For many retailers and restaurants, this is a familiar scenario. Your brand has opened new locations extensively in a market. The market has performed great, but now you face an important decision. Is it time to move on to new markets, or are there still growth opportunities in the existing market?
This challenge is especially common with mature brands who may think they have few potential growth opportunities left, but it also affects emerging brands who are trying to determine if it’s time to enter a new market after investing heavily in their home region. There’s a fine line between overbuilding a market and leaving opportunities on the table. Finding the balance can be difficult.
Market research plays an important role in determining whether you’ve maxed out a market or still have opportunities left. There are a variety of approaches for answering the question, but in this article, we’ll describe one of the most common.
Market Potential Analysis: Defining Your Brand’s Maximum Potential
Many real estate professionals and analysts have heard of a potential analysis, but what does this really involve? Simply stated, a potential analysis uses a previously developed site selection model to identify the optimal combination of locations based on a brand’s desired performance and cannibalization thresholds. This analysis can be conducted on a single market, a region, or even an entire country.
When conducting a potential analysis, you can ignore all existing locations to see the optimal layout (often referred to as a whitespace analysis) or simply identify new locations that can be added to the existing portfolio (referred to as an infill analysis). To determine if there’s any potential left in a market, an infill analysis typically makes the most sense.
Case Study Example: Using a Market Potential Analysis to Find New Business Growth Opportunities in California
A Buxton client in the fast food industry thought that it had maxed out its potential in its traditional west coast markets, particularly California. The brand had only opened seven locations in California over the last five years, but decided to conduct a potential analysis to determine if there were any potential growth opportunities left that met their sales and cannibalization requirements.
The results were eye opening. Rather than finding a mere 27 new trade areas, which was the brand’s original expectation, the analysis uncovered 191 infill opportunities. The brand used the revenue projection for each recommended trade area to identify the store format that would be the best match for demand and accelerated its development in the market.
The Bottom Line
Determining whether your brand has captured a market’s full potential is a challenge, but there are a variety of research approaches that can help. A market potential analysis is one way to identify infill potential and can help brands to achieve the delicate balance needed to maximize real estate investment.
To learn more about Buxton’s approach to a potential analysis, visit our product page.