So far in our series on the Top 5 Questions Convenience Retailers have about Retail Network Planning, we've covered the best practices for implementing a network planning tool and how you can identify the best locations for new builds. Now, in Part 3, you'll read about the best way to identify target sites or retail networks for a different growth type: acquisition.
Typically, the starting point for identifying targets for acquisition involves being pitched opportunities by a real estate developer. Rather than beginning the effort by making concerted decisions about the goals and strategies of acquisition, retailers fall into the trap of reviewing historical data about available properties. Limiting your perspective on potential by beginning with only the current and past state of a retail network does not allow you to capitalize on the real opportunity inherent in acquisition: retail network potential.
However you choose to approach target identification, you should be thinking strategically. Begin by framing your acquisition needs in relation to your existing network. You might want to seek out a network that allows you to slowly re-brand its sites to your own. You might want to seek one that complements your network geographically, filling a space yours does not currently reach. You might only want to assess acquisition targets with a property size large enough to support your established footprint. Similarly, you might be looking for sites that allow for a less expensive positioning effort; in other words, they already look a lot like your current sites and will not need overhauls in order for you to achieve brand consistency, equity and loyalty. Bottom line: However you are thinking about your criteria for acquisition, it should be in relation to your existing retail network and offering, such that your strategy remains at the forefront of your identification process.
That historical data we mentioned earlier? That's the old way. Knowing a network's current and past volume performance (sometimes on a site-by-site basis) only shows you the general economic profile, at best, of a location or suite of locations. Is understanding the current margin of a site enough to hang your hat on? Is that enough information to make an informed decision? Of course, the answer is ultimately up to you, but we suggest going a few layers deeper to identify the right targets.
With the Kalibrate retail network planning tool, you can create segmentation via a quadrant analysis of all sites for potential purchase. By segmenting each site into one of four quadrants (see quadrant chart here): high performing/high potential, low performing/low potential, low performing/high potential, and high performing/low potential, you can make more informed investments.
Typically, a network of sites available for acquisition will have sites that fall into each of the four quadrants. Knowing ahead of time which quadrant the sites fall into will help you understand the long-term investment required.
Placement in the low performing/low potential quadrant indicates rationalization candidates that you would likely want to pass on if given the option. If these sites are part of the package, they will probably become divestment candidates in the future. High performance/high potential are best-in-class sites and would be excellent candidates to acquire. It is unlikely that you would want to purchase a network full of high performing/low potential sites unless you know you can maintain current performance with no additional effort or cost (which is doubtful). But a retail network with low performing/high potential sites? That's a different story. This is where your strategy really gets to shine. If all you had looked at was current volume, you might have passed on an acquisition of this network type. But understanding projections of potential — based on data about your offering, your competition, etc. — can reveal that, given the right attention, these sites could be worth much more in the future.
Additionally, once you have a clear picture of potential, you are able to run what-if scenarios to further understand what your investment would need to be for a given location to reach its potential. What would happen, for instance, if you added additional fueling positions or parking spots at site A? Would that be the boost it needed to reach its potential? And what if you re-branded just sites B, C and D? How would that affect the success of your retail network (both existing and newly acquired)? By first identifying an acquisition strategy relative to your current retail network, then discovering potential performance of possible locations, you can begin to experiment with the possibilities and understand, at a deeper level, what it would take to begin earning on your investment.
Did you miss Part 1 on utilizing a retail network planning tool? Click here to read.
Did you miss Part 2 on determining the best locations for new sites? Click here to read.
Learn more about what it takes to run the most successful fuel and convenience retail sites in your market by tapping into these seven elements.