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Franchisors and Franchisees alike need to be able to predict the future: when negotiating a price...
The performance of franchise locations - whether existing or prospective - will always be a function of buyer density and gross buying power. What is so beautiful about these metrics is the common-sense appeal - you don’t need a PhD in math to understand the theory: if we are looking at two potential sites, the site with more buyers earning more money will outpace sites with less.
Can you imagine a juggernaut like Wal-Mart placing a supercenter in a town with only 55 residents, each of them earning only one dollar per day? Of course not. Wal-Mart knows that population density and buying power are critical to site success.
Defining Catchments
For franchisors and franchisees looking to expand, these two metrics will provide incredible strategic support.
But to use either of these metrics, you need to first understand your retail catchment area.
What is a retail catchment area? Everyone’s definition varies (here is an example), but the main points are as follows:
A catchment is the outer boundary of ‘buyers’ that will likely visit your store.
Think about this in terms of your own behavior. How far would you drive to buy a Big Mac from McDonald’s?
10 minutes? 20 minutes? 2 hours?
Your answer to this question defines the catchment.
Let’s say that you’re willing to drive 20 minutes for a Big Mac. And let’s say that your entire neighborhood (other Big Mac buyers) agree with you. The catchment for that particular McDonald’s location would be defined as a 20-minute drive-time catchment.
Why is this important? Because so many people get catchment areas wrong. And if you get catchment areas wrong, you will misunderstand buyer density and gross buying power. And if you misunderstand these two metrics, you’ll be contributing to the $1 trillion global loss tally for companies making bad site selection decisions.
Don’t lose money
How are people getting catchment areas wrong? There are two main errors:
- Using census data. So many retailers fall victim to the ‘census trap’. They will use zip codes or census blocks to estimate buyer density.
Why is this bad? Let’s flip the question back to you. When you’re thinking about buying a Big Mac, do you ask yourself what zip code you sleep in? Because that’s what census data tells you.
We don’t do that, and you probably don’t either. When I want a Big Mac, I just find the closest McDonald’s, no matter its zip code or census block.
- Using road shapes or fixed radius buffers. Many retailers will try to get fancy and hand-draw catchment areas, usually following outlines from major roadways or line-of-sight buffer zones.
Why is this bad? Again, put yourself in the shoes of the buyer. Are you referencing this random ‘shape’ when you ask yourself which McDonald’s you’re going to visit?
Probably not. So this wouldn’t be a good way to define catchments.
The absolute best way to approximate buyer activity - and thus outline your catchments - is through time delimited boundaries.
How long will a buyer walk to visit my store?
How long will a buyer bike to visit my store?
How long will a buyer drive to visit my store?
Answers to these three questions will allow you to build travel-time isochrones.
| PopEx provides free travel time isochrones to all Solo and Enterprise customers! |
What if you have an outbound sales franchise? These require different catchments. Read this article for more information.
Interested in learning more about the franchise process? See these related articles:
Want help putting together all of these pieces? Our world-class analysts will provide free consultation, no strings attached. Request a consultation here.
