Determining Optimal Store Location
To conduct an Optimal Store Location Analysis, we first define the relevant parameters, such as the brand, vertical, and geographic locations of existing stores. In Spectus, you can also identify the main US chains’ store locations along with their opening hours, popular visit times, and SIC code. In this example, we’ll consider a national QSR chain as a reference brand and look at several other QSR brands in the US to compute the market size and other competitor-based factors.
To start, we’ll visualize the locations of our chosen QSR brand:
To find the most optimal locations to open new stores, we first decide whether to conduct the analysis by country, state, county, census tract, census block group, or zip code. For this example, we’ll determine the optimal county to open a new store.
We look at several characteristics to identify the best counties to open a store for our brand:
- Number of existing stores in the county
- Number of competitors’ stores in the county
- Distance to the nearest existing location
- Distance to competitors’ locations
- Frequency of visitors to all stores in the vertical (i.e. the reference brand and its competitors)
To determine the optimal county to open a new store we primarily consider two independent factors:
- Market size – Market size represents the number of visits to competitors’ stores in the county in the last four weeks. If there is high visitation to competitors’ stores we assume there is high interest in that vertical and infer a large market size. This metric is then transformed with a logarithm and scaled between 0 and 10 where 10 represents a large market size.
- Reachability – Reachability represents the distance people need to travel to reach a brand’s nearest store. We calculate reachability by considering stops, computing their distance to the closest store, and taking the median. This metric is then transformed with a logarithm and scaled between 0 and 10 where 10 represents high reachability. For a deeper analysis, we can also compare a brand’s reachability score with any competitors’ in a given area.
Once we’ve determined a brand’s market size and reachability we can plot the distribution of counties without any of the QSR’s stores (blue) and counties with at least one (orange). Market size is quite high in counties with existing stores, but some counties have a high market size and no stores. Reachability is – by definition – higher in counties with at least one brand location than in counties without any.