Business Analytics: 3 Insights on Effective Market Planning
A common challenge we see businesses facing is how to identify and select new markets for growth & acquisition.
This week the retailer Bed Bath & Beyond announced bankruptcy and we took the opportunity to analyze their nationwide location footprint to see what insights we could pull from their decades of market planning.
While the business failed, building a footprint of over 400 locations (and many more at their peak) still requires discipline and strategy, and we pulled out 3 key insights that brands can use when working on growth strategy & market planning.
Watch the video below or read on for our high-level findings.
Location Efficiency
Building density in a market means balancing saturating a market while minimizing cannibalization. What is the right number of stores to open without opening too many?
This requires knowing:
How far will a customer travel to reach your product?
What is the minimum market reach you want to achieve?
Is the area urban, suburban, or rural?
A good market plan will create a radius around a location that accounts for these factors.
In the images below, we visualize a five-mile radius around stores across different markets where Bed Bath & Beyond operated.
Notice the remarkable consistency in how the circles almost perfectly line up with each other without overlapping, suggesting the brand looks to locate stores such that most customers travel 5 miles or less to reach a location.
As an area becomes denser, most brands will shrink the distance between stores (like the example near Miami where the circles start to overlap). As the area becomes more suburban-rural, the distance increases.
Finding Areas with Strong Product-Market Fit
Every market isn’t created equal and likewise every area within a market has different fit for different brands.
Bed Bath & Beyond was a value retailer - a place to find bargains, use coupons, and get affordable products. This means the area around a store should align with a “typical” US household - average income, steady population growth, households with children, etc.
The value proposition of the brand doesn’t align with locating in more urban environments (like a sweetgreen) or rural environments (like a Dollar General).
Consider several examples below on how stores are located surrounding - but not in - urban markets. The brand was benefiting from the large populations in these metro areas but selecting locations within the markets that best fit their brand and value proposition.
The areas around a typical Bed Bath & Beyond location (the five-mile radius) have:
150,000 population
$75,000 household income
4% 5-yr population growth
The income and population growth are right in line with US benchmarks. These are locations with large surrounding market opportunity of customers that align with their value proposition.
It’s not just about which markets to choose, but where in those markets best align with the company’s value proposition and target customer.
Surrounding Area Profile
Most brands benefit from being around other retailers, businesses, and transit roads that drive traffic to the area. Retailers especially need to be in places that are convenient to their customer. This typically means:
Being located in a way that is convenient for a customer to reach you (walk or drive depending on the area)
Locating near other complementary brands
Bed Bath & Beyond locations fit these characteristics well. They located near high transit roads and near other complementary brands.
High Transit Roads
We zoomed in specifically to the North Carolina market to look at road traffic and location profile. We found most locations are near roads that have 20,000+ average daily car traffic depending on the urbanity of the market.
These are high-quality locations near highways, main roads, and well-trafficked areas.
Complementary Brands
We pulled the data on several chains in the immediate area around Bed Bath & Beyond. We found that brands with high overlap - the percentage located within 1-mile of a BBY - include:
Starbucks: 90% of BBY locations have a Starbucks within 1-mile
Chipotle: 67%
Best Buy: 62%
Panera: 59%
Target: 57%
Many of these are destination brands that are sought out by businesses to benefit from their customers and the areas where they locate.
Our conclusion from looking at the data is the demise of Bed Bath & Beyond wasn’t a location problem, it was a problem of product assortment, differentiation in retail, and eCommerce strategy.
The location profile was actually quite strong and many brands will benefit from taking over their space in these high-reach suburban locations.