What Amazon, Best Buy, And Starbucks Can Teach Business Owners About Choosing The ‘Right’ Location
Demographics can fool local retailers and franchisees when it comes to picking the perfect address. Plus: what does motor oil have to do with great pizza?
Real estate is one of the biggest costs, alongside payroll and marketing, that a brick-and-mortar business has. While analytics has governed all facets of the marketing side of the business, too few physical businesses do the same when it comes to where they open their doors.
Bryan Eisenberg is the CMO and a co-founder of Austin, TX-based IdealSpot, which uses real-time market data to help businesses choose where to place their locations. Speaking at the Retail Innovation Lounge during SxSW, Eisenberg noted that as companies like Amazon broaden their reach from the online space into the physical space, being adept at managing “Big Data” analytics presents another challenge to legacy brick-and-mortar brands.
GeoMarketing: How did you decide to build IdealSpot?
Bryan Eisenberg: IdealSpot started from a question that I and my co-founders, Marc Smookler and Andrew Hunter, had been thinking about. We kept on saying, “What is it that digital retailers take for granted that brick-and-mortar retailers are not thinking of?”
A few ideas came to mind. One of the first things that came to mind was the concept of a “Zillow for retail real estate?” The answer is there wasn’t. We said, “Okay, we could start helping retailers get more access to data — which is how Zillow transformed the residential marketplace.”
What IdealSpot does is we aggregate thousands of data sources, process that data and present it in very easy ways for the average restaurateur or retailer to consume and make decisions based on.
Zillow is fairly self-serve for people just considering where to buy a house or rent an apartment. Is IdealSpot largely self-serve?
A lot of it is self-serve so you can go now to IdealSpot.com. You can set up your profile, you can access a number of demographics absolutely for free. We don’t change anything for the demographics that you might pay for at other places. It will give you a heatmap based on those demographic filters that you set up. Then from there, we have some paid reports and you can either get them one by one, depending on what you want, or you can go ahead and you can get an “all you can eat” type plan.
What’s IdealSpot’s client base like? Is it mainly enterprises with dozens of franchises? Or can mom-and-pop shops use its services as well?
Independent mom-and-pop shops can certainly work with us, it’s very affordable pricing.
As businesses work with IdealSpot to find the most optimal location, is there a general checklist of things a business should consider before choosing a place to set up shop?
Finding a location almost like peeling an onion. You’ve got to look at all the different layers. You might never get to the full heart of the onion but at least you can get most of it peeled away.
The first thing we look for is where you want to map your potential locations. What are you thinking about? Start by looking at where your competitors are, take a look at actual drive times. Don’t just look at a circumference around an area. That’s not how people decide to where to eat or get coffee. People think, “If it’s 15 minutes away, even though it’s 3 miles, it’s too far.” A lot of things can happen within a radius in terms of getting from Point A to Point B. A good location depends on the city and the expectations that people have when considering where to go. For example, minutes in an urban environment is different than middle of a city versus a suburb.
We actually provide GPS drive times with the locations so I think that’s really important to look at.
What’s the next step that you look at?
From there, you want to look at the demographics. If you’re selling doughnuts, you’re probably selling to a bunch of younger kids who want to make sure you’re not too far from a high school. There are likely to be more people nearby dropping off their kids at high school, then possibly picking up their doughnuts.
But demographics can fool you when it comes to picking a location.
Two brothers [Yeun and Peter Yung] had been on the reality show Shark Tank and wanted to open up a sushi restaurant right here in Austin called How Do You Roll. The idea was that people in an upscale neighborhood of northwest Austin, people would be into rolling their own sushi.
The area they chose seemed perfect on paper. No competition in proximity to the location., demographics in the area were wealthy, and because it was sushi, that seemed to make sense. The demographics also showed a lot families nearby, which they thought it would be great because it’s a self-service, fast casual place. And it was in a strip mall, where there were a lot of other casual dining spots.
But if they would have looked more closely, they would have seen that there was no interest or demand for sushi in that location. So it failed.
How would you have been able to determine whether people were interested in sushi or not?
With IdealSpot’s customer location targeting, our dashboard can show an interest and demand slide. We pull in information from local search and social.
We can also predict revenue potential at specific locations. We’re looking at different blocks across the country, we know what different businesses are, what combinations of businesses are. Our machine learning algorithm is starting to tell you, “This is what we can predict the type of revenue happening there.” That’s another sign. If you’re looking at that location, there’s no interest and the revenue is low, you can tell it’s not a good spot for your business.
And while you can look at traffic data, over time, we’re also getting better at making determinations about things that are more difficult to quantify — such as, “Is it easy to park at this location?” That’s where the art comes in. “What’s the signage like?” Those are things that we’re not doing today but obviously some of the things we can get with machine learning, but will take a while to get there.
Is there anything restaurants that are considering opening at multiple locations can learn from large brands like Starbucks? While people often complain there are too many Starbucks, is there something that can be replicated by restaurants and retailers?
First off, I don’t think about Starbucks as a food service business. I think of Starbucks as a technology company. They do a lot of research, a lot more than the average would do when it comes to choosing where they’re locations are.
What happens in a lot of retail, especially once they go public, is there’s a demand for top line growth. You open up a lot of locations and you get a lot of revenue, but they do cannibalize on one another. We’re seeing that with a lot of these medium sized chains where they may have opened up three locations in Dallas, where really one would have been enough.
Opening up multiple locations can be dilutive. A lot of times, regular customers at one location end up going to a new one that’s closer, and you end up spreading your business around, rather than adding new customers.
Selling coffee is unique when compared with other kinds of businesses. It’s more of an impulse. It’s a quick drop in and grab. Not a lot of businesses have that model.
You’ve said that electronics stores have a particular challenge. Can an electronics store emulate Apple Stores, which are largely regarded as having a successful retail presence?
The problem that the Best Buys of the world have in the physical space is that people don’t want ton lug home a 50-inch television. That’s the problem electronics stores have.
As for the Apple Store, they are turning inventory more than any other retailer. But Apple Stores are not just moving products. Most of it is showroom, it’s educational space. You can also go in there and charge your iPhone and they’re never going to kick you out.
But they have high margin products. And they are not dependent on Apple Stores for most of their revenue. So if you’re a retailer, don’t look at the Apple model unless you’ve got high margin products.
What do you think of Amazon’s decision to open up physical stores? Retailers consider them the enemy. Does this level the playing field?
It highlights the idea that stores still are relevant. There are probably a hundred new e-commerce only players ready to start looking at brick-and-mortar locations.
Here’s the thing. What online retail has showed us is that we can pay attention to the actual numbers, to what real customer behavior is. It shows retailers that they can be fluid, flexible and great with their logistics as well.
Amazon has created a unique supply chain, a faster supply chain than most. The problem that most retailers are facing today, and they don’t realize this, is that the showrooming highlights their inefficiencies. A consumer is likely to look at their phone and say, “Hey, if I can go to a location, check the prices, I can probably get the same product cheaper on Amazon, because their efficiencies are that much better.”
But you’ve got to compete on something more than price. They are going to be the low price competitor, and unlike Walmart in its day, it’s not like you have to drive to a Walmart anymore. We all have Walmart, Amazon, and every other online or offline store in our pocket at all moments.
We’re seeing a lot of other online-only brands making the move to brick-and-mortar. Do they have any special advantages or challenges in going from digital to physical when picking where to situate their stores?
It’s fascinating. Blue Nile opened up their first store not far from my home town in Roosevelt Field, Long Island. I was talking to the CEO, Harvey Kanter, they’re just absolutely killing it in that store. They’re generating more revenue than the average jeweler.
The fact of the matter is that, yes, people do want to experience products before they buy them. Especially in the case of fashion and jewelry. They do want to try it on, they do want to see the stone. The experience that Blue Nile can deliver feels so much different out of a tiny 490 square-foot store compared to the average jeweler, which tends to run a few thousand square-feet. The world’s changing and retailers need to adopt. The problem is that most retailers are slow to make change.
In your presentation at the Retail Innovation Lounge, you asked, “What makes a great pizza?” As a New Yorker, I would say that tap water makes the difference. But you had something else in mind.
Tap water certainly makes great pizza, when comes to making pizza dough. But aside from great pizza, a pizzeria needs a great location. And what we found when we analyzed thousands of pizza locations is that consumption of motor oil can either sink or swim a pizza place. The reason is that people don’t want to drive more than a small distance to pick up a pizza. And since a lot of people order pizza in, consumption of motor oil can kill the business if that cost is too high.
And now for a more personal question: as someone who knows all about choosing the right spot, what’s your favorite place?
For me, it has to be any baseball field. especially if I am watching my son play or if I’m coaching.