Tech plays bigger role in real estate tactics
Toppers uses tools including analytics, psychographics and mapping software.
Real estate has a bad rap for being a bit of an “old school” industry. The reality is that technology is playing a bigger and bigger role in all aspects of real estate, and that is especially evident in the high-tech tools being used to identify, analyze and evaluate real estate locations.
Many retailers today have moved beyond traditional strategies of determining locations that were not much more than “hunches” about performance based on matching paper maps with basic demographics like population density, incomes, age and competition locations, says Walter Wahlfeldt, executive vice president, retail corporate services at JLL, a global real estate consulting firm. These days, retailers and restaurants are trying to advance their capabilities to select sites by gathering and leveraging as much data as possible, he says.
Franchise groups increasingly rely on site selection and location intelligence software that combine mapping along with detailed demographic and psychographic data (specific to consumer attitudes and tastes) that can pinpoint everything from population density and key age and income groups to the number of pets in a household.
Those location tools have been constantly evolving to offer more capabilities—diving ever deeper into granular household data, as well as offering enhanced predictive market analytics. Thanks to cloud-based technology, those resources also are readily available on-the-go from mobile devices.
Those technologies that were only accessible to large firms with big budgets just a few years ago are more affordable to even small and mid-size restaurant companies. “We now have access to these tools, which is incredibly beneficial,” says Scott Ward, president and co-owner of Palatine, Illinois-based THG Franchise Group, the franchisor for Tap House Grill. A veteran of the franchise industry, Ward is working to grow his latest restaurant chain from its current seven locations to 100 stores within five years.
Such high-tech site selection tools are “imperative” to support real estate location strategies today, says Ward. Good demographic data in particular is a valuable tool, because it helps franchisors pinpoint not just a mass of people, but their specific target customer. To that point, location intelligence tools help to identify demographics and psychographics ranging from average age and income levels down to detail such as what kind of car someone drives and the magazines he or she reads. “I want to know as much information as possible,” says Ward.
That access to data is even more important amid changing consumer patterns. The shift to urban live-work-play destinations, notably among millennials and empty nesters, is making location intelligence tools even more important. In the past, traffic counts were a key factor in site selection decisions. Yet thriving urban areas rely less on vehicle traffic and more on good walkability, access to mass transit and bike paths.
For example, Tap House Grill’s best performing store is in Palatine. Ironically, the suburban Chicago location also has the worst traffic counts for all of the company’s Illinois restaurant locations. “For our brand and our success, a lot of it has to do with our engagement with the community and becoming that gathering place for the community,” says Ward. So, Tap House Grill tends to seek out locations in the heart of a community’s downtown area that also has good density and above average income and education levels, he adds. The company is now registered in 12 states, and as it expands, it plans to use market intelligence firm Geo Strategy to help identify key markets and locations.
It is relatively easy for retailers today to leverage third-party analytical services to help them develop a data-backed strategy. There are nearly a dozen major firms that provide site selection tools related to location analytics and GIS platforms including Buxton, Pitney Bowes, Geo Strategy and ESRI to name a few. Real estate consultants such as JLL also offer their own analytic tools to assist clients.
Data-backed strategies typically start by developing a better understanding of the customer through analysis of customer data such as psychographic profiles, travel times, frequency of visitation and specific purchases, notes Wahlfeldt. Those systems also can involve predictive tools that project remaining retail opportunities within markets and revenue potential for individual trade areas and/or individual sites.
The analysis results and models are often incorporated into a geographic information system (GIS) software platform to offer a comprehensive tool that not only helps a retailer make better decisions about growth, but also can help them manage their existing portfolio, he says.
Most franchisors agree location intelligence tools are an important part of site selection today, but they haven’t entirely replaced the old-school practices of site visits and personal experience. Some location intelligence systems estimate a 10 to 12 percent margin of error on either side in terms of under-performing or out-performing expectations. So, it is still important to apply both high-tech and low-tech solutions, says Mark Cairns, director of franchise development at Toppers Pizza in Whitewater, Wisconsin.
“I think the technology and the analytics gets you to that right trade area and right intersection very quickly,” says Cairns. But it is more difficult to find a space available right where that push pin is located in a map, he says. Moving even a half block away from a key intersection can have a big impact on performance, and each potential location also needs to be evaluated for key factors such as accessibility and visibility that can influence customer traffic and sales, he adds.
Toppers has doubled its number of locations in the past four years to include more than 70, with another 20 locations expected to open in 2016. The company uses a variety of site selection tools including analytics, mapping and psychographic data from Buxton and real estate consulting firm Newmark Grubb Knight Frank, as well as its own internal customer profile, input from franchisees in the market, and real estate site visits and market tours.
These models are capable of supplying massive amounts of data—including listing area colleges down to the number of dorm rooms, which is a plus for the pizza delivery part of Toppers’ business.
One of the keys to not getting overwhelmed or misled by the data is to develop a very detailed site selection model that truly represents the brand. It also is important to continually monitor that customer profile and make any necessary changes. Especially, as a chain grows and has access to more data, the company may need to periodically tweak that customer profile to make sure that it is on point.
In addition, franchisors need to understand that site selection tools and services are not “magic boxes” that make perfect predictions, says Wahlfeldt. However, the analytical tools do reduce the risk considerably when it comes to site selection, which makes the money spent on such technology well worth it for many operators.
“Even if the services help to avoid only one bad deal, the development and operating costs of single locations can be so high, that avoiding that loss can more than pay for the initial investment in analytics,” he says.