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Brands rely less on intuition, more on technology for site selection

Brands rely less on intuition, more on technology for site selection

Restaurant site selection methodologies are changing and technology is playing a key role in the evolution.

“The old way was to go out in the field with a map from AAA with sticky dots,” said Andy Verostek, market planning analyst for Nashville, Tenn.-based Sagittarius Brands, the parent company for Del Taco restaurants and Captain D’s Seafood Kitchen. “That’s not the way a lot of sophisticated restaurant concepts are doing it these days.”

Site selection experts know location is everything, and they also know that location intelligence technology can help them determine not only what makes a good site but also whether a site will meet the company’s future revenue goals. Gone are the days when restaurant companies chose sites based on such factors as their real estate broker’s opinion, the site’s proximity to a Walmart or U.S. Census Bureau data on the number of homes in a given area.

Jim Stone, founder and president of Woburn, Mass.-based geoVue, said that in the past, “most of it was one off: Here’s a site; I can draw from 3 miles; I need this many people and this much income, and I should be OK.”

But today restaurant companies look to geoVue and other tech companies to rank U.S. markets based on how they match the restaurant’s target customer.

“There has been so much building of restaurants and other retailers in the U.S. that a lot of markets have reached saturation points, so it’s difficult to figure out how many to put in a market and where to put them,” Stone said.

Brian Hill, the restaurant practice leader at Ann Arbor, Mich.-based Pitney Bowes MapInfo, said geographic information systems, or GIS, are now part of risk management.

“With the cost of real estate and the cost of failure, I think more companies are finding out this level of analysis is important,” he said.

The GIS providers build databases using information from third-party sources for demographic, census, psychographic, and business location data, such as parking, visibility, co-tenancy, and ingress and egress. They then combine that information with the information that the restaurants provide, such as customer survey results and annual store revenues.

Restaurant companies don’t want to say how much they spend on the systems. Hill said a MapInfo system can cost anywhere from $20,000 to $200,000, depending on whether the company wants just a store analysis or a sophisticated program that helps plan store openings as well as direct mail or other local marketing programs.

Stone said a geoVue package could cost $50,000 to $250,000 the first year, then $25,000 to $100,000 or more each year.

“It’s worth the investment for a company planning a significant amount of growth,” said Mark Whittle, vice president of real estate for Focus Brands, the Atlanta-based franchisor of Cinnabon, Carvel Ice Cream, Schlotzsky’s Deli, Moe’s Southwest Grill and Seattle’s Best International. “If you are only going to do five stores, it’s not worth it.”

Focus Brands works with GIS software provider ESRI, based in Redlands, Calif. The company developed the Tapestry Segmentation System, featuring 65 consumer descriptions with names like Main Street USA, Pleasant-Ville, and Connoisseurs. ESRI has information on which groups live in which ZIP codes and how they spend their money.

“You say, ‘I want to do a 1-, 3- and 5-mile ring around this store, so tell me where I have leakage and surplus,’” said Simon Thompson, director of commercial marketing for ESRI. “Leakage is unspent dollars. They have money for fast food, and they are going outside their area for it, so it’s leaking. Surplus is when there is a lot of competition. If they’re oversupplied, people will spread the same money in more stores, so you’re competing for spent dollars.”

Whittle said ESRI developed models for the 400-unit Schlotzsky’s Deli, which is based in Austin, Texas, and the 400-unit Moe’s Southwest Grill, based in Atlanta. Population density was important for both chains. For Moe’s, household income was more important because the check average is higher. For Schlotzsky’s, the visibility of the location was key. Whittle said Focus Brands has the software and runs the reports on their own computers.

Two years ago, Lake Forest, Calif.-based Del Taco, with more than 500 restaurants, began using iPLAN and iSITE, two products from geoVue. The market planning solution, iPLAN, creates charts, graphs and tables that show factors such as drive times between certain points and the simulated flow of customers to stores. The mapping solution, iSITE, creates maps indicating consumer spending and lifestyle segmentation as well as the location of competitors.

Verostek said Del Taco looks at details such as the propensity for area consumers to frequent Mexican and other quick-service brands.

He said, “We can run hypothetical scenarios: What if we put a restaurant here; what if we put it there; does it match the profile of our better-performing restaurants?”

About three years ago Marco’s Pizza, a 170-unit chain based in Toledo, Ohio, began using Pitney Bowes MapInfo’s Smart Site Solutions. The chain used the technology to narrow 300,000 potential sites down to a list of 3,500 sites with high brand potential based on factors such as the presence of in-profile customers, competition and minimal buffer distances to minimize cannibalization. That’s important as the company seeks franchisees, officials noted.

“It allows us to look at each DMA in the country and identify how many stores could be built in each,” said Bryon Stephens, Marco’s Pizza’s vice president of new business development. “We’re selling entire territories to area representatives in that market based on those studies.”

Marco’s receives the studies through a secure online site.

Hill, from Pitney Bowes, said restaurants are careful not to give too much information to potential franchisees.

“Franchisees can say, ‘I want to build a store on the corner of Spruce and Goose,’ but the franchisor will not say it will earn $1.2 million, because that sounds like an earnings claim,” Hill said.

Rita’s Water Ice, based in Trevose, Pa., has 545 locations. The chain wants to start opening stores in Texas.

“We’re developing stores close together and expanding from a point,” said Brian Carlisle, vice president of development. “It’s important they start to pop up in regular intervals in the market. Instead of opening one in Texas, one in Wyoming, one in Alaska, you want to concentrate whatever the given number is for the marketplace.”

The chain is working with geoVue to identify locations where families would stop after school events, shopping and other tasks.

“A large percentage of our business happens in the evening, so we want to be closer to activities you do in the evening,” Carlisle said.

The program is Web-based, so Rita’s Water Ice goes online to run the reports.

Vancouver, Wash.-based Papa Murphy’s Pizza uses geoVue software to help open and also to close stores. The software is on the field real estate staffers’ computers. The 1,000-unit chain prefers to locate near grocery stores.

“There’s been grocery store consolidation, so if we made a decision to go into a shopping center based on a certain grocery store and they close, can we live without them?” said Kevin King, senior vice president of development.

Papa Murphy’s has closed stores because a shopping center has deteriorated and then opened in a new center nearby.

In addition, the chain’s target audience has changed. The take-and-bake chain once was known for its value proposition, so it looked at shopping centers in areas of slightly lower income. That’s not true anymore, King said, because now many customers buy a Papa Murphy’s pizza not for the value but because they can control the occasion by baking the pie at home.

Other chains likely use the technology to decide which stores to close, but they’re not saying so publicly. In July Starbucks said it would close 600 stores and open 900 net new stores. The chain is not providing details about how it will choose stores to close.

Stone, from geoVue, said the company does not work with Starbucks, but he can draw a generic scenario.

“Say you have 20 stores, and you could maybe be profitable if you have 15, so which five do you close?” he said. “If you go in and try to use performance of individual units as a yardstick, you may not come up with the right answer, because what matters is what are sales going to be in the whole market.”

In general, operators say the technology has been effective. Stephens said Marco’s Pizza just had its ninth quarter of same-store sales increases and attributes some of that success to the fact that the newer stores had better site-selection data on hand before they were built. There will be more GIS in that chain’s future.

“I don’t think we could ever have too much information,” Stephens said. “I think as the marketplace changes, we’ll update the database.”

Carlisle of Rita’s Water Ice agrees the tool has been valuable.

“We believe the cost is reasonable for what we’re getting in return,” he said. “We are comfortable with the investment we have made.”

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