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A Tale of Two Territories

by Mike|
04. 18. 2019
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Uncategorized

America is a land of franchises and chains. If you’re in Houston you’ll be surrounded by many of the same familiar names and logos that you’ll find in Los Angeles. Same for Indianapolis and Boston too.

 

In 2011, there were 45 food chains doing over a billion dollars in business. That’s a whole lot of single-use packaging.

 

And the chains don’t stop with the stomach. There are the clothing stores, ranging from Kohl’s to Abercrombie and Fitch. Pharmacies like Walgreens and CVS. And big box stores like Walmart, Target, and Kmart. Name a retail category, and there will be multiple chains for it (and all of them are fearing disruption by Amazon).

 

You could probably list 25 chains just within a 15-minute drive of your house. And if someone from the other side of the country did the same, their list would likely be pretty similar.

 

But just because we’re eating and shopping at a lot of the same places — regardless of where we’re from — it doesn’t mean that those chains are doing everything similarly.

 

When it comes to choosing where they put their locations, chains and franchises operate on completely different frequencies from each another. Let’s take a look at an illustrative case.

 

Costco Versus Kung Fu Tea

 

You know Costco, everyone knows Costco. And there’s a good chance that you live not too far from one of its 527 locations in the United States.

 

You might not know Kung Fu Tea, but there are over 200 branches of its bubble tea shops across the United States. In just Manhattan, there are 12 Kung Fu Tea locations. How many Costcos are in Manhattan? Just 1, tucked away at the edge of the city in East Harlem. (There’s also another just across the East River in Queens.)

 

Opening more of its superstores on the island would likely be prohibitively expensive, with its rent and real estate prices as high as its skyscrapers. Plus, even with Manhattan’s more than 1.5 million people, if there were more Costco’s on the island, they’d likely cannibalize each others’ business because each store needs to cover a massive population area.

 

Kung Fu Tea locations, on the other hand, are smaller than most coffee shops, meaning they can afford Manhattan rents for their modest size. Look at this map of Kung Fu Tea locations in Manhattan.

 

The footprints are so close they’re practically on top of each other. Kung Fu Tea can do this because they serve a much, much, much smaller population. Both Costco and Kung Fu Tea are successful businesses with hundreds of locations across the country, but they operate using totally territory strategies.

 

Go Big or Go Down to the Home?

 

A megastore like Costco (see also: Walmart, Target, Kohl’s) thinks big with its territories. That means mostly ZIP codes and maybe also census tracts, which typically hold between 1,200 and 8,000 people.

 

Smaller areas don’t matter too much to Costco. What does Costco care if one block if full of homeowning families and the next has low-income renting singles? Even if one group is more likely than the other to go to Costco, the stores are pulling customers from gigantic areas. One block is just a grain of sand on the beach for Costco.

 

Contrast that with Kung Fu Tea locations, which sometimes are just blocks apart from each other. It would be suicidal for Kung Fu Tea to just look at the ZIP code level or even census tract data. They need to go down to those grains of sand, and look at the smallest units of data they possibly can, meaning census blocks and census block groups.

 

**A brief intermission to thank the Census Bureau for all of the data it provides about population and demographics. Mapping territories would be a much harder and wayyyyyy more expensive game if it weren’t for all that Census data, provided for free online.**

 

Kung Fu Tea needs to understand the individual blocks in a dense city like Manhattan. It needs to know that one block contains young singles with lots of disposable income, and another is full of retired pensioners. Those pensioners probably aren’t going to be buying too many $5.00 bubble teas unless they’re getting it with their grandkids.

 

The young monied singles might go for a tea one day with a Tinder date, the next with a couple of friends, and the next solo on the way to work. If you’re Kung Fu Tea and you that there are six blocks full of the young and affluent, it might make sense to throw in two locations just a few blocks apart. The Kung Fu Tea execs just need to know that they’re putting the location in the right area.

 

Location, Location, Location—But Where?

 

Where franchises and chains choose to put their locations matters—no secret there.

 

What can be harder to figure out is where that location should be. The Census Bureau puts out tons of data, and even more is available through private providers.

 

That’s where Fract Territory comes in. Fract Territory is a turn-key territory mapping solution that franchises and chains of all sizes can use to design themselves perfectly-sized territories.

 

Knowing and understanding how shopping works today, retailers need to fix the gap between online and offline, giving customers the chance to shop anywhere they like, providing them with all the advantages of both e-tail and retail and blending the physical and virtual worlds into one.

 

Using Fract’s proprietary AI software, franchises and chains can easily design smart territories, figuring out what is just right using features like heat maps, drive times, where the competition is, and so much more. Or you can let the Fract AI do the hard work designing the territory for you with the Auto Territory feature.

 

Intrigued, aren’t you?

Learn more and request a 14-day trial

Mike Mack

Mike Mack

Mike is the Co-Founder and CEO at Fract. With over 20 years of retail and business location analytics experience behind his belt, Mike counsels business owners and helps them get the most out of their business and sales data. He is also a passionate art lover and enjoys a glass (or two) of good wine with friends and family on the weekends.

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