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Site selection tech helps brands reduce cannibalization risk


Sport Clips deploys various technology solutions to help determine the number of hair salons a market can realistically support.

Franchise systems are often walking a fine line on strategic growth. Building out a market is a great way to take advantage of economies of scale, establish stronger brand awareness and spur revenue growth. The downside risk is that oversaturating a market or locating stores too close to one another can result in one store taking a big bite out of another’s revenue base.

Avoiding cannibalization has long been a hot topic in the franchise community. “Underestimating saturation levels can lead to too few stores in a market, which translates to missed opportunity. On the flip side, a market that is oversaturated can lead to store cannibalization, which translates to lower revenues and potential store closings,” says Jennifer Watson, senior managing director at real estate advisory firm Newmark Knight Frank in Chicago.

Cannibalization can impact not just one location, but also potentially weaken the entire franchise system. Franchisors that pay close attention to regulating cannibalization also send a strong message that the company is vested in ensuring there is sustainability in the success of its franchisees, which can provide both existing and potential franchisees comfort in knowing their investment will be protected, adds Watson.

Companies are using increasingly sophisticated technologies and the power of data and analytics to help optimize market penetration and avoid cannibalization. Location intelligence has taken a big leap forward even in the past few years with firms such as Buxton, ESRI, Forum Analytics and SiteZeus among those providing more granular customer and market data, powerful analytics and better mapping tools that help companies visualize information. Companies also are combining third party data on everything from traffic counts and consumer behavior with proprietary data they are collecting online, at point of sale and through customer loyalty clubs.

“Technology is critical in brand development, and there are multiple companies that provide great insight and tools for market optimization,” says Greg Smith, chief development officer for Sport Clips Haircuts. Incorporating and understanding brand-specific client data into a technology platform also is critical. Technology can quickly help visualize this data by providing a picture supporting or discouraging stores within a trade area, he says. “By layering this data you can easily identify and visualize retail synergy, competition, core clients, market penetration and reach of proposed location.”

Painting with a Twist

Painting with a Twist aims to understand customer behavior to help inform site selection.

Data makes a difference

There are a lot of exciting providers offering different software and mapping tools, agrees Richard Leveille, chief development officer for Painting with a Twist in Mandeville, Louisiana. “We use that data to make decisions, but we still have to interpret that data and apply it to real life situations, because each of our studios is a bit different,” says Leveille.

Painting with a Twist is also leveraging information that it collects internally to better understand its customers. “We are fortunate in that we are a data rich company,” says Leveille. Customers typically plan and reserve an event online, which allows the company to track the online presence and capture the zip code or home address tied to that reservation. “That gives us a ton of information to understand market penetration and what our reach is,” he says.

Technology is helping replace old school practices for creating boundaries for protected trade areas. Traditionally, companies would simply draw a 3- or 5-mile radius around a particular location. “The problem is that people don’t shop and travel and spend their money in radiuses,” says Leveille. “Time is the most precious asset and people make decisions on where they’re going to shop and where they’re going to spend money based on how long the experience is going to take.”

For example, people are not going to drive 30 minutes for a burger they can eat in 5 minutes. However, they might drive 30 minutes for a nice restaurant where they might spend two to three hours dining, adds Leveille.

Local knowledge is still important

These days, there are plenty of mapping and data tools that brands can utilize to get a “virtual drive-thru” of a trade area or territory without ever visiting the location. “Technology adds another layer of information that is really powerful,” says Susan Valverde, chief franchise operations officer at Sylvan Learning. Those tools provide objective analysis to assist existing and prospective franchisees. It also helps to refine location choices, which is critical as those decisions are typically for long-term sites. Input from franchisees who live and work in those markets is also valuable, adds Valverde.

At Sylvan Learning, local franchisee owners do help to drive location decisions within their territories. The software might show a great location with the right population density and demographic factors. However, there also is certain market knowledge that needs to be applied, notes Valverde. For example, understanding local traffic patterns might reveal information that doesn’t show up on any software, such as that a location on the north side of a certain highway is going to be a better draw than a location south of the highway, she adds.

Technology can efficiently and effectively enhance location analysis and strategy, but there is a strong case for applying a combination of both art and science, agrees Smith. Technology is useful to efficiently analyze and visualize large amounts of data. However, operations and consumer experience at each individual location can have as great an impact on location performance as proximity. If consumers consistently have a bad experience at a certain location, they will go to a new location if they get the value and experience they expect, he adds.

Sport Clips, with more than 1,800 units in the U.S. and Canada, uses a combination of analytic tools and “boots on the ground” broker input as the foundation to drive its growth strategy. “This market optimization process allows us to determine key trade areas that have the appropriate retail synergy to drive clients, overlaid with where our core clients work and live,” says Smith. Ultimately, that allows Sport Clips to determine the number of stores in a market, as well as the number of franchisees needed to appropriately build the market.

In addition, Sport Clips has about 70 company-owned stores in various markets that it uses to test ideas—including location decisions—prior to rolling them out to the franchise system.

A few years ago, Sport Clips opened a company-owned store in close proximity to another company unit. “Based on the data we felt the market would support both stores, but we wanted to test our data and logic on our own stores,” says Smith. The test was successful and both stores continue to do well. “We use this example and supporting data to alleviate concerns that franchisees rightfully have when proximity may be a concern,” he adds.

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