LOCATION RESEARCH AND SITE ANALYSIS FOR NEW FOOD CO-OPS

1. LOCATION RESEARCHAND SITE ANALYSISFOR NEW FOOD CO-OPS A Presentation for “Co-op 500” by Peter C. Davis Location Research Consultant Cooperative Development Services Co-op 500 Webinar

2. Location Research Defined The body of knowledge and research methodologies used for: • The development of strategies for market entry or expansion • The evaluation of retail locations and sites • The forecasting of expected sales levels given alternative scenarios/assumptions Co-op 500 Webinar

3. Site Analysis Explained The major location research activity associated with the evaluation of a retail food store site: • The market at large • The trade area served by the store • The competitive environment • The location (in the marketing sense) • The site (in the physical, real estate sense) • The facility Co-op 500 Webinar

4. Three Levels ofResearch Analysis First Level: Basic Q & D Study Second Level: Enhanced Q & D Study Third Level: Full Market Study Co-op 500 Webinar

5. First Level: Basic Q & D An in-office assessment of the level of market potential available A macro-level estimate of sales potential available to a retail food co-op Based totally on secondary, in-office data No local input of data or observations Results in a 1-2 page summary that helps determine the likelihood of go/no-go Price: $1,000 - $1,200 Co-op 500 Webinar

6. Second Level: Enhanced Q & D Everything included in the Basic Q & D Study Also provides for local input regarding: • Trade area size and configuration • Population history and growth • Competition • Site/Location characteristics • Any other insights into the local market No fieldwork is conducted Provides for a somewhat more reliable evaluation of a natural food store opportunity, presented in a 2-3 page summary report Price: $1,500 - $1,800 Co-op 500 Webinar

7. Third Level: Full Market Study Utilizes both primary and secondary data Includes extensive fieldwork in order to • Evaluate site & location characteristics • Evaluate competitive environment • Evaluate patterns of accessibility • Evaluate extent of retail synergy Utilizes detailed analog sales forecasting Generally acceptable by potential lenders Results in full report (25-50 pages) with tables, charts, maps Price: $7,500 - $8,500 plus expenses Co-op 500 Webinar

8. Some Definitions Trade Area: • The geographic area from which a store obtains most of its sales volume (dollars) • Usually defined as that area within which the store obtains 65% - 85% of its sales volume • Defined in terms of geographic sectors (usually Census Tracts) • Affected by population density, competition, retail synergy, trade area access, barriers, etc. Co-op 500 Webinar

9. Some Definitions Capture Rate: • The percentage of a store’s sales volume that is derived from a specific geographic area such as a trade area or trade area sector • The amount of sales derived from an area, divided by the total sales achieved by the store • Usually totals 65% - 85% for a store’s trade area Co-op 500 Webinar

10. Some Definitions Sales Penetration Rate: • Also defined as Average Sales/Capita • The sales derived from a specific trade area sector, divided by the relevant population of that sector • An indicator of a store’s strength with respect to the population base that exists in the trade area sector Co-op 500 Webinar

11. Some Definitions Demography: • The characteristics of a population base • With respect to natural food stores, usually includes race or ethnicity, age, education, type of employment, and income • Certain demographic characteristics are positively related to a natural food store’s sales penetration rates while others are negatively related to a natural food store’s sales penetration rates Co-op 500 Webinar

12. Some Definitions Market Potential: • The annual food-at-home expenditure potential for a population base • Determined by the prevailing trade area socio-economic and demographic characteristics • For conventional food, it generally ranges from about $2,200 to $2,600 per person, per year • For natural food, it generally ranges from about $225 to $450 per person, per year Co-op 500 Webinar

13. Phases of a Market Study for aProposed New Retail Food Co-op • Phase I - CAT Survey (existing store) • Phase II - Market Area Fieldwork • Phase III - Data Analysis and the Preparation of a Sales Forecast • Phase IV - Preparation of Report • Phase V – Presentation (if desired) Co-op 500 Webinar

14. Phase I: What is a CAT Survey Defined as a Customer Address and Transaction Survey of shoppers at an existing retail food co-op, conducted in order to identify where they live and how much they spent at the store Co-op 500 Webinar

15. Phase I: What is a CAT Survey CAT Survey Results are used to: • Allocate a store’s sales to the specific geographic sectors from which they are derived • Define a store’s trade area • Calculate a store’s sales penetration rates in the various sectors in its trade area Co-op 500 Webinar

16. Phase I: What is a CAT Survey A CAT Survey serves as a means of measuring a store’s performance in each of its trade area sectors, under certain conditions and assumptions with respect to its facility, site and location characteristics, its competitive environment, and its merchandising and operating practices Co-op 500 Webinar

17. Phase I: What is a CAT Survey Because CAT Surveys are interpreted in light of the facility, location, site, market and competitive conditions that exist, they form the basis for an analog sales forecasting system. Completed CAT Surveys thus comprise a database of analogs Co-op 500 Webinar

18. Phase II: Fieldwork Fieldwork - an important part of a market study, for it allows a trained location research or site analyst to supplement population, demography and CAT Survey data with personal, impartial observations regarding facility/site/location characteristics, the competitive environment, patterns of retail synergy and trade area access, etc. Co-op 500 Webinar

19. Phase II: Fieldwork Facility Characteristics Evaluation of: • Size and shape of the facility • Its layout and position on the site • Its condition • Its appearance • Its applicability as a food store Co-op 500 Webinar

20. Phase II: FieldworkLocation Characteristics Evaluation of: • Population Density in the trade area • Demographic Characteristics of the population in the trade area and surrounding the site • Retail Synergy – type, amount, proximity • Trade AreaAccess • Distance and Direction • Types of streets/roads • Barriers – geographic/man-made/perceived Co-op 500 Webinar

21. Phase II: FieldworkSite Characteristics Evaluation of: • Visibility – direction and distance, signage • Ingress/egress – ease or difficulty, number of points, speed limits, lanes, etc. • Parking – both configuration of the parking lot, and its capacity Co-op 500 Webinar

22. Phase II: FieldworkCompetitive Environment Direct Competition: • Similar merchandise mix • Primary appeal toward same shopper clientele • Includes other natural food stores, co-ops and specialty food stores Co-op 500 Webinar

23. Phase II: FieldworkCompetitive Environment Indirect Competition: • Strong – usually with a natural foods “store within a store;” a readily-defined and identified department including dry grocery, bulk, HBC, frozen, refrigerated, and perhaps meat/seafood • Medium – usually 4, 8 or 12-foot sections of natural food set in conventional gondola runs, and identified by shelf-talkers, banners, etc. • Weak – limited amount of natural food, usually integrated with conventional groceries without any major product identification Co-op 500 Webinar

24. Phase II: FieldworkCompetitive Impact Adjacent – Where the competitor is in close proximity to the study store Intercepting – Where the competitor exists between a population sector and the study store Impacting – Where the competitor is closer to a population sector than is the study store A single competitor may be rated differently with respect to different population sectors Co-op 500 Webinar

25. Phase III: Data Analysis • Population – history, trends, projections • Demography – characteristics of trade area population including race, age, education, employment, and income • Per-capita Expenditure Potential • Competition – direct and indirect, and adjacent, impacting, or intercepting • Patterns of access – local and regional • Retail Synergy – amount, type, effect Co-op 500 Webinar

26. Phase IV: Analog Sales Forecast An Analog (derived from analogous, meaning similar) represents performance data about a store (given its facility, site, location, market and competitive characteristics) that can be used to forecast the performance of another store with similar facility, site, location, market and competitive characteristics. Co-op 500 Webinar

27. Phase IV: Example of an Analog Co-op 500 Webinar

28. Phase IV: Trade Area Map Co-op 500 Webinar

29. Phase IV: Analog Explained Can be a store(in terms of its performance at the trade area level) Can be a sector of a store’s trade area. An Analog that represents a good match with respect to characteristics of the study store or site can thus be used to forecast sales penetration levels for the study store or site – either at the trade area level, or at the population sector level. Co-op 500 Webinar

30. Phase IV: Analog Selection By Location Type • Free-standing • Strip/Community Shopping Center • CBD/SBD/FBD • Downtown/Suburban/Edge of Town • Neighborhood/Regional/Highway Co-op 500 Webinar

31. Phase IV: Analog Selection By Store Size/Specialty Departments • Sales Area Size • Presence or Absence of • Meat/Seafood Department • Deli (service/self service) • Bakery • Café Seating Area • Coffee bar/juice bar Co-op 500 Webinar

32. Phase IV: Analog Selection By Population Density • Urban • Suburban • Rural • The greater the density of population, the lower sales penetration levels tend to be Co-op 500 Webinar

33. Phase IV: Analog Selection According to Demography • Ethnicity • Age Groups • Educational Attainment • Employment Type • Income Level (MHI, % HH with incomes $50 - $150 K) Co-op 500 Webinar

34. Phase IV: Analog Selection According to Competition • Direct Competition – number, type, locations • Indirect Competition • Strong • Medium • Weak Co-op 500 Webinar

35. Phase IV: Analog Selection According to Distance • Other things being equal, sales/capita levels tend to decrease as distance from the store increases • Because of the importance of demography in the performance of a natural food store or co-op, distance alone is not enough Co-op 500 Webinar

36. Phase V: Market Study Report Introduction and Background Summary of Findings and Conclusions Review of Study Methodology Review of Facility, Site, Location Characteristics Definition and Description of Relevant Trade Area Review of the Competitive Environment Market Analysis of Relevant Scenarios Maps, Tables, Charts Co-op 500 Webinar

37. SO WHY DO A MARKET STUDY? It Provides a Reliable Method for Defining the Relevant Trade Area to be Served, and the Levels of Sales Penetration to Be Achieved in it Co-op 500 Webinar

38. SO WHY DO A MARKET STUDY? It Provides an Objective Review of the Location, Site and Facility Characteristics that Impact a Store’s Sales Performance Co-op 500 Webinar

39. SO WHY DO A MARKET STUDY? It Provides an Impartial Review of the Competitive Environment that Affects the Store’s Sales Performance Co-op 500 Webinar

40. SO WHY DO A MARKET STUDY? It Provides an Advanced Sales Forecasting Technique with Respect to the Anticipated Sales to be Achieved during First Few Years of the Store’s Operation Co-op 500 Webinar

41. SO WHY DO A MARKET STUDY? It provides a means for evaluating the financial implications of opening a new retail food co-op, by providing the top line number to be used in the pro-forma operating statement Co-op 500 Webinar

42. SO WHY DO A MARKET STUDY? It Serves as a Tool – for Management for Marketing for the Membership for the Bank Co-op 500 Webinar

43. THANK YOU Co-op 500 Webinar