When wanting to expand one's business presence in a particular area site selection is key. Trader Joe's is a grocery store out of California with roughly 500 stores with that number steadily growing every year. BusinessWeek credits Trader Joe's with having the highest sales per sq. ft. of any grocery store. Being so popular, the chain has decided to grow it's outreach in Minnesota, mainly in Hennepin and Ramsey county. In Hennepin and Ramsey county there are currently 6 Trader Joe's and the company is looking to add another. Through the use of ESRI Business Analysts and the tools it offers along with Trader Joe's customer data, a new site can be selected in order to most efficiently expand their grocery store presence in study area.
Methods:
Business Analyst possesses a number of tools specifically for the purpose of business expansion based on customer data and also demographics of an area.
The first step is establishing an area of study. Trader Joe's has specifically requested a focus on Hennepin and Ramsey county, the major counties in the Minneapolis/St. Paul area. This can be done by simply selecting zip codes under the study area menu. Once done the map and demographic data was specifically focused on these two counties (Figure 1).
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| Figure 1 - Area of Study |
The next step was taking data of the current locations provided by Trader Joe's and adding it to the study area (Figure 2). When evaluating an area already containing your own business it is important to not select a location too close to an already established business because you want to avoid stealing customers and over saturating a market area.
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| Figure 2 - Current Locations |
Having current customer data (Figure 3) is very important because it gives you an idea where your most popular areas are customer wise and also shows how far people are willing to commute to visit your business, a major factor when it comes to shopping, especially grocery stores is convenience and although Trader Joe's offers a variety of products, some grocery stores may steal business away if they are more convenient to reach.
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| Figure 3 - Current Customers |
Using the Optimal Location tool is essentially taking all the customer data you have for a business and presenting you with a mean center (Figure 4 ). The mean center gives the average location of all your customers. In this case, the mean center for the customers in our study area is the heart of Minneapolis which makes sense given the fact a high amount of customers is located near this same area. Looking at the current locations, Trader Joe's does not currently have a location specifically near the mean center but has done a decent job "surrounding" the area with it's stores. This could potentially be a possible site to consider as there is a large customer base near.
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| Figure 4 - Mean Center of Customers |
The next tool Business Analyst has is known as Market Penetration. Market Penetration is essentially a method that shows how well your business is doing penetrating a study area. It is based on the number of customers over the total population area. The higher the percent, the more you are penetrating the area. The higher penetrated areas are ones you already have a decent grasp on and not necessarily the area to focus on putting a new location. The idea of putting a new location is tapping in to a less popular consumer base, expanding your penetration of an area as a whole. In the case of Trader Joe's in Hennepin and Ramsey county (Figure 5), they have a higher amount of penetration in the middle and east side of the counties. This includes the area where the mean center of the customers is. Perhaps looking more towards the west is a better idea.
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| Figure 5 - Market Penetration |
Another very telling tool is Ideal Customers. Ideal Customers takes demographic data you select at a specific variable level and narrows down areas that fit what the user deems an "ideal customer" in the case of this study area. The data was broken down at the zip code level and the variables were populations between 15,000 and 55,000 along with median house hold incomes between $35,000 and $150,000. This is relatively broad but specific enough to give an indication of areas that are well populated and not at the lowest income tier. Trader Joe's is generally considered a "trendy" grocery store with a wide variety of goods at varying prices. The results of the Ideal Customer analysis can be seen in (Figure 6).
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| Figure 6 - Ideal/Prospective Customer Areas |
With all the above tools being used and the data considered it is time to pick a few possible locations. The Market Penetration and Ideal Customer tool are strong indicators because one tells you where you are already doing a good job at reaching customers while the other focuses on showing areas that contain people that may visit your stores. Three locations were selected based on all the variables above. These three locations all happened to be near the border of the study area (Figure 7). All thee locations were geocoded using information extracted from an Excel File and turned in to geocoded points. One being in St. Paul, an area considered well penetrated but far enough away from other Trader Joe's to further bring in customers outside of the study area without stealing customers from the current locations. The next location in Eden Prairie was selected because it was in a lesser penetrated area that fell in the "ideal customer" range. The last location is Champlin was selected for similar reasons but also in attempts to attract commuters leaving work in the cities along Highway 47.
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| Figure 7 - Possible Site Locations |
With these sites in mind, Business Analyst has the ability to rank sites based on variables inputted to pick which site is most suitable. For Trader Joe's the variables selected were based on Total Population of the area, the Median Household Income for the area along with Avg $ spent per week ($150+) and those who have shopped at a Trader Joe's in the last 6 months. The results of the site ranking can be found below (Figure 8).
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| Figure 8 - Ranked Possible Site Locations |
Results:
Using all the tools above to select three sites and then having those three sites, Business Analyst listed the Eden Prairie Site as the best place of those chosen to open a new Trader Joe's location (Figure 9) This location taps in to a mildly penetrated area while the area it would be located in falls under "ideal customers". This location will pull in customers from within the study area, especially customers west of the location as there is no representation for Trader Joe's in the far west. The location is also located near the county border so there are many potential customers outside of the study area who would inevitably take advantage of a new Trader Joe's location. The Rank 2 location would have also been a good spot but after Business Analyst analyzing the variables submitted for ranking the Eden Prairie Location reigned supreme. The St. Paul location was a far cry due to the fact the market was on the higher side of penetration so it makes sense it got last for ranking.
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| Figure 9 - Proposed Location |
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