From July 2007

By  Karen M. Kroll

Rita’s Water Ice Franchise Co. plans to grow at white-hot speed. The Trevose, Pa.-based chain intends to expand nearly fourfold, to 1,500 locations, by 2010. As if that weren’t ambitious enough, chairman and CEO Jim Rudolph also wants to double the average annual sales amount at each location to $500,000 over the same time period.

Achieving these goals won’t be easy, of course, so Rudolph is utilizing all the tools at his disposal. One is location optimization software from Woburn, Mass.-based geoVue, which analyzes a range of data to help retailers determine which markets to enter, and the locations within those markets that are most promising.

“It provides the information and technology that we don’t have and can’t create,” Rudolph says.

Few retailers of any size would consider operating without merchandise, inventory and pricing optimization systems. “But, with real estate, this often isn’t done,” says geoVue CEO Rudy Nadilo.

Instead, many retailers take a manual approach when analyzing potential locations, relying on maps and reports that often are outdated and lack the demographic and market information they really need to help in their decision making.

“Growing competition, changing consumer behavior and new store formats require retailers to look at new sources of insight to help not only streamline new store planning and execution, but also store portfolio decisions,” Robert Garf, vice president of retail strategies for AMR Research, wrote in a recent research report.

Rudolph is a former Wendy’s franchisee who, along with other members of his family, operated more than 50 restaurants before selling to Wendy’s International in 1995. Ten years later, he and his brother Bill purchased Rita’s, which serves a range of frozen treats, including Italian ice, frozen custard, gelati and misto, a shake that combines Italian ice and custard.

“I had never seen anything like this concept,” Rudolph says. “No one is doing what we’re doing.”

To grow at the pace Rudolph envisions, Rita’s executive management team needs tools that will allow it to locate stores in the places that are most likely to drive traffic and sales. However, Nadilo says, most retail site selection processes are broker-dependent, meaning that a broker identifies sites that are available and are likely to work for a particular retailer.

The conversation may go something like this: “I’ve got a Home Depot on Fifth and Main; the site next door would be great for your company.”

It may be a feasible site, but the retailer has no way of determining, based solely on this information, whether it is the best site in a particular market. Even more fundamentally, this process doesn’t help retailers determine if they should be entering a specific market in the first place.

“You shouldn’t use brokers to build market plans,” Nadilo says. “Instead of a cherry-picking approach, you want to take into account the total market.”

Four modules
geoVue’s software consists of four modules. The capital planning module comes into play when retailers are putting together their initial budgets. It helps identify the markets in which stores are likely to be most successful, and also helps retailers decide how to allocate funds between and among various projects, such as construction vs. renovations.

The market optimization module analyzes an entire market area to help the retailer determine the number of stores a particular market can hold. It does this by crunching reams of data from 30-plus outside sources, as well as proprietary sales and marketing data.

So, in addition to demographic information on the customers in a particular market, it also considers such data as the number and location of competitors’ stores.

Equally important, the software analyzes data simultaneously, rather than sequentially. “The engine maximizes revenue from all current and existing stores in the network. This allows a retailer to make decisions based on a holistic perspective instead of in isolation,” according to Garf’s AMR report.

The third module, site screening, identifies specific sites within a market that are likely to meet a retailer’s profit and income targets. With this information in hand, retailers can begin working with a broker to view the available sites that are closest to the optimal location. “You move from the theoretical best to a location that’s open,” Nadilo says.

geoVue also factors road networks into its site analysis; it looks at drive time, using the actual streets customers are likely to take to get to a store. Because customers will drive farther on highways than surface roads to get to a store, Nadilo says, the results of the analysis are often “amoeba-shaped trade areas.”

This, he says, is in contrast to mapping applications that simply draw circles around a location, ignoring the different routes that customers have to take to get there.

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