But first, coffee.
The thing that stands true for most of us is we need coffee the first thing in the morning. Worldwide, with over 2.25 billion cups of coffee consumed on a daily basis, coffee is the second most traded commodity, falling a little short behind crude oil. No kidding. Let us understand how our favorite and world’s leading coffee chain Starbucks, with 17 million customers a week, plan their stores to get the most out of business.
Focusing on the right customer demographics and population plays an important role in the success of a business, but so does the location. The primary reason behind that is, businesses rely a great deal on their visibility and exposure to respective target markets. And it is certainly obvious that no one is willing to open stores just for the sake of opening them, those stores must turn profitable¹.
That’s where the data-driven approach comes in. All the major food chains, retailers, hotel chains, and every possible store you think of uses location data to decide their next store location. Starbucks developed a set of criteria to examine and decide the site's location. Let’s see how they do it and what are some additional parameters that they consider.
I can’t say that these are the only criteria Starbucks considers but based on Rong Di’s report and research of my own, what I can say is, these are some of the criteria that Starbucks uses to examine the store location. The list is in no particular order.
Neighborhood income is one of many primary factors Starbucks consider before opening a new store. An area with a minimum of $60,000 median household income is preferred for a new store.
Although they try to reach as many customers as possible, Starbucks’ primary goal is to target regions where the majority of the population is aged between 18–40.
Landmarks / Industrial area
Choosing a store location that’s near to industrial area or offices drive more customers to any business. It’s the same with Starbucks, they prefer locations that are near offices or university or industrial area.
From traffic data, you can fetch important information, especially when it comes to deciding a new store location. If there are several hundred vehicles pass from the location you want to open the store, there are high chances that your business will grow. Starbucks prefers a traffic count of at least 25,000 vehicles per day. That’s right, PER DAY.
Visibility is everything to a business. Starbucks’ preferred locations are at signalized corners with multiple access points. They prefer the main path with easy entry and exit points as they want to be as visible as possible.
As we already discussed, the first thing we need in the morning is coffee. Because most of us grab a cup of coffee while going to work instead of on the way back home, that side of the commute is preferred.
Proximity to other businesses
How close Starbuck is to other businesses matters because it drives customer growth in a great amount. Starbucks prefers a mix of regional and national retail tenants in juxtaposing with them so they can have higher traffic to their stores.
This might defer from country to country, city to city, or one location to another, but Starbucks prefers a dedicated parking space for a minimum of 20 vehicles.
Yes, crime rates. To all major retailers and food chains, safety is the top-most priority. To ensure that they’re looking at a safe location, Starbucks uses crime data such as total crime, personal crime, murder, rape, robbery, assault, property crime, and motor vehicle theft and analyze the area they are planning to go with.
Customer satisfaction is the second most priority, just after safety, in any business. When Starbucks rolled out an application and set a ‘make payment feature’, customer satisfaction grew as they didn’t have to stand in long ques for a long time. In addition, they know we like to see how many stars we have collected and when we’ll get our next reward.
Starbucks analyzes the areas with high smartphone ownership to grow their business and target ads and rewards programs in less smartphone ownership areas to get people to use their applications.
Using Location Intelligence for Business Expansion
Starbucks not only leverage location data to plan their next store but also to expand the already up and running stores. There are a lot of factors which Starbucks consider, let’s look at some of them.
Starbucks is well aware of its surroundings. They feed data of all the major events happening in the nearby area and use this local event knowledge to plan staffing and inventory. Smart huh?
There are dozens of regional teams, which Starbucks empowers, to come to their own conclusions about any particular location, design of the store (you must have noticed each store has a different design), and a host of other issues². According to Spencer Rascoff, one Starbucks pro told them (Spencer Rascoff and Quartz), “We try to provide consistency in the science… so that local decision-makers have everything they need at their fingertips to make easy decisions.”
Just as much as the internal indicators, Starbucks is cleverly using Real-feel weather data from AccuWeather to determine the weather in (one week or so) advance. No that was not clever. What’s clever is, they determine areas in which the weather is going to be extremely hot, and they know that on hot days some people prefer cold beverages. So the next time you see an advertisement 2–3 days prior to a really hot (predicted) day, you know how those adv works.
To diver deeper, watch this video: