Real-Estate Selection a Work in Progress
Using demographic data from its existing location, restaurant chain upstart Johnny's Lunch customized a site-selection index to pinpoint expansion locations.
By Lisa Bertagnoli, Contributing Editor -- Chain Leader, 1/13/2009 12:00:00 AM
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| Johnny's Lunch executives say its site-selection technology will become more accurate as more stores open and more customer information is fed into the site-selection model. |
In early 2007, Johnny's Lunch, a quick-service hot-dog chain based in Toledo, Ohio, hired a site-selection technology firm to help with its first wave of expansion.
Using demographic data from its sole location at the time, in James, Ohio, the firm devised a site-selection index, with 100 being average and 200 being a very good site. Because it was based on only a single location, the index was a "guide, so it wasn't 100 percent accurate," says George Goulson, president of Johnny's Lunch.
Goulson used the index to pinpoint six expansion locations in Michigan. "They opened to our expectations," he says. "But they're in Michigan, and nothing's doing well in Michigan," he adds, referring to that state's dire economy.
This year Johnny's Lunch is expanding into several Western states; the chain has 1,400 stores under contract to open within three to seven years. The index, which Johnny's purchased as software, is saving the concept time and money. "We at least know the area to look at," Goulson says. "It saves us a lot of time in going after locations that don't index well."
The model also gives the chain's network of real-estate brokers "a heads-up as to what we're looking for." And, Goulson says, accuracy will improve as Johnny's opens more locations and has more customer data to feed into the model.
He notes that the index isn't the only factor taken into consideration. "You might have a phenomenal location at 30,000 feet, but on the ground, you might not be able to get to it," Goulson says. "Real estate is not an exact science."
MORE:Real-estate software can help take some of the guesswork out of finding locations for both franchised and company restaurants, but it's not perfect.
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These folks have fallen victim to a snake oil salesman from the site selection software company. There are too many variables in selecting a site to utilize a model, and additionally, you need to know the volume of the competition to truly gauge a market's potential.
Frank May - 2009-10-2 08:59:00 MST -
Even with numerous data points in a model like this, be mindful that extreme population density (or light)can skew qualitative indecies, making prospective sites look less or more accommodating of your specific customer than they really are. I've seen this lead to seemingly brilliant site locations (for example when a model is run on a huge volume store put in place before the model was developed) or huge mistakes despite favorable model scores.
Remember also to understand your competitive strengths and weaknesses as an operator in that particular geography and the competitive positioning of your site relative to other competition in the trade area. Both of these have a more significant impact on new unit performance than do demographics.
Allan Marquardt - 2009-15-1 17:32:00 MST
