Custom Site Selection

INTRODUCTION

Purpose of Study

The purpose of this study is to find the most profitable location of any given retail store. A bakery was deemed an attractive market in Eau Claire due to the cheapness of the product that can benefit from college students on a tight budget and the attractiveness of a small local shop. Three sites were then ranked within Eau Claire to provide the best possible location for the bakery.

Scope of Study

The scope of the study was limited to Eau Claire, WI. However, to further analyze the trade area a comparison was ran against three other nearby cities--Menominee, Altoona and Osseo. All tools and analysis were limited to ESRI's Business Analyst. 

Sources and Methodology

First, to identify the most lucrative markets in Eau Claire, the demographics were analyzed. It is essential to locate the ideal customers and know if this customer base can support a business targeted toward this demographic. Next, the trade area for the product was analyzed and competitors were located to identify market saturation or if the product would have a firm hold on the market. Additionally, a gravity model comparing Eau Claire to Menominee, Altoona and Osseo was made to make further insights about the Eau Claire trade area. This was done using the gravity model. Finally, a ranking between the three most ideal sites within Eau Claire for a bakery was made.

CONCLUSIONS

Based on the demographics, a bakery could potentially have a strong market in Eau Claire, WI.
Not only could a bakery capitalize on a budget eatery, but also from the attention that is given to local shops in the area--downtown is a perfect example of this. Additionally, late-night bar customers could be drawn to the bakery in the downtown and Water Street sections of Eau Claire.

A bakery can appeal to these demographics because a bakery is a cheap little shop that can provide a positive local experience. The low per capita income at $23,887 and high college-aged population would indicate a large consumer base for cheap, on-the-go food. The ideal customer location performed in Business Analyst confirms this with the tracts surrounding campus, supporting the highest customer base.

There are no immediate competitors within the student housing area and in fact, there are no stores specifically designed as a stand-alone bakery. College residents do not have a place to eat for cheap or a quick pick-up eatery in close proximity to their location. Downtown residents and customers who are attracted to the expanding cultural scene of Eau Claire would be attracted to a local bakery and also do not have this option.

The gravity model indicated that most all Altoona citizens would travel to Eau Claire for a product while the product reach towards Menominee and Ossea is much smaller just at 8 miles. For this reason, targeting toward a local market would benefit this bakery.

RECOMMENDATIONS

Based on the conclusions and findings, the demographics indicate that there is a large consumer base for on-the-go cheap items targeted toward college students. A bakery allows for quick pick-up items as well as cheap take home goods that students are likely to purchase. It also allows for additional business from bar-goers looking for a late-night cheap snack option that Water Street food businesses typically benefit from. Additionally, Eau Claire citizens tend to appreciate and support local small shops that promote the culture of Eau Claire. For these reasons, a bakery would be a perfect market in the Eau Claire area. Since the target consumer is college students, the shop should be in close proximity to areas of college housing and the Water Street or downtown bars to benefit from other local shops and bars.

Since there are no bakeries along student housing, the bakery market is not saturated and allows for a controlling share of the customer base. Locations along Water Street would be an ideal site for a bakery. There are no competing bakeries and have limited options for budget eateries. The bakery could also see additional profits from bars and coffee shops. The second-best location would be downtown along the stretch of bars and other local shops. This area attracts many customers who like to experience the culture of Eau Claire and is only going to grow in popularity with the recent renovations and additional businesses.

Eau Claire products typically don't attract a large consumer base outside of the city itself as indicated by the gravity model. Therefore, the bakery should not try to appeal to outside customers, but rather develop a loyal local customer base. 

FINDINGS AND DISCUSSION

Demographics

Eau Claire is home to the University of Wisconsin-Eau Claire, where many students with a tight budget live in the same areas. From Water Street north a few blocks is where the majority lives, while downtown has recently experienced renovations that have made the area more popular. During the school session, eateries benefit from bar close, where there are few cheap options.

According to the tapestry segmentation, Bright Young Professionals make up 12%, in which these individuals are concerned about the environment and it impacts their purchasing decisions. This market also focuses on local experiences and eat out often. They are a loyal crowd if online ratings are positive. Furthermore, the Set to Impress demography who make up another 11% always have an eye out for a sale, have less income, and quick meals on the run are a reality of life.

The per capita income of $23,887 indicates that buyers are most likely looking for cheaper grocery items and 30% of the population aged 20-34 indicate the high college population that prefers on-the-go food that a bakery can provide.

Figure 1: Ideal Customer Location based on age and bakery expenses

Figure 1 shows the largest consumer market based on the 20-24 age group that spend their money on bakery items. This contains both the Water Street and the downtown tracts.\

Market Structure

Figure 2 shows all locations of nearby businesses that hold a bakery. Although there are three within 2 miles of the University of Wisconsin-Eau Claire, none are specifically a bakery and none are located along student housing.

Gravity Model

The gravity model is used to determine the distance from other cities that customers are willing to travel for a product. In this case the nearby city of Altoona, and Menominee and Osseo-both 24 miles away-were used. For Altoona, the gravity model indicated that customers 3 miles in this direction would travel to Eau Claire for a product. For both Menominee and Osseo, the gravity model indicated that customers 8 miles in those directions would travel to Eau Claire for a product. 

REFERENCES

All analysis used ESRI's Business Analyst.

Site Selection

INTRODUCTION

Purpose of Study

GIS is a powerful tool when examining site selections for businesses. Existing customer data, competitor locations, and demographic profiles give an accurate representation on the efficiency of existing stores and potential growth among the market. Using business analyst can provide specific ideal customer areas where a business is likely to succeed, the current popularity among all areas, and hot spot locations where a population is likely to support a business. In this project, an ideal customer area, market penetration, and hot spot analysis was performed to provide three potential Trader Joe's locations for growth in the Hennepin and Ramsey Counties in Minnesota. Finally, a ranking of the three prospective Trader Joe's was made using specific variables to give what is likely to be the most successful expansion of the franchise.

Scope of Study

All customer data was limited to simulated customer data from six Trader Joe's locations within Hennepin and Ramsey Counties in Minnesota. All demographic information and hot spot analysis used was from the ESRI geodatabase in Business Analyst.

Sources and Methodology

All demographic data and processes were performed using ESRI's Business Analyst. Ideal customer areas were based upon zip codes with above 20,000 total population and $45,000 household income. The market penetration used the number of customers divided by total population at the zip code level as well. The hot spot analysis gave total population by 1 square-mile areas. The final ranking system was based off total population, 2016 median household income, average spent per week by households at food stores $150+, and shopped at Trader Joe's in the past six months within a 1.5 mile buffer zone.

CONCLUSIONS

Central Minneapolis and St. Paul exibhit both a substantial population and disposable income. With the mean center of all customers located also in central Minneapolis, a Trader Joe's has the potential to benefit not only from nearby residents, but also surrounding customers who travel into central Minneapolis as well. There is a low market penetration in the Central Minneapolis area with plenty of potential customers and no nearby Trader Joe's sites. Additionally, in St. Paul, the customer base isn't fully exhausted and has no nearby store. The store rankings had the Southern Minneapolis ranked at number one, the Northwest Minneapolis location at number two, and the Northwest St. Paul site at three. This was based on population, income, customer tendencies, and road location.

RECOMMENDATIONS

There are enough potential consumers with disposable income to support business in central Minneapolis and St. Paul. Trader Joe's could also benefit from cross-traffic and the primary business district in central Minneapolis where any of the surrounding customers might be travelling into the heart of the city for other shops and events. Additionally, a Central Minneapolis location would boost the extremely low market penetration that exists in this area. Supported by the hot spot analysis, this area shows a healthy population for a large customer base that is currently not being taken advantage. The presitine site expansion for Trader Joe's is in the Southern Minneapolis where the current Trader Joe reach does not extend. Here, there is a high population with disposable income, that is likely to spend an above-average amount of income on household items such as groceries. The location at the intersection of interstates 35 and 94 also hold extra benefits from daily traffic. The proposed site offers ample room for parking and a moderate-to-small Trader Joe's, which would make sense for the seventh Trader Joe's in two counties.

FINDINGS AND DISCUSSION

As figure 1 shows, the ideal customer areas are around the heart of Minneapolis and east in St. Paul. There are plenty of residents in this area that have an above $45,000 salary and have over 20,000 people within the zip code. The mean center of all existing customers is actually focused in central Minneapolis as well.

Figure 1: Ideal customer (greater than 20,000 population/greater than $45,000 income) areas

While Figure 1 focuses on growth and expansion, a lot can be learned from existing customer information and current market penetration within zip codes as shown by Figure 2. Two apparent details can be gained from this report in regard to the ideal customer areas. The first being that central Minneapolis has the lowest market penetration, meaning that for the given population, there are very few customers who are able to shop at a Trader Joe's. The second being that there is a very large population of customers by the St. Paul area, but both Trader Joe's are located at a substantial distance from this region. Additionally, although the market penetration is higher than central Minneapolis, St. Paul's customer base hasn't been completely exhausted.

Figure 2: Market Penetration for existing customers of Trader Joe's

While analyzing customer data may be helpful at the zip code level, a hot spot analysis, as Figure 3 shows, can provide data and better represent patterns by categorizing by distance, such as the 1.5-mile divisions below. The three prospective Trader Joe sites all reside in high population areas and show not only that a substantial population resides to support that Trader Joe's, but that it also wouldn't take away business from other Trader Joe's sites.

Figure 3: Hot spot analysis categorized by 1.5 miles

Finally, Figure 4 ranks the prospective sites given the existing customer data, demographic information, and overall site location. The southern Minneapolis location was ranked the best potential site for Trader Joe's expansion. Here, there is a high population, disposable income, and above-average amount of income spent on household goods. This specific location is also at an advantage because it's along the intersection of interstates 35 and 94. The next best option is Northwest Minneapolis where the location benefits just slightly less from population and income, but is in a less favorable road location and budgeting for household items. Finally, the third-ranked location resides in Northwest St. Paul, where a higher current market penetration, lower population and income dictates a less favorable location to its Minneapolis counterparts.

Figure 4: Ranking of Prospective sites using customer data, demographic information, and additional factors

Figure 5 shows aerial imagery of the exact location of the best-ranked expansion for Trader Joe's according to Google Imagery. Updated information shows, however, that the building has been torn down in place of a garden and lawn space, which would reduce initial demolition costs. The lot would have to be remodeled to provide ample parking and the store would be limited to a moderate-to-small Trader Joe's. However, with six nearby locations in the two counties, this space would be of adequate size.

Figure 5: Google imagery of the top-ranked expansion site of Trader Joe's

REFERENCES

All fictional customer data was obtained from Dr. Ryan Weichelt in the Business Geographics course offered at the University of Wisconsin-Eau Claire
Analysis was performed using Business Analyst on ESRI's ArcMap.