Distribution Planning: lessons from Walgreens and Starbucks
Yesterday I made a presentation at the GIS Business Summit on Better Bank Branches: Improving Site Selection for Retail Banks. This is one of the premier gatherings of managers of Geographic Information Systems – the folk who do site selection, distribution planning, trade area mapping, etc. for major corporations. There were presentations from HSBC Bank and JP Morgan Chase. But I was particularly interested in Walgreens and Starbucks, who discussed their approach to store planning and distribution analysis. Among the highlights was a more intimate Retail Networking Group, where we could discuss these issues one-on-one.
Banks have a unique advantage. We know the sales size (at least the deposit base) of every bank branch in the country. So while you can know the annual deposits at the Bank of America branch down the street, it is not possible for Walgreens to know the sales size of the CVS store on the corner, or Starbucks to know the sales at the Caribou Coffee or Dunkin Doughnuts store nearby. Likewise we know the activity level and profitability of every customer. Walgreens and Starbucks aren’t able to determine the name and address of every customer who shops in their store or how much they spend.
Banks have great data, but sometimes there is so much that we get analysis paralysis. By contrast, Walgreens and Starbucks have developed some excellent approaches to get at the behavior of their customers – some great tools and techniques we can learn from.
I’ve been giving some thought to these ideas and the implications for improving bank decision making. Here are some of the areas I’ll be discussing in future blogs (I’ve got to hold a few things back for new postings!):
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How accurate are the models Walgreens and Starbucks use to predict sales at proposed locations?
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How much do they rely on their models and how much decision making for new locations is made centrally vs. at the local level?
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When the models are wrong, what is the most likely cause?
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How does Walgreens use the same techniques for developing branch trade areas to refine branch staffing and target HR recruiting?
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How large is a typical supermarket trade area and how does the size of the store impact the draw of the trade area?
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And, not to be solely focused on the retail sector, why does Chase believe there is an opportunity to grow mortgage and home equity lending, even in California, despite the decline in home values?