By Scott Barrett, VP Global Client Services
To expand your retail network, you first need to identify those places where expansion makes sense. There is no blanket answer, here. In fact, there are a multitude of variables you will need to consider, including demographic growth, benchmark competitors, regulations and more.
Specifically, you have to take into consideration what it really means to be a new entrant into a given market. Your selection of market will largely depend on how you enter. Do you want to enter a smaller market as a huge competitor, with 50 new sites? Or do you want to test out 10 stations? What are your goals and objectives in taking on the task of market entry? Are you attempting to disrupt a major benchmark competitor, or simply to test out a new geographic area?
Let's look at an example. In Las Vegas, there's a growing fuel market with lots of positives, including that there is no specific benchmark competitor with more than 25 percent of share in a 500-650 count market. If you plan to enter this market with 50 sites, you are a significant entrant. Entering a market like Houston (where there exists 2500-3000 locations) with 50 sites is not going to have the same large impact. Then you have a market like Charleston, South Carolina (200-300 locations), where finding and building properties with minimal intrusion is a challenge. In a market like that, you may want to acquire rather than build. Understanding your goals, then, is critical to defining which markets you may want to enter, and how.
What Makes a Market Ripe?
Again, there are hundreds of variables to consider and dozens of lenses through which you must look before making any decisions about market entry. But we can say, as a matter of course, that entering markets with one significant benchmark competitor presents major challenges in gaining a foothold, and therefore, we wouldn't consider those markets especially ripe. If you do attempt to enter such a market, one of two things is going to happen: you will experience difficulty in finding existing pieces of property that will perform, or, when you enter the market, gaining significant share and market effectiveness will come at a hefty expense, cutting into your margin.
Secondly, markets in coastal areas and warmer climates appear to be naturally growing as populations grow. In Tallahassee, for example, people are moving in, creating demographic change, but there isn't a significant benchmark competitor that dominates already. You have an opportunity in these types of areas.
But how can you tell, with all of the possible markets and possible locations available, which are best for you?
How Can You Select the Best Markets for Entry?
First, let's think about the specifics of benchmarking. What is the benchmark? It involves seven elements: market, location, facilities, operations, merchandising, brand and price. To understand what makes a market "good," you need to understand the individual location potential within that market. Gathering this data on your own, objectively, is not a reliable path forward. Consider a market like Los Angeles, where 4000 or more competitor locations already exist. Would it be possible for you to gather and assess data on all seven elements for all of these sites?
Where there exists expertise, rely on it. (Even the most committed DIY-ers know that fixing their own electrical panels is not an intelligent decision.) With reliable expertise in your corner, you can accurately assess the quality of markets, networks and sites based on the strength of each of the seven elements. You should be able to trust in a model that reveals margin availability and barriers to entry, so you can understand the possible return on your investment long before making it.
Margin availability is a broad stroke, but within the market, there are also different cost benchmarks and pockets of supply or activity on a site-to-site level. Your ability to assess the market accurately depends on both broad strokes and details — larger market intelligence and your own awareness of stipulations such as supply agreements (for example).
Additionally, discovering which markets are ripe for the taking this year is also a matter of discovering which markets are certainly not. As a marketer, you should have a viewpoint on favorable and unfavorable conditions. For instance, if Illinois is losing 40,000 people per year, you may determine that this is an unfavorable condition that has created an unfavorable market. Simply put, as important as it is to assert that a "ripe" market is one with high margin availability, no strong benchmark competitor and a growing demographic, it is equally as important to assert that an undesirable market is one with low availability, a strong benchmark competitor and a shrinking demographic.
However you choose to assess which markets are ripe for entry this year, know that expertise is required to complete this assessment. Any market that's growing, has a lot of locations with high potential and boasts availability of margin is probably a good bet — but to learn about that, it's time to dive into the data.