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How should we choose the right location for our third coffee shop?

/ 06:00 AM January 15, 2016

Question:   We now have two coffee shops.  When my husband retired, I told him to invest his retirement pay in coffee shops that I would manage.  He agreed to one coffee shop and it did well.  So I told him we should have a second one and he agreed.  This second one didn’t do as well.

My husband said our second coffee shop was in a bad location.  That evaluation actually came from our daughter who graduated as a marketing student from Ateneo.  But I said the two coffee shops were both in a shopping mall and had the same design.  Our daughter said we are a cheaper version of Starbucks and Mary Grace.

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We were arguing because my husband wanted a third coffee shop but in a different location and “definitely not in a shopping mall.”  My daughter volunteered to do the “complete location analysis covering both macro and micro factors.”  I said that I didn’t care about “macro” or “micro” things.

What was important for me is to be where we will find our customers.

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Our daughter suggested I write to you and get your opinion because all three of us are your loyal readers.  Please help us agree on choosing the right location for our third coffee shop.

Answer: One controversial issue in retail marketing is finding the right store location.  As in any controversial issue, there are as many opinions as speakers.  All are half right and therefore half wrong.

Please bear this in mind as you read below.

First, consider the context of your daughter’s proposed “complete location analysis.”  Such a complex evaluation must apply to the problem of site selection for a large store or a chain of several stores.

But you are just “small,” just two coffee shops and planning a third.  So you don’t need a “macro analysis” that considers the location’s trade area characteristics affecting the shoppers’ ease of travel to and from the area.  What you need is to learn about the micro attributes of the location’s immediate vicinity like its visibility and shopper congestion.

Let’s take a look at congestion.

Most retailing books talk about shopper congestion and its disadvantages.  It’s assumed to slow down the shopping and to irritate shoppers.  But for many shoppers, congestion has perceived benefits.

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My in-store behavior research of shoppers at Ever Gotesco and in the original SM City, for example, found that shoppers prefer a crowded store interior over Shangri-La’s wider aisles because “parang pang mayaman dyan sa Shangri-La” (it’s for the rich there in Shangri-La).  It’s therefore a matter of socio-eco segmentation.  One store location may be the right one for the Class C shopper segment but not for the Class AB shoppers.  You may want to re-analyze the sales performance of your first and second coffee shops along this consideration.

A related store location analysis has to do with where you can find your more revenue productive customers.

Take the case of Deli France (now rebranded as Café France).  When it was still around, Deli France was in shopping malls and commercial and residential buildings.  Then Jollibee Corp., the owner, decided to sell it.  After a simple profitability analysis, the new owners found that their building located stores were the profitable stores.

So they retained these stores and closed those in the malls.  Later on, in expanding, all subsequent Café France shops were located in commercial and even residential buildings where they had a “captive” market of eating-out customers.  So you may want to include this store location option for your third coffee shop.

There’s a third location search I want you to also think about.  This is related to the concept of “purchase system” that I’ve often written about.  The concept says that in buying, shoppers often buy in a bundle like spaghetti together with spices, cheese, meat balls, tomato sauce.  This bundle is the spaghetti shopper’s purchase system.  Something analogous is true with store location.

Most shoppers go to stores where they will find different assortment of goods and services. These are stores with both complementary and competing products and services.  Complementary serves the shoppers’ purchase system needs.  Competing appeals to the shoppers’ need to counter “sawa” (satiation).

Look at Greenbelt’s collection of coffee shops and restaurants.  Greenbelt 1 and 2 coffee shops and restos are for the purchase system and anti-satiation needs of the mid-scale and even low-end shoppers while Greenbelt 4 and 5 are for those of the high-ends.  So if you want your third coffee shop to still be in a mall, decide on your target market segment and choose accordingly.

Let’s summarize our diagnosis and prescriptions.

Keep to the simple store location analysis.  Perhaps answer the following questions: (1) what is the socio-economic customer segment you wish your third coffee shop to serve; (2) where will you find your more revenue product customers; and (3) if you wish to stay in a shopping mall, which mall will give you your target customer segment with their purchase system and anti-satiation needs?

Keep your questions coming.  Send them to me at ned.roberto@gmail.com.

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TAGS: ateneo, coffee shop, Dr Ned Roberto, Jollibee Corporation, Marketing, Mary Grace, Starbucks
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