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.