Location, Location, Location...and Site, Site, Site: Co-ops are Retailers Too

Site and location characteristics can greatly influence customer loyalty to a co-op and the co-op's competitiveness.

The retail environment is one in which any given store holds but a tenuous grip on the loyalty of its shoppers. The competitive environment suggests that retailers generally engage in numerous activities oriented toward gaining -- and more importantly maintaining -- loyal customers. Such activities fall into a broad variety of categories: advertising and sales promotion, in-store merchandising, store operations, customer service, product mix, specialty departments, and so on. Those stores that adequately combine them in programs that maximize the overall level of customer satisfaction tend to succeed over time -- with their customers, and against their competitors.

In consumer cooperatives, members are provided with certain benefits, both tangible and intangible, thereby providing yet another basis for loyalty to that particular store. But increasingly, beyond their memberships, most food cooperatives also serve members of the general public, shoppers who, for whatever reason, have chosen not to become members but instead to shop as nonmembers.

All of this leads to an important consideration, one that is too often ignored or at least not fully understood: food cooperatives are retailers too. Not only are they retailers; they are being thrust more and more into competition against natural/specialty food stores, other food co-ops, and even against what have heretofore been called conventional or mainstream supermarkets.

The remainder of this article will center on one of the implications of this competition -- the importance of location and site characteristics - in order that co-ops grasp their significance to customer loyalty, sales growth, and market share.

While the terms "location" and "site" are often used interchangeably, there is a distinct difference between the two. In the context of this article, 'location' is a marketing term, while 'site' is a physical, real estate term. It is possible (in fact, it is all too common) for a store facility to have good location characteristics and poor site characteristics, or vice-versa. And because location and site characteristics can interact in a positive or negative fashion with a store's merchandising, operations and customer service characteristics to produce a level of sales and profits, it is important that retailers understand just what those characteristics are.

Location characteristics

Let's look first at location characteristics, which include such things as population density, retail synergy, and trade area access.

While a co-op is less convenience-driven than is a conventional supermarket, this does not mean that a co-op can ignore the concept of convenience. In general, the greater the population density around a store, the more convenient that store becomes to a larger number of people. Further, to the extent that a co-op is readily available to its target population (rather than the population at large), its location convenience is enhanced. For example, it is fairly well known that the incidence of college graduates in a target population is positively related to store sales at a co-op. To the extent that a co-op is situated in proximity to a population base that is heavily college educated, the co-op will likely benefit in terms of sales and profits.

Retail synergy is another characteristic of a co-op's location. The word 'synergy' is derived from synergism, the concept that the whole is greater than the sum of the parts. In short, to the extent that a retail co-op is situated near other retailers -- especially retailers that appeal to the same target market -- the result is that all of the retailers benefit more than they would if they were each singular at the location. When considering the consumer demographic characteristics that constitute the target market for co-ops and natural food stores, it is evident that these same people tend to patronize bookstores, cafes and coffee shops, art galleries, certain types of clothing stores, specialty restaurants, etc. The more such retail and service facilities are situated in close proximity to one another, the stronger will be the overall customer draw to the area -- thus adding to the synergy of the area that will benefit the co-op.

A third location characteristic concerns trade area access -- the ease or difficulty with which prospective shoppers can get to the store from various parts of its trade area. Consumer co-ops generally have the potential for having relatively large trade areas. This is because, relative to the target population base, most co-ops are specialty stores -- and consumers generally will travel further to shop at a specialty store than they will to shop at a convenience store. To the extent that a co-op is located near (although not necessarily on) one or more major arteries, people in the more remote reaches of the trade area can get to the store more easily. Similarly, travelers passing through the area generally stick to major streets and highways -- and the opportunity for them to shop at a co-op is facilitated to the extent that the co-op location is in close proximity to such streets and highways.

In sum, a good location has the following characteristics:

• it is in close proximity to a density of target consumers;
• it has some synergy created by other nearby retailers who appeal to the same type of consumers; and
• it is readily accessible from all parts of the trade area.

Site characteristics

But what about site characteristics? What are the physical characteristics of a site that can add to or detract from a co-op's appeal to prospective customers? There are at least four major site characteristics that impact the sales potential of a retail facility: visibility, ingress/egress, layout, and parking.

• Visibility has a varied impact on a store's sales potential. It is important when a shopper is trying to find the store for the first or second time. Once the shopper has become a regular customer, visibility no longer matters. But consider this fact: one in five families moves every year -- which means that some part of a community's population may be "shopping" for a new store. It follows that, if a store can't readily be seen, new residents of an area (or prospective shoppers) probably won't choose it. Another aspect of visibility relates to travelers and passers-by. Generally speaking, a store's trade area accounts for 75-90% of its business. But the obverse of this means that from 10-25% of a store's business comes from beyond its trade area. With respect to this component of a store's business, visibility takes on added importance.
• Ingress/egress refers to the ease or difficulty with which shoppers can enter or exit the parking lot, or even the co-op itself. An evaluation of ingress/egress might include the presence or absence of curb cuts along a frontage street, deceleration or left-turn lanes allowing for ease of entry into the lot, distance of curb cuts from an intersection, speed limits on frontage streets, the number of travel lanes, traffic controls and signals, etc. In general, the easier it is to get into and out of a parking lot, the greater the likelihood of impulse shoppers stopping at the co-op in addition to regular shoppers. Conversely, the more difficult it is to get into or out of a lot, sooner or later there will be some attrition of regular shoppers.
• Site layout refers to whether the store is freestanding or is part of a development that includes other retailers (as in a shopping center) or other types of facilities (as in a mixed-use development). There are several aspects of layout that need to be considered: the relationship of the co-op to other stores or facilities in the development, the relationship of the co-op to its parking area, the relationship of the co-op to its frontage streets, and how it is oriented toward the neighborhood in which it is located. One layout situation to avoid if at all possible is where the co-op is situated in the corner of an L-shaped shopping center -- since this greatly limits the amount of desirable parking. Another situation that can be problematic is where the front door to the co-op is too close to the front door of a major retail co-tenant -- again, this limits the amount of parking that exists for co-op shoppers.
• Parking itself is another site characteristic that is especially a cause for concern in densely populated areas. When evaluating the parking that exists at a retail site, there are two considerations: parking capacity (the number of cars that can be parked, in total and in proximity to the co-op), and parking configuration (the way the parking lot is laid out, the direction of the travel lanes and spaces, the presence of berms and landscaping islands, etc.).
      As to parking capacity, there are several ratios that are generally used to determine the adequacy of a parking lot. While different ratios exist for different types of retailers or service providers, the ideal ratio for food stores is in the magnitude of 7-8 cars per 1,000 square feet of food store. This means that a 10,000 square foot food store would have an ideal parking lot that could accommodate between 70 and 80 cars. Expressed differently, parking lots are generally designed on the basis of 400 square feet per car (which includes drive lanes, spaces, etc.). Thus, the ideal parking ratio for a food store is about 3:1, or 3 square feet of parking for every square foot of store. However, it should be noted that an ideal ratio hardly ever exists in real life -- especially in densely populated areas.
      The point to be made, however, is that a food store should attempt to maximize its parking situation, in order to provide for those shoppers who travel a distance to get to the store. Obviously, the more suburban the co-op location, the greater the emphasis should be on maximizing parking availability. Urban stores typically get a significant amount of their business from walkers, bikers, and shoppers who use public transportation to and from the store -- and thus can get by with a lower parking ratio.
      As to parking configuration, there are several considerations to be followed. First, a parking lot should be laid out so that the drive lanes are perpendicular (and the spaces are parallel) to the storefront, in order to facilitate shoppers walking between their cars and the store door. Second, food shoppers typically like to park in reasonably close proximity (within 300 -- 350 feet) to the main entrance/exit of the store, and within sight of it. Third, parking lots should be as flat as possible, in order to minimize shopping carts careening out-of-control through the lot and into parked cars.

In summary, it is important to remember that site and location characteristics can greatly influence customer loyalty to a co-op, its competitiveness, and ultimately its sales and profitability. Further, while perhaps not as obvious, the influence of such factors is felt not so much in the short run, but rather over the long run. Therefore, unlike many operations and merchandising decisions that can be changed with relative ease, decisions regarding a site can affect store sales and profitability over many years, often the length of the lease.

In the July-August 2000 issue of Cooperative Grocer, Dave Gutknecht and Walden Swanson observed that the most significant expense faced by a co-op, other than its payroll, is its occupancy cost. As the largest of the fixed costs, occupancy as a percentage of sales decreases as sales increase, thereby improving the opportunity for profit. It follows that the potential for improved profitability comes either by increasing sales, or by reducing occupancy costs. Occupancy costs are primarily the result of lease negotiations, and thus tend to be fixed for the term of the lease. Therefore, anything that can be done to improve site and location characteristics will no doubt benefit store sales by enhancing consumer awareness and unimpeded shopper access to and from the store.

We are living in an era of scrambled merchandising, in which traditional store format definitions have blurred considerably. This brings with it a wider breadth of competition faced by co-ops -- and thus the necessity for co-ops to take a more careful look at those things that can impact their competitiveness and affect their customer loyalty. In addition to considerations of advertising and sales promotion, in-store merchandising and store operations, co-ops must heed some of the basic principles associated with their locations and sites. Whether evaluating an existing facility in terms of a remodel or expansion, or considering a relocation or additional store, it is incumbent upon co-op management to pay close attention to such things as store visibility, parking capacity and configuration, ingress and egress, trade area access, and any other aspect of the site that might impact store sales, either positively or negatively.

It has often been suggested that the success or failure of a retail store is due to three things: location, location, and location. While this is perhaps an oversimplification, it does suggest the importance associated with picking the right location for a food store. But a corollary is equally important -- ensuring adequate site characteristics, such as making sure that the store can be seen, that it can be accessed, and that prospective shoppers can enter, park, and exit in a relatively unimpeded manner.