Store location decisions – time to return to ‘old school’?

I was recently wandering down a bridlepath when I came across a sign warning of a Sat Nav problem (see photo). It reminded me of watching the TV programme, Billion Dollar Chicken Shop about KFC in the UK and recent store closure decisions at Morrisons. They all illustrate the problems of believing that mathematical models do not require us to think. There is a danger that the knowledge of the archetypal old property man (inevitably it was a man and many analysts found his views statistically unfounded and somewhat irritating) is missing from the site selection process.

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On the road to nowhere

The sign suggests that some Sat Navs are directing delivery drivers, using a postcode destination, to houses that of course can’t be accessed through a farmyard. Knowledge of the area or a detailed map would show that a different route should have been chosen to the relevant house. The Sat Nav model was inaccurate in predicting the optimum route.

Some analysts might say, ah well the model should be improved in terms of its input data. I’d suggest that it means that model users should always be prepared to use on-the-ground evidence to test the model results and sometimes be ready to dispute the model prediction. Have the proponents of using models for decision making become so convincing that businesses think that all location decisions can be left to the ‘machine’?

The KFC TV programme raised the issue of why the Denton Rock outlet was performing badly compared to the successful Cheshire Oaks outlet. As the construction company describes it, “the landmark Denton Rock Tower cannot be missed as you approach the site from any direction, giving KFC a very prominent location (my italics) for yet another of their successful drive through projects of 2013″. Prominence does not always deliver customers.

The staff at Denton Rock came up with the revelation that, although there are many people driving by on the M60 and the other roads, not enough people want to get off on a busy roundabout. As you might say, not rocket science. However I suspect the ‘rocket science’ models will have led the decision based on traffic flows and population – a model would probably suggest an excellent drive through site performance. Somewhat differently, the Cheshire Oaks outlet has a captive shopper population ready to take a break in a KFC despite lower traffic flows.

Similarly, I think the closures of some M Locals show the dangers of a rapid roll-out with inadequate knowledge of local areas. Whilst models may have suggested a sizeable local population with the right demographics, I’d hazard a guess that the siting of some stores was such that the local market would never be adequately captured from that specific address. As The Telegraph reported, the decisions by the new management, “as well as closing stores, Morrisons has halted the opening of new M Locals. The company said it will review the ‘proposition and site selection criteria’ of its convenience stores”.

Statistical models have played a major role in improving site selection in the retail sector but will not accurately predict performance in all cases. Beware of the ‘snake oil’ salesman who suggests otherwise. It’s time for analysts (in-house or external) and their retailer clients to ensure that implementation procedures are in place to include ‘sense-checking’ processes. Model results should be critically assessed on individual sites in the knowledge that predictions will not be 100% accurate. Essentially, does the model make sense on each individual location. If such processes are not in place there is a real danger that like the users of the inaccurate Sat Nav, retailers will be taking the road to nowhere.

Lidl bit slow off the mark

It’s all so easy for analysts and journalists including myself – any commentary on the struggles of the big grocery players genuflects to the scary pairing of Aldi and Lidl. We’ve become incapable of thinking about them as different entities. The latest numbers from Kantar World Panel shows Aldi with 4.8% market share and Lidl at 3.5%. Not much of a difference you might think but Aldi has been achieving a consistently higher rate of growth in market share.

Not bad when Aldi operates from some 550 stores in the UK whilst Lidl has over 600 outlets. Lidl has its sparky advertising and a more relaxed customer service (no pressure at the checkouts and credit cards are fine) however Aldi does seem to be pulling ahead. What’s going on?

Looking at the latest British Consumer Index (from BPS) results on the ‘main supermarket’ shop, it appears that Aldi has been stretching ahead (since March 2011) as a supermarket of choice whilst Lidl has less impact, except as a top up to other players. The trip for a ‘main supermarket shop’ is declining as we all shop and top-up across a range of shopping opportunities, but as Steve Abbott of BPS comments, “it does tend to reflect where a main shopper for the household perceives their main, or default, supermarket even if they don’t do a weekly main shop any more”.

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Supermarket Shares: Aldi and Lidl : Copyright BPS

Despite relatively impressive growth numbers against the Big 4, there are dangers for Lidl, if Aldi continues to stretch ahead. As the ever youthful expert, Richard Hyman said recently, “in 30+ years in and around retail I have never seen a market where price is so dominant and deeply embedded in customer behaviour.” Lidl needs to grab a bigger share of the consumers’ basket (or perhaps more importantly their trolley) whilst price remains such an important an issue. Perhaps the #Lidlsurprise advertising has been so successful in raising the quality perception that value is neglected in the consumers’ mindset?

But what else – who are those consumers that Aldi is attracting so successfully. Looking at the BCI numbers by CACI’s ACORN groups, whilst Aldi is attracting customers across the demographic spectrum it’s achieving over 10% market share in Modest Means, Steady Neighbourhoods and Striving Families, all groups where price is an issue of perception and necessity. Are those peaks in market share accidental or careful location planning?

Whether it’s market positioning or location planning I think it’s time to recognise the performance of Aldi and consider whether we should expect a Lidl bit more from the other one.

John Lewis – good for shopping centres and other retailers?

For once I needed to step outside the cosy Christmas Eve confines of the John Lewis department store in Welwyn Garden City and strike out into the wild frontier of The Howard Centre and beyond. I know Christmas shopping is all Black Monday, internet and that Christmas Eve is for panicking old blokes etc. etc. but JL was already heading towards a frenzy of till ringing. As I walked through the shopping centre and the other shopping streets it made me wonder how beneficial is JL to town centres?

The covered shopping centre was tumbleweed empty as was the nearby Debenhams. I realise that the JL at Welwyn GC is a bit of a one-off – a long-standing store, away from the other town centre shops and retail perfection for many in the local catchment. But you’ll all know of other JLs where the holders of the partnership card can shop’n’run back to their cars without venturing further afield. This issue should lead us to question the benefits of JL to all but affluent shoppers.

Shoppers and developers alike regard JL as a badge of honour but does it create a two tier catchment for a retail centre i.e. those long distance heavy spending punters who visit JL and the rest who shop the centre as a whole? Is it worth retailers thinking carefully as to how their stores perform when JL is in town and when it’s absent?

They may find that for similar sized towns it’s better to do without JL. Such thoughts might also lead developers to question how important JL is to the performance of the centre overall. After all Westfield London didn’t do so badly without a ‘badge of honour’.

Location – it’s an epic journey

I was at the new Odyssey cinema in St Albans recently (enjoying a preview of the eminently watchable The Theory of Everything, since you ask) and it made me think about the changing nature of place, location call it what you will, and why analysts and big businesses can miss investment opportunities.

The Odyssey is the result of a major refurbishment of an old decrepit Odeon in a very secondary area of an affluent commuter town to the north of London. As the multiplex approach was the only game in cinema town the St Albans’ Odeon had no part to play in the portfolio of a modern chain. With multiscreens in the nearby towns it was generally thought St Albans didn’t offer sufficient demand, i.e. the Odyssey was a journey that should not have been started.

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The Odyssey – a bright shiny journey Copyright The Alpha Cinema, St Albans

However the Odyssey (and its older sibling The Rex at Berkhamsted) has an unusual social entrepreneur at its heart. The Rex was a dead cinema destined for another boring redevelopment until a spot listing and creative development scheme produced the opportunity for James Hannaway to direct a well-crafted epic project to bring the cinema back to life. The schedule is decided by personal choice, films are introduced in a whimsical ironic style, often by Hannaway, and the audience (John Lewis customers at leisure) are made to feel it’s their cinema. As others have described it, it is a wonderfully idiosyncratic benign dictatorship.

Something of an Everyman for the home counties but much more as Hannaway, in his own way, identified a market of people who don’t want to munch popcorn noisily through the latest blockbuster. The Odyssey has a similar tale of resurrection to the Rex and the willingness of the local populace to join the initial funding and to put their finely upholstered bums on finely upholstered seats suggests that the magic has worked again.

The location angle of all of this is that this rundown area of St Albans will regenerate (not because of a council initiative or a bog-standard private sector investment) and property values will rise. For example, the recent deal on the closed and derelict Great Northern pub next door to the cinema is an astute move and it should bring riches to the lessee. Some existing businesses will gain, other operators will move in and uplift will occur all because of a single location trigger.

It’s a salutary lesson for analysts and businesses. Sometimes the numbers don’t stack up because your initial premise doesn’t fit the location – just remember one size doesn’t fit all. And secondly, a significant regeneration can occur because of a single seemingly illogical decision that government and most businesses could not have come up with in a million years. But, the clever trick will be for multiple restaurant and pub operators to get into this improving location before values change dramatically.

Commuter towns: Reasons to be fearful Part 3

In a recent Morning Advertiser (the trade paper for the pub and bar world) James Davy of Davy’s was quoted on the difficulties of expanding, given his concerns about high property prices in Central London. Whilst it was no doubt in part a negotiating position with London property owners it also illustrates an issue that many retailers and leisure operators face in today’s hot London market. It inevitably leads to the need to consider opportunities elsewhere and as James Davy says, “there are lots of affluent commuter towns where there is a market for an independent specialist”.

However, in my experience, there are also many dangers in moving into the commuter towns in and around London after success in the centre of the capital. It’s easy to think ‘we’re successful here let’s open in the places where our working customers live’.

My reasons to be fearful of such a strategy are as follows:

Where are they?

London commuters by their very nature are not in their home retail location for much of their waking hours and so lunchtime trade is minimised and evening trade is often captured by retailers and leisure outlets close to work. As an example; a Subway outlet was opened across the road from Harpenden rail station and closed in short order.

Excluding the issue of demographics, if your potential trade is going somewhere else for much of the day you have a failing site. Whilst weekends can offer some improvement, for many commuters family commitments create a different consumer demand to the working week.

But they’re our type of people

One of the issues Davy’s will face is that the dominant group for pub, bars and restaurants is the young metropolitan affluent – the demographic category CACI describes in it’s Acorn consumer segmentation as Rising Prosperity. Whilst an operator such as Davy’s may benefit from an older affluent demographic during the working day (and evening) that group may be more difficult to attract at their home locations when expensed business reasons are not relevant and home pressures apply.

Unfortunately, it is the older affluent demographic that dominates the commuter towns with the more interesting Rising Prosperity consumers only appearing in numbers in larger locations such as St Albans.

It’s my kind of place

The above issues are important but the biggest pitfall for retailers and leisure operator is failing to realise that size does matter. It’s easy to be trapped into only looking at the percentages of key target market groups rather than old school ‘counting of chimney pots’. Obviously, anywhere in the UK is a smaller market than Central London but it’s vital to realise that numbers of people sometimes matter more than demographics.

There’s little point opening up in a location almost completely dominated by an affluent demographic unless there’s enough of them to sustain your outlet. And of course as many other operators are swayed by the ‘it’s my kind of place’ argument there’s usually too much competition.

So whilst Davy’s may find enough opportunities for new openings in the commuter towns there are many reasons to be fearful in approaching the sunny uplands of commuterville.

Banks and branch closures – it’s time for private ownership

As I remember from the dim and distant past, nationalised industries lead politicians to interfere in the workings of the market (and for the media to push in that direction). It’s happening again with the banks.The current wittering about branch closures will also no doubt lead to some Twitter feeding frenzy ironically from people who never step inside a bank although having a local branch gives them a warm fuzzy feeling.

I’m no fan of the banks. Their pre-recession lending policies took no account of the crazy multiples of house prices against income and we all paid the penalty for that incompetent nonsense. It was a well-judged move from Alistair Darling to nationalise the failing banks but it’s now time to remove them from ‘arm’s length’ interference and let them make sensible business decisions.

On the one hand we want businesses to act efficiently to deliver low prices and best value but for some sectors our emotional attachment far outweighs our consumer behaviour. We fail to use many local pubs and bank branches to a level that means that it’s worth keeping them open but we wail when the correct spatial decision is made. Outlets closures are a sensible business decision particularly when our digital activity grows by the day. There are too many bank branches and too many pubs to support their use – end of. Whilst pub operators only have to suffer the nonsense of CAMRA’s ‘preserve at all costs’ policy, the banks have ministers in their ear (particularly if it’s a nationalised bank).

Whether you take CACI’s current view of 800 branches to cover the UK or Deutsche Bank’s 500 in 10 years’ time it’s obvious that banks need to make significant cuts to their branch networks. I don’t hear ministers complain about closures of supermarkets and DIY stores, so why should banks be any different. With a substantial percentage of UK banking effectively in state ownership it’s easy for politicians to put pressure on the banks to make them adopt an outmoded and inefficient spatial strategy. Ask yourself when you last walked into a bank branch for purposes other than using an ATM. It’s now time to get the banks out of politicians’ reach.

In praise of regional gems

Shopping locations in the UK, and I suspect elsewhere in the world, deliver an increasingly homogenised offer and the emergence of the internet has increased this sameness. (I’ll take some of the blame – in my previous working existence a level playing field only existed if you had enough money to buy the latest football boots.) Some retailers and financial services businesses have the bizarre idea that adding the town name in the outlet sorts the ‘local’ issue – strange how it always makes me want to change the letters round in a ‘Fawlty Towers’ style.

Despite this inexorable slide to dominance by the national multiples there are still some well loved regional retailers and thankfully some start ups. Here’s a challenge for you dear reader – let me know your regional gems and why they survive the onslaught of the big retail battalions.

As a boy from Burton-upon-Trent for me there is only one choice – the elegantly named ‘Birds the Confectioners’. Mention the name to anyone from the East Midlands and chances are they’ll go misty eyed and be transported to a dream world of cakes, bread and the finest pork pies. This is isn’t just any cakes (that’ll be Greggs) this is Birds’ cakes.

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Confectionery perfection © Birds

Birds offers tradition and quality with a friendly service that’s consistent across its 55 stores from Coalville to Chesterfield. Whilst they have introduced limited online ordering this is a retailer working principally on the basis that ‘if it ain’t broke don’t fix it’. Some products haven’t changed in 40 years and that’s good enough for me. Queues out of the door suggest that the Birds’ retail offer still works for many East Midlands shoppers as well.

Local shopping centres struggle to attract shoppers compared to the major ‘shopping factories’ and unless they offer something different there is little incentive for shoppers to include local centres in their spending spectrum. Smaller and regional retailers can make a point of difference to centres large and small but are we doing enough to let them emerge and thrive? We’ve had Portas, Grimsey, a parliamentary inquiry and government initiatives but little really changes to encourage retail start-ups and small retailers.

Are there lessons to be learnt from other sectors? If we want to improve the variety in our UK shopping locations we need innovation and that’s difficult for landlords to encourage in terms of covenant strength unless new retailers can show they are operating in a more favourable financial climate.

In the beer and pub sector the Progressive Beer Duty regulations have encouraged the exciting emergence of craft breweries (and reborn pubs) showing that new start ups can thrive given financial encouragement. If the government really does want to bring life to smaller retail centres it should create favourable tax conditions to enable the next generation of bricks-based retailers to thrive.

Could emerging retailers create a potent brew for shoppers to enjoy? A progressive taxation regime (at local and national level) for bricks-based retailers would make a real difference to the quality and range on offer to shoppers and help to halt the slide to an increasingly stale retail environment. Over to you Chancellor.