Importance of Location in Retail Business - Report Example

1 Location, Location, Location Whether the decision maker is contemplating the start-up of a sole proprietorship, or whether the individual is a member of a multi-national corporation, the most important decision to be made about this business, is where it will be located. The process of business location selection has like most things, have evolved over time. In their piece, An Introduction to geographical economics Brakman, Garretsen and Marrew speaks of the concepts inception and a brief history: The need for a better understanding of the role location plays in economic life was first and most famously made explicit by Bertil Ohlin in 1933. However, it is only recently, with the development of computer packages are we able to handle complex systems, as well as advances in economic theory, that Ohlin’s vision has been met and a framework developed which explains the distribution of economic activity across space—(Brakman) Whether one is a retailer, restaurant owner, financial institution or other site- dependant business, making intelligent and informed location decisions is critical to a company’s success. The process of informed and intelligent site selection for a business location is neither happen-stance nor rule of thumb; it now includes such things as, measuring market potential for entry and expansion, setting revenue and market share goals, determination of optimal site-deployment strategy in new markets, understanding critical drivers of site performance and success, identification of what products and services to be offered at a particular location, determining the most appropriate concept and prototype for a given location. 2 Whenever I think of a company which has exercised keen location intelligence, the image of McDonalds, immediately forms in my minds eye. McDonalds has more 30,000 locations worldwide which illustrates their keen ability to tap into informed and intelligent market locations. Companies who put the right product and services in the right place are not only prone to survive, but as in the case of McDonalds, they have positioned themselves for maximum growth. In an article found in ZD Net news, the piece describes the critical importance of location: “In retail, a stores location impacts sales performance more than any other factor, great managers, great marketing programs, and even great product-often none of these matter as much as a great location”. (ZD Net) Using McDonalds as my major example, with the assistance of the aforementioned location adaptable concepts, I will elaborate on how the corporation employs those variables to assure location success. No matter where a store (whether it be in the United States, China, Russia or India), The company will scientifically measure the market. Todd Spangler, in his piece, Keeping location data Ahead of the Curve, he mentions the method used by companies in making their location decisions; “McDonalds uses geospatial data to scope out locations for new stores, weighing demographic data like population density and income.”(Spangler) The target market which maybe an upper-class urban populace, which has a high propensity to eat out, or whether the clientele is lower middle-class workers who are either mobile or dormant. These are but some of the givens whenever a location is being investigated by the corporation. Accordingly, given the prospective location whether it be Lower Manhattan or Delhi, the corporation recognizes that variances in lifestyle and 3 cultural diversification, often accompany certain locations, which may require adjustments in the standard menu or service(s). Previously, I made mention of the fact that location, was in all cases, more important than any other variable i.e.; good managers, burgers etc., given the fact that an overwhelming majority of Indians (about 98%) do not eat beef or pork, nonetheless, the American Big Mac king is a resounding success at its locations in India. The corporation has introduced the Maharaja Mac (a mutton-based burger) and it seems to be an appropriate cultural fit. The McDonalds experience – i.e., eating McDonalds food in a clean friendly, and fun-filled environment with quick and accurate services seems to be a powerful mitigator. It is important to note that there is a definitive strategy involved whenever a new market location (national or international) is being considered. It may not always be the same prototype as the other location, but it will always be adaptable to the targeted clientele. McDonalds has introduce several new products specifically for its international clientele; The Teriyaki Burger in Japan, Croque McDo in France, the Maharani Burger in Malaysia, a green pepper burger in Singapore, a Thai Burger with Thai curry paste, spaghetti in the Philippines, spicy chicken with rice in Indonesia, and spicy seafood noodle in China are some of the examples of its localization strategy. The corporation will focus on establishing itself in a large metropolitan location, which has a large percentage of individuals who have high disposable incomes and a propensity for eating out. This strategy fosters mass brand recognition. Additionally, it is an important element of the McDonalds strategy to open their retail locations in close proximity to their established distribution centers. The inherent positive in this strategy is 4 to keep product accessible and flowing, while keeping the transition cost low. In her piece, Making of McQuality, Neera Bhardwaj explains why there is an absence of McDonald locations in other cities in India, she points out; Logistics play a critical role in McDonalds location strategy. As part of its Quick Service Restaurant (QSR) business, McDonalds initially decided to open outlets only within a 500-km radius of its main distribution centers in Delhi and Mumbai. This is the reason why McDonalds has not opened a single outlet in Metropolitan cities like Kolkata in the eastern part o9f India, despite the cities huge urban and cosmopolitan character. (Bhardwaj 19) The supply chain location, next to the retail location, is another challenging and critical element which must always be coordinated to accommodate the level of demand which the corporation outlets will ultimately require of it. Once McDonalds has established itself in a market by promoting and exposing its brand recognition, it is involved in a continuum for additional location within the market area. In an article in India Today, by Chakravarti et.al., they point out the vigilance and describe the interconnect ness in McDonalds new site location strategy: McDonalds has partnered with a railway station and bus station in Delhi to open its outlets at the Delhi Metro Fail Corporation, and the over-crowded Delhi’s Inter-State Bus terminal, where thousands of people pass through daily on their way to different destinations. More importantly to tap the automobile-driving consumers, business travelers, and tourists, McDonalds has set up drive-thru outlets in Delhi and along the national highway. (Chakravarti, et.al.) Given the corporations history and sophistication, it is able to set realistic revenue 5 and market share projections for its projected locations. The image of MacDonalds as a premier American food chain fits well with the changing world socio-economic landscape. In his piece, Will American Brands be a casualty of War? Sean Silverthorne assesses the American Brand market share abroad, he said; During the 1980’s, American Brands such as Coco Cola, Marlboro, and McDonalds rode the wave of globalization. From Red Square to the Upper Amazon, they brought people a taste of America, along with a promise of freedom and prosperity. The end of the cold war signaled victory for Brand America. As closed economies open up to foreign trade and investment, Brand America stood ready to sign up the best local business partners, to recruit the best distributors, and to capture market share from weaker, local competitors. Selling the American Dream has paid off handsomely. Eight of the ten most valuable brands according to interbrand consultancy, are American, and each derive more than half its sales from outside the United States. (Silverthorne) Another feature of McDonalds location success, is the determination of optimal site deployment strategy in new markets. McDonalds has introduced innovations that appeal to customers of all ages in its Indian locations. An article in the Economic Times, describes some novel innovations, and what it has meant to McDonalds bottom line, it points out: In some of its newly opened restaurants, McDonalds has provided lounges for senior citizens to relax and taste its food. For people used to traditional restaurant environment, in which waiters lead patrons to sitting places, McDonalds in Delhi’s 6 residential areas has made special arrangements, where several crewmembers are present to direct families to available sitting places. Most Indians love to have sweet desserts after a meal. Keeping this in mind, McDonalds has opened several kiosks in Mumbai and Delhi. The Kiosks are located either inside the main outlet or adjacent to the McDonalds outlet, they offer the customers an innovative range of cold desserts such as ice creams with unusual flavors like bubble gum, green apple and peach. For people who still want to eat at home or unable to visit restaurants because of a lack of transportation, traffic jams, and over crowded eating places, McDonalds has introduced its popular home delivery…McDonalds has achieved about a 15% increase in sales as a result of starting home deliveries from some of its sites. (Economic Times) My choice of a small company which has exhibited a keen sense for location is a local owner of two internet cafes. He has not engaged any of the sophisticated scientific methods which a multi-national like McDonalds engages in. However, he does have a keen business acumen a strong work ethic, and an exceptional flare with people. Michael Chew, owns two very successful internet-cafes in a thriving urban metropolis. He is surviving in an industry where the Department of Trade and Industry reports there are more than 10 failures in the metropolitan area every three months. He has been very methodical in the choice of his locations. In my conversations with him, he indicated that his desire was to go into the internet-café business, and once he made up his mind to pursue the venture; he was compelled to identify his market thrust. He explained that his market focus was the targeting of college students and young urban professionals. In the early stages of his plan he envisioned only one location, which 7 would simultaneously service his targeted clientele. Then came the most important and most critical part of his venture; location selection. He informed me that his first step was to identify general area location. Since properties in the metropolitan loop were somewhat expensive, he was compelled to making his first choice be the right choice. Initially he identified three possible locations, but the prime location sat at the base of a college campus and was a walk by location for students from the two other colleges. After thoroughly evaluating his primary site he was forced to abandon the consideration of this location; he knew there was a strong albeit covert rivalry between the three schools, and if he opened at his primary location, he felt the students from the other two colleges might feel alienated. He then initiated serious evaluation of the two remaining choices. Which were in neutral zones of either of the three colleges, but close to public transportation connections, which is utilized by the students from all three colleges and the general public. This site was more expensive and not only did it present him with great accessibility and exposure, it was situated between a restaurant and a bake shop. The only problem with this site is it was occupied and would not be available for six months. The third location was adjacent to the public park, albeit was an aestecially pleasing location, and much more reasonably priced, it did not possess the level of pedestrian and vehicular traffic as did the second site. Moreover, the square footage of the second site was ideal for the services he would provide in conjunction with his main business; students, young professionals, and Teachers from the nearby college campuses, represented a viable market for data processing and copying documents. The second location would afford him the opportunity to diversify his business dealings. He said he was reasonably confident that he could capture the patronage of the 8 students as a matter of course. His other target of the young professionals, he hoped would be augmented by the presence of the restaurant, the bake shop, and the public transportation artery. After a six-month wait, he was at last open for business. As he forecasted the students were ardent patrons, but the young professionals did not show up in the numbers which were satisfactory to him. It seems that the young professionals felt a distance between themselves and the students. The young professionals were a bit subdued and laid back in their usage of computers. While the students were noisy and a bit hyper- active. While the students demeanor did not affect the computer usage, it had a profound impact on his secondary business of providing office assistance. Additionally, a number of the young professionals had intimated to him, that his current location was not linear enough for the secretaries, who had the task of handling Xeroxing, and copying documents. Mr. Chew revealed that it took him one year to find and finally close the deal on his second location. He was a pioneer in the location he eventually selected; it is situated next to a 15-story office building, on the southeast end of the center of the city. Since he first occupied this building ten years ago, he has not been able to close his doors prior to the prescribed closing time. He boast of the fact that when he is working the center city location, he rarely gets an opportunity has an opportunity to enjoy a quiet lunch. The name of his company is Bit-Stop. Bibliography Brakman,S., Garretsen,H., and Marrewyk,2001,An Introduction to Geographical Economics: trade Location and Growth Chakravarti,S., Chowdhury,N.,and David,S.,Americana:Like This Is It! India Today February 9, 1998.pp.17-19 (McDonalds Plans to Explore South Indian Market) The Economic Times, April 30,2002 Neera, B., The Making of McQuality, Business Indai, August 24,1998 p19 Silverthorne, S., Will American Brands be a Casualty of War? Globalization:HBS Working Knowledge, April 30, 2003 Sprangler, T., Keeping the Location data Ahead of the Curve, ESRI November 8, 2005 (The Value of Location) July 14, 2005,ZDT Net News, Read More