How would you determine if a specific block in your neighborhood is suitable for a new grocery store?

First I would like to confirm my understanding about the problem by asking that basically we want to open a store at a particular location and we want to know that where the location will be suitable or not for the business?

Let’s say yess.

Now I would like to ask some clarification questions.

Who are we and had we grocery stores at other places also?

Let’s say we are new to this business.

In grocery store what are the items that we are going to sell? I am assuming that fruits, vegetables and grains and their is no issue from the supply side.

I would like to ask about the locality. There lives people with high income or medium to low income?

Let’s say medium to low income.

So we don’t need to have so much pricy items.

What is the population in that block?

let’s say 1000 people.

Assuming a family will have 5 people.

Total families= 1000/5=200 families

There is any other grocery store in the neighborhood?

Let’s say yess there are 2 stores.

So total 100 families per 1 store.  

How they are doing business and how much people satisfied with them, with their price and how’s their relationship?

Let’s say they are doing good as their are not many stores but one feedback from customers we have is that they sell groceries at higher prices.

So we have identified that we if we make competitive price even a bit lower than the competitors that could be our unique selling point(USP) and a way to differentiate from the competitors but one drawback is that they can also lower the price. So we need to focus on customer relationship and never compromise with quality as we know one happy customers brings 10 customers but one unhappy customers can distract 100 customers. So with the above strategy we are good to go in the market.

I need to look at majorly five factors broadly that is customer, competition, Environment, suppliers and cost to decide better.

Customer:
we have to know about their brand Acceptance, user Need and ease of Use

Who are the people in this neighborhood?
What are their average income , age and occupation ?
What is there spending capability?
Does our grocery store match with the customer segment?
is there enough demand?
What is the number of residents staying in that neighborhood in comparison to other localities?
What is their preferred medium for grocery shopping among online platforms, mom and pop shop or grocery store chains?
What about their loyalty towards already existing mediums to buy groceries?

Competition:

Do we have any other grocery stores near by?
Do we have just one strong competitor?
Do we have fragmented competition from a lot of stores that offer part of the assortment? What's our unique selling proposition going to be?
What about the prices offered by the existing medium? Is there any scope for us to play with price to have competitive advantage?
Are they matching to the customer's expectation in terms of variety and types of products offered?

Environmental:

Are there any regulations associated with this block that we need to know about?
How long will this store be open? If 24/7 – do we need special permit?
Is it a safe neighborhood – if not- do we need to think of additional security?
are there any other environmental or seasonal factors influencing the sales?
Does it have sufficient parking, does this have parking/space for large trucks coming to store?

Suppliers  

How many suppliers are there and how far are they from the existing location?

Cost

What is the overall initial set up cost and what does it cost to rent the space?
Will the predicted revenue offset these costs?
I need to ensure profit.

Clarifying questions:

1.     Is the new grocery store operated by a chain of stores or a stand-alone store ?

-       Chain of stores

2.     What is the usp of the grocery store? – Your assumptions.

I assume they sell private label premium products

3.     Can I assume they have international products with various product assortment in their product lines? – Yes

4.     I assume grocery store majorly sells fresh fruits, vegetables, meat, sauces and other deli products as the margin is quite higher. Is it reasonable? – Yes

5.     Can I consider my neighbourhood radius to be around 4km? – yes

6.     What could be the size of the grocery chain? – Assume medium size

Next step will be I define my neighbourhood, the need of my customers and their painpoints.

Defining neighbourhood -My neighbourhood is a suburb composing of majorly nuclear families with above average total income and quite ambitious crowd as majority of them work at white collar jobs (IT).

Ø  Current demographics has lot of hi-rise apartment complexes with around 300 families in each apartment with 4 person per family on avg. Total apartment could be around 100 . Therefore, Total population would be 120000

Ø  Competitor - We have around 3 other big chains and around 100 small grocery stores currently in our vicinity.

Ø  Substitutes - Internet penetration is quite higher and some people would like to buy online groceries due to convenience. Say 10% of population ~ 12000

Need of the demographic:

è Exposure to international cuisine – Around 20 percent of demographic (~24000 people) visited outside india for business purposes and they explored varieties of authentic international cuisines.

è Home cooking – Thanks to covid, customers would love to prepare home cooked meals at times.

Pain points:

Ø  Availability of international foods ranging from fruits, vegetables, sauces is quite limited in my vicinity.

Ø  Competitor products are having a local touch with international flavor. No truly international groceries or products available.

Ø  People need to travel to malls to visit premium grocery stores which is quite far (nearest mall is around 10 km) and traffic is quite higher due to higher population density.

Ø  Ordering or dining international foods is quite costlier say people can afford once a month but not every week.

Next, From Strategy point I would like to explore strategic alignment of the store and SWOT analysis.

Strategic alignment- Mission of the company is to delight customers by providing fresh groceries and private labelled international assortments. Our customers are in alignment with the company strategic mission.

Some key metric before proceeding to swot analysis:

Footfalls – Regular Customers visit store quite infrequently say once in a month on avg. ~500 customers a day

AOV – Since WTP is higher, we shall assume AOV would be quite higher than local stores 

Profit margin - profit margin is higher as the product line is niche.

Strengths –

Ø  Varieties of product assortment – customers can have multiple assortment of truly authentic products from various countries.

Ø  Convenience – no need to travel longer to buy groceries of their preferred choices.

Ø  Truly international feel to customers – Authenticity of product assortment.

Ø  Avg selling price per sqft and profit margin per sqft will be higher.

Weakness –

Ø  Operational efficiency – Since its grocery segment and shelf life of product is lesser, we need more manpower i.e. 1.5x more than regular department stores.

Ø  Residual scraps of the product will be higher as we operate in grocery segment. Say 30% of products will be of no use .

Ø  Suppliers are quite limited in numbers since we are having niche products . We need to have a strong relationship with suppliers. 

Opportunities –

Ø  We shall move to higher profit margin products such as ready to eat and healthier alternatives.

Ø  Infuse a hybrid mix of local and international flavors which inturn increases AOV.

Ø  Later we can have our own private label organic products say sandwitches, sauces, yogruts, varieties of cheeses etc with higher shelf life, which improves company margin.

Threats –

Ø  Online grocery competitors may catch up with multiple international product assortments .

Ø  Competition from discount chains which offers EDLP. But not much of a threat as our target group is aspirational.

Ø  Macro conditions may get tougher due to ongoing conflicts and recession fears which clout customers purchasing power. 

Clearly we see the strengths outweights the weaknesses .

Conclusion: Since we are quite know player in the market with niche products and there is a clear need of the demographic, we should establish the grocery store in my neighbourhood.

Read 9 factors that affect the decision, and the framework -

what type of grocery stores?

1. whole foods small ones
2. whole foods big ones
3. amazon go stores that are small 
4. order, pick and go stores 
5. or a mom-and-pop grocery store

9 factors that affect the decision

1. Suitability of groceries for that geography
   • for example in that geography if there are more Indians, should we focus on more Indian-type groceries?
2. Technology for the demographics
   • If its a location with younger demographics, should we introduce more automated payments or amazon go type of stores?
3. Competition in the neighborhood
   • are there a lot of regular grocery stores like safeway, krogers etc in the location? shall we put another store regular store like that? or should we show some differentiation?
4. Is there any market gap or painpoints in the neighborhood
   • is there any market gap in the neighborhood such as - organic grocery stores, cheaper grocery stores, or international grocery stores?
5. what's the density ? high density or low density populated?
   • is there enough population density in the location, such that there will be enough foot print in the store to break-even? 
6. mature stores or a new trial? 
   • is it going to be the launch of a new store (like amazon go) or something like a wholefoods?
7. would this affect the company's portfolio internally?
   • would this also contain a pick up locker such as amazon hub? 
8. any local brands that need to collaborated with?
   • for example: milk brands consumed in southern USA is different to that of what's consumed in Seattle. shall we consider partnering with the local brands that the consumers in the neighborhood are used to?
9. any legal rules or regulations?
   • are there any regulations or rules specific to the neighborhoods? such as selling of particular type of items would require additional permissions?
   • or implementing a certain new technology would require compliance ?

Framework used

Some Metrics

 Clarifications/assumptions

1. Where the block is located? Posh residential society, Average society, Near farm house or in the commercial area out side residential societies or near an independent house

Assumption-  It is a big residential society of 200 acres carrying the apartments, villas, office space, Paying guests, hostels, service apartments and hotels with rich class and upper middle class crowd

2. How much is the available area?

Assumption- Decent enough to open a grocery department store

3. Is there a space in the near by region to maintain storage?

Assumption- Yes

4. Is there availability of logistics in that locality?

Assumption - Yes

5. The  society is still under construction or completed with all the aspects and in a livable state

Assumption- The society has been completed and in a livable state but outside area is in a developing state

6. Is it located in the outskirts or in the main city?

Assumption- Outskirts

7. Is it available on lease/rent or need to be sold off?

Assumption- Both 

Describe the product- A space which available to construct a department store 

Strength-1.  The outside area is still in the developing phase whereas the inside area has been developed and people have started living there 

2. It is located in the outskirts of the city. Hence, online deliveries will be little tedious from logistics perspective 

Weakness-1.  Construction can be done by the builder or oneself but it is a time consuming and hard task that needs money as well as the capital expenditure

List of Choices

1. If the spot can be taken on lease with the construction and setup driven by the developer himself will save time and efforts and will help in setting up a business that will serve the people
2.  Grocery shop/departmental store falls in fast moving consumer goods which will be definitly used by the people to live as essential commodity. The consumption rate will be high considering the strength of the people. It is a high class and upper middle class society so people wont mind to buy some of good quality products at premium price
3.  Home delivery can be given as it within the vicinity of people
4.  This will improve user experience of the residential place, hotels, hostels, service apartments as people can get the needy items in a hassle free manner
5.  Logistics and availability of godowns in the nearby region is another supporting factor for the continuous supply
6.  The spot can be marketed to an existing society member who would like to manage the business while staying in the same society.
7. Another approach could be sell the spot at an attractive offer price along with a residential apartment for a better user experience.
8. A cost benefit analysis should be done before taking the decision on taking it at lease while construction done by the developer or buying it and doing construction at our own.
9. The threat could be from online ecommerce website like Amazon, big basket but outskirt location can act as a challenge to a certain extent for such companies
10. The opportunity could be making a strong local network using whats up groups, social events inside the society to compete with ecommerce business
11.  Let out or sublet property- the unit can be developed and sublet to the vendor on fixed percentage of share

Recommendation

My recommendation is we should go ahead with the idea of buying the land and constructing a store as this will provide a better experience to the people staying there along with steep rise in the sales and revenue and competition is can be given to the online business based on the above stated ideas. Indeed, it will ask for one time captial expenditure and efforts in execution.

The solution of let out the property is still okay considering it will give less income to the owner of the property but no headache is suppose to be taken by the owner. It will be taken care by those who takes it in rent.

I would not recommend the option of sublet as it increases complexity and brings negative impact on the customer experience, increase too much interdependency and reduce the profit margins.

Clarifying questions and assumptions

1. What do we mean by ‘suitable’? I’m going to assume it means that this block will have enough demand such that they will shop at the new grocery store to some sort of acceptable level (defined maybe by profitability or merch moved)

2. What types of grocery stores are we talking about - I’m assuming anywhere from large grocery stores to small convenience stores are acceptable

I would want to do a situational analysis based loosely on the 5Cs and Porters’ forces:

• Competitors: what are the existing grocery stores around? What other substitutes do people use to get groceries: are the existing grocery stores facing competition by online services? What is the structure of existing stores - are they oligopolistic, monopolistic, or perfectly competitive?

• Customers: how many people live within that block (or a predefined radius, like 2 miles)? What types of customers live there - families, young adults, college kids, retirees? What is the average income - are they on food stamps? How many dollars is spent on groceries? Is it a driving-heavy or walking-heavy area?

• Climate: what are the regulations around grocery stores in neighborhood areas - is regulation complex, does it take a long time to petition for a grocery store to be opened? What are the rules on crime - if the store is burglarized, is swift action taken? How often does crime happen, and will it affect store inventory? Are supply chains robust such that you can survive for a few months if something bad happened (think: pandemic)?

• Collaborators: who can the store partner with to drive sales? Are there existing relationships with other stores that they use against new incumbents? Can we rely on local farmers for produce, or do we need to get supply from national supply chains? 

• Company: does the company have enough capital to buy land, secure inventory, and hire employees/contractors? 

The above are questions that I would ask in order to determine if a specific block is suitable for a new grocery store. Ideally, you would want to find that 

1. Residents are willing and able to buy more grocery items (customer demand)
2. It is feasible to start this physical store (no major regulatory / crime / supplier battles)
3. Climate is not hostile (existing grocery stores can’t bully you out)
4. Physical grocery shopping as a whole is not in decline (watch out for that substitute: online grocery shopping)

1. Are we talking about within US ? Yes
2. What type of grocery store are we talking about-something like seven-eleven or bigger ? Something like Costco/Walmart
3. What's the goal - Are we opening this from branding/presence purposes or profit ? We want to turn profitable as soon as possible.
4. For now, can I assume that we will lease the place ? Yes

1. I am assuming since we are leasing , fixed costs would be very minimal (as a % of overall costs)
2. Variable Costs would be Leasing, Cost of Sales, Administrative Expenses. I understand that leasing is not truly a 'variable cost' but for the sake of analysis lets assume so.

1. Admin expenses like salaries, building maintenance would be a factor of Area of the store. Let this be C
2. Cost of sales would be a factor of Total Sales. Let that factor be A. Let this include all cost of sales, except for leasing.
3. Lease would again be a factor of Area. Let this be B.

1. Figure out how much Area & Sales is needed to reach desired profit.
2. Would do a ball-park to see if we can make that much sale and if the sales required is a comfortable number.
3. Also, if the Area size we need is available at our desired location.

1. Are there any political regulations or bias which can impact our sales and not allow us to do business like we want ? This could be around categories we can keep, labour laws which increase the cost etc.

1. Competition - Generally , there is lot of competition for Grocery, so number of grocery stores in the area would impact the foot-fall as well as the pricing strategy. Above should be kept in mind to figure out the sales which can be done. Ideally, I would like to look at a similar store with similar situation else-where and look at economics of that store. One of the way to ward this off is either to offer different/unique selection and categories or offer some novelty factor like what Amazon Go did.
2. Supplier Power - I am assuming since this store would be a part of large grocery chain, suppliers won't have much power. So this factor can be ignored.
3. Buyer Power - Buyers would have choice to shop around and use different stores. So this again depends on # of competitors within the area.
4. Infrastructure - Is the infrastructure suitable to run such a store ?

1. Are there any social /demographic factors which can impact us ? For eg, there was a huge backlash against Walmart for their practices.
2. Need to analyse if the population around that block is the segment we are trying to target. The point I am trying to make here is there is no point in opening a store which doesn't align with aspirations and the brand doesn't align with the population.
3. Is the area safe and void of mugging, anarchy, riots etc ?

1. Customers:
   1. Within 5-7 km radius of the proposed location of the store do we have sizable population of customers who would come and buy from the store. For this we should check, no. of residential societies and office building in the area? Also is the location of the shop, easily accessible to the customers. Shop is near the main road...a bus stop or a metro station..or in a shopping complex/mall.. then the possibility of footfalls increase.
   2. Also since this is a grocery store belonging to a chain of stores, in terms of pricing and type of items it will be mid to high priced items.. so check type of population in the neighborhood.. upper mid class or lower mid class population.
2. Competitors:
   1. Within 5-7 km radius of the proposed location, how many other grocery stores are present. Is there some competitive advantage that the new grocery store will have in comparison to existing stores.. like a fresh meat counter or some payment feature like loyalty points..
3. suppliers:
   1. Next would want to evaluate if the suppliers for various grocery items like milk, vegetables, meat, packaged items, bakery products are ready to deliver items at reasonable rates to the shop location. Also alternate suppliers are available so that there is no such dependency on one supplier.
4. Environmental factors:-
   1. Rental price of the proposed location. Based on the cost of supplies, rental of the location and estimated sales.. will the store make profit in couple of months.
   2. Is the location known for frequent violence.. like riots, gang fights. If so such places should be avoided.
   3. During rainy weather does the location go through frequent flooding episodes...in such case we should avoid the place.. since food items can get spoiled.

Lets evaluate the feasiblity of opening a new grocery or any store in a neighbour. What we are proposing here is a supply chain. Lets us employ simple market analysis methodology.

# Economic Factors

In discussion of Economic factors, the fundamentals ones are 1)  Demand Curve 2) Supply (current) Curve 3) ROI with increased Supply (new Supply curve)

As with any microeconomics theory, demand curve is one of the aspects which drives the pricing. Analysing this curve will help us understand which parts of the commodities will not get effected with additional supply and etc....

If the price is kept the same, you are only spliting the demand with other stores. So one has to  understand what pricing pressure you may have to deal with. .

In order to deal with equal above, you have to understand/calculate the geography in question, people in that region, what they buy and how oftern. All the things required to draw the demand line and also the current prices offered by the stores around.

Second factor is the supply . Now the S-line in the picture is the new supply curve. With Demand curve which remains the same for initial analysis and new supply curve, it is worth to put a store of the size (accounted in your supply curve). Move that supply curve up or down to establish the optimal store size. Basic micro-economics, I would assume anyone in google/amazon/big tech guys will know inside out.That provides your the ROI

# Environmental Factors

Under Environment factors we will have to consider 1) infrastructure 2) Political and lastly 3) Social consideration for store layout, location etc.

Lets start with Political considerations. This includes regulatorly rules of the local, state agencies including some sensitives issues.

Social considerations, what kind of store is acceptable for the socioeconomic condition of the neighbourhood. Obviously a Tiffiany's in a neiobourhood trying to make endsmeet is a good business ideas. Do we need to design the stores for walks, car traffic based on the place.  The lifestyle of the population will determine the storehours. Early morning hours for certain population, may be a party place and have stay open late or even 24/7. How will these cost play into the ROI calculations.

That brings in the last factor Infrastructure. What is available in the surrounding ? Can mega store work out, can a big truck drivein to deliver the good etc....