-50 pages) with tables,
  charts, maps
• Price 7,500 - 8,500 plus expenses

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Some Definitions

• Trade Area
• The geographic area from which a store obtains
  most of its sales volume (dollars)
• Usually defined as that area within which the
  store obtains 65 - 85 of its sales volume
• Defined in terms of geographic sectors (usually
  Census Tracts)
• Affected by population density, competition,
  retail synergy, trade area access, barriers, etc.

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Some Definitions

• Capture Rate
• The percentage of a stores sales volume that is
  derived from a specific geographic area such as a
  trade area or trade area sector
• The amount of sales derived from an area, divided
  by the total sales achieved by the store
• Usually totals 65 - 85 for a stores trade area

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Some Definitions

• Sales Penetration Rate
• Also defined as Average Sales/Capita
• The sales derived from a specific trade area
  sector, divided by the relevant population of
  that sector
• An indicator of a stores strength with respect
  to the population base that exists in the trade
  area sector

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Some Definitions

• Demography
• The characteristics of a population base
• With respect to natural food stores, usually
  includes race or ethnicity, age, education, type
  of employment, and income
• Certain demographic characteristics are
  positively related to a natural food stores
  sales penetration rates while others are
  negatively related to a natural food stores
  sales penetration rates

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Some Definitions

• Market Potential
• The annual food-at-home expenditure potential for
  a population base
• Determined by the prevailing trade area
  socio-economic and demographic characteristics
• For conventional food, it generally ranges from
  about 2,200 to 2,600 per person, per year
• For natural food, it generally ranges from about
  225 to 450 per person, per year

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Phases of a Market Study for aProposed New
Retail Food Co-op

• Phase I - CAT Survey (existing store)
• Phase II - Market Area Fieldwork
• Phase III - Data Analysis and the Preparation of
  a Sales Forecast
• Phase IV - Preparation of Report
• Phase V Presentation (if desired)

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Phase I What is a CAT Survey

• Defined as a Customer Address and Transaction
  Survey of shoppers at an existing retail food
  co-op, conducted in order to identify where they
  live and how much they spent at the store

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Phase I What is a CAT Survey

• CAT Survey Results are used to
• Allocate a stores sales to the specific
  geographic sectors from which they are derived
• Define a stores trade area
• Calculate a stores sales penetration rates in
  the various sectors in its trade area

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Phase I What is a CAT Survey

• A CAT Survey serves as a means of measuring a
  stores performance in each of its trade area
  sectors, under certain conditions and assumptions
  with respect to its facility, site and location
  characteristics, its competitive environment, and
  its merchandising and operating practices

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Phase I What is a CAT Survey

• Because CAT Surveys are interpreted in light of
  the facility, location, site, market and
  competitive conditions that exist, they form the
  basis for an analog sales forecasting system.
  Completed CAT Surveys thus comprise a database of
  analogs

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Phase II Fieldwork

• Fieldwork - an important part of a market study,
  for it allows a trained location research or site
  analyst to supplement population, demography and
  CAT Survey data with personal, impartial
  observations regarding facility/site/location
  characteristics, the competitive environment,
  patterns of retail synergy and trade area access,
  etc.

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Phase II Fieldwork Facility Characteristics

• Evaluation of
• Size and shape of the facility
• Its layout and position on the site
• Its condition
• Its appearance
• Its applicability as a food store

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Phase II FieldworkLocation Characteristics

• Evaluation of
• Population Density in the trade area
• Demographic Characteristics of the population in
  the trade area and surrounding the site
• Retail Synergy type, amount, proximity
• Trade Area Access
• Distance and Direction
• Types of streets/roads
• Barriers geographic/man-made/perceived

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Phase II FieldworkSite Characteristics

• Evaluation of
• Visibility direction and distance, signage
• Ingress/egress ease or difficulty, number of
  points, speed limits, lanes, etc.
• Parking both configuration of the parking lot,
  and its capacity

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Phase II FieldworkCompetitive Environment

• Direct Competition
• Similar merchandise mix
• Primary appeal toward same shopper clientele
• Includes other natural food stores, co-ops and
  specialty food stores

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Phase II FieldworkCompetitive Environment

• Indirect Competition
• Strong usually with a natural foods store
  within a store a readily-defined and identified
  department including dry grocery, bulk, HBC,
  frozen, refrigerated, and perhaps meat/seafood
• Medium usually 4, 8 or 12-foot sections of
  natural food set in conventional gondola runs,
  and identified by shelf-talkers, banners, etc.
• Weak limited amount of natural food, usually
  integrated with conventional groceries without
  any major product identification

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Phase II FieldworkCompetitive Impact

• Adjacent Where the competitor is in close
  proximity to the study store
• Intercepting Where the competitor exists
  between a population sector and the study store
• Impacting Where the competitor is closer to a
  population sector than is the study store
• A single competitor may be rated differently with
  respect to different population sectors

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Phase III Data Analysis

• Population history, trends, projections
• Demography characteristics of trade area
  population including race, age, education,
  employment, and income
• Per-capita Expenditure Potential
• Competition direct and indirect, and adjacent,
  impacting, or intercepting
• Patterns of access local and regional
• Retail Synergy amount, type, effect

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Phase IV Analog Sales Forecast

• An Analog (derived from analogous, meaning
  similar) represents performance data about a
  store (given its facility, site, location, market
  and competitive characteristics) that can be used
  to forecast the performance of another store with
  similar facility, site, location, market and
  competitive characteristics.

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Phase IV Example of an Analog
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Phase IV Trade Area Map
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Phase IV Analog Explained

• Can be a store (in terms of its performance at
  the trade area level)
• Can be a sector of a stores trade area.
• An Analog that represents a good match with
  respect to characteristics of the study store or
  site can thus be used to forecast sales
  penetration levels for the study store or site
  either at the trade area level, or at the
  population sector level.

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Phase IV Analog Selection

• By Location Type
• Free-standing
• Strip/Community Shopping Center
• CBD/SBD/FBD
• Downtown/Suburban/Edge of Town
• Neighborhood/Regional/Highway

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Phase IV Analog Selection

• By Store Size/Specialty Departments
• Sales Area Size
• Presence or Absence of
• Meat/Seafood Department
• Deli (service/self service)
• Bakery
• Café Seating Area
• Coffee bar/juice bar

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Phase IV Analog Selection

• By Population Density
• Urban
• Suburban
• Rural
• The greater the density of population, the lower
  sales penetration levels tend to be

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Phase IV Analog Selection

• According to Demography
• Ethnicity
• Age Groups
• Educational Attainment
• Employment Type
• Income Level (MHI, HH with incomes 50 - 150
  K)

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Phase IV Analog Selection

• According to Competition
• Direct Competition number, type, locations
• Indirect Competition
• Strong
• Medium
• Weak

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Phase IV Analog Selection

• According to Distance
• Other things being equal, sales/capita levels
  tend to decrease as distance from the store
  increases
• Because of the importance of demography in the
  performance of a natural food store or co-op,
  distance alone is not enough

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Phase V Market Study Report

• Introduction and Background
• Summary of Findings and Conclusions
• Review of Study Methodology
• Review of Facility, Site, Location
  Characteristics
• Definition and Description of Relevant Trade Area
• Review of the Competitive Environment
• Market Analysis of Relevant Scenarios
• Maps, Tables, Charts

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SO WHY DO A MARKET STUDY?

• It Provides a Reliable Method for Defining the
  Relevant Trade Area to be Served, and the Levels
  of Sales Penetration to Be Achieved in it

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SO WHY DO A MARKET STUDY?

• It Provides an Objective Review of the Location,
  Site and Facility Characteristics that Impact a
  Stores Sales Performance

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SO WHY DO A MARKET STUDY?

• It Provides an Impartial Review of the
  Competitive Environment that Affects the Stores
  Sales Performance

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SO WHY DO A MARKET STUDY?

• It Provides an Advanced Sales Forecasting
  Technique with Respect to the Anticipated Sales
  to be Achieved during First Few Years of the
  Stores Operation

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SO WHY DO A MARKET STUDY?

• It provides a means for evaluating the financial
  implications of opening a new retail food co-op,
  by providing the top line number to be used in
  the pro-forma operating statement

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SO WHY DO A MARKET STUDY?

• It Serves as a Tool
• for Management
• for Marketing
• for the Membership
• for the Bank

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THANK YOU