Taking the Guesswork Out of Site Selection

If it's true that a chain is only as strong as its weakest link, then chain stores and restaurants carry a heavy burden when it comes to selecting a new site. Choosing the wrong location for expansion could be a financial disaster for a company, and choosing the right one is generally crucial to its continued health.

Three retailers—the Yoshinoya and Del Taco fast food chains and the Weiner's clothing store chain—hope to minimize site selection errors by implementing CustomerScope, a market research and site analysis system designed to forecast the sales potential of a location based on sophisticated demographic analysis.

The system, created by Dallas-based performance management firm UniFocus in collaboration with the Houston-based information solutions company FH&R, works on two levels. First, it performs demographic breakdowns of current customers, and then it matches that data to demographic analyses of the area surrounding a potential site, to determine the site's viability.

Yoshinoya, a Japanese-style fast food chain with 93 locations in California (mostly in the Los Angeles/Orange County area), started using CustomerScope in April, and anticipates that the system will help them make site selection decisions based more on hard facts and less on hunches. Having closed six of its stores in the past due to site selection errors, they are eager to get the ball rolling on the "better expansion through science" approach.

Ed Cieszkowska, special projects senior advisor for Torrance, Calif.-based Yoshinoya West Inc., says FH&R's ability to accurately predict sales—within approximately 5% to 8%—was a major attraction for Yoshinoya. "The studies we've done show they're accurate," he says.

Cieszkowska expects that Yoshinoya will open 10 to 12 locations in 2000, and the company plans to gradually expand its base, first to the San Diego and San Francisco areas, then nationwide in 2002. CustomerScope helps Yoshinoya track where its mostly middle-class, ethnically diverse potential customers live, work and play, thus eliminating the need for its real estate agents to waste time and energy doing interminable foot-traffic surveys. "Instead of running around from site to site, it helps them focus on the best possible areas," Cieszkowska says.

Another Southern California quick-service restaurant chain, Del Taco, is also just getting up and running with CustomerScope, and Del Taco Inc. president Ron Petty says the early results look good. Having used similar (albeit less sophisticated) demographic models at other companies in the past, Petty appreciates what the scientific approach can do for the site selection process. "If a model gives you 90% accuracy, that's OK," he says. "The other 10% comes from physical site selection."

Del Taco's initial model was based on demographic data culled from 20 of its 250 locations. The Laguna Hills, Calif.-based taco-and-burger chain has 70 more locations scheduled to open this year (mostly in the West), and Petty says the company eventually wants to ramp up even faster, at a clip of 100 stores per year.

For Del Taco, the most attractive thing about CustomerScope is its ability to track the propensity of Mexican food consumption within a given trade area, thereby assessing the region's receptiveness to Del Taco's offerings, according to Petty. "A lot of what's driving this is that we're moving more to franchise mode," Petty says. "We have to make decisions quicker and more accurately, so we can steer our franchisees in the right direction."

Although CustomerScope was designed specifically with restaurant and hospitality chains in mind, other retailers—like the Houston-based Weiner's Stores—are beginning to use it.

Tammi Pearson, director of real estate for the 138-store clothing chain, says Weiner's is ideally suited to "an ethnic-based, budget-conscious urban market." In the past, the chain has used an outside service to pull carrier routes off zip codes in order to analyze the ethnic makeup of a potential Weiner's neighborhood. With CustomerScope, the company plans to more clearly define its target markets—80% of which currently are in Texas, with the rest spread out across the South. Says Pearson, "If it tells us a location is questionable demographic-wise, it should be a useful tool."

Weiner's intends to use CustomerScope not only to scout out new locations, but also to determine whether it might be more cost-effective to consolidate several stores in the same region, the better to prevent new Weiner's stores from cannibalizing existing ones. "I have experience in the real-estate end, but with marketing it takes more time to figure it out," says Pearson.

The system was not expected to be on its feet until mid-June, so the biggest benefits Weiner's has seen so far have been on the human resources end. The company no longer needs to use an outside service for pulling zip codes, because the system can make projections based on less raw data than was needed previously. It also finds that its own staff saves a great deal of time and energy by automating the process. Pearson says she particularly appreciates the system's ease of use. "They made it easy for non-technical people to understand it," Pearson says of UniFocus.

All three retailers say they expect CustomerScope to pay for itself fairly quickly. Yoshinoya, according to Cieszkowska, expects to see a return on investment after opening two more locations, while Pearson believes Weiner's ROI will take about a year and a half.

Since all three companies are so early in the implementation process, their projections may yet reveal themselves to be wishful thinking—or, for that matter, conservative estimates. UniFocus spokeswoman Rhonda Rhodes says a company's ROI from CustomerScope will largely depend on the number of new locations it opens, and how quickly they're opened. "The new stores and restaurants figure to be in the company's top 25% in revenues," she says. "Multiply the difference [between new and average stores' revenue] by the number of locations you're building that first year, and the cost of the system becomes insignificant."

She does admit, however, that fast-food chains might take longer than other types of retailers to recoup their investments, probably because of the franchising issues involved.