January 31, 2006 Co-op 500 Webinar 1 LOCATION RESEARCH AND SITE ANALYSIS FOR NEW FOOD CO-OPS A Presentation for “Co-op 500” by Peter C. Davis Location Research Consultant Cooperative Development Services

January 31, 2006 Co-op 500 Webinar 2 Location Research Defined The body of knowledge and research methodologies used for: The development of strategies for market entry or expansion The development of strategies for market entry or expansion The evaluation of retail locations and sites The evaluation of retail locations and sites The forecasting of expected sales levels given alternative scenarios/assumptions The forecasting of expected sales levels given alternative scenarios/assumptions

January 31, 2006 Co-op 500 Webinar 3 Site Analysis Explained The major location research activity associated with the evaluation of a retail food store site: The market at large The market at large The trade area served by the store The trade area served by the store The competitive environment The competitive environment The location (in the marketing sense) The location (in the marketing sense) The site (in the physical, real estate sense) The site (in the physical, real estate sense) The facility The facility

January 31, 2006 Co-op 500 Webinar 4 Three Levels of Research Analysis First Level: Basic Q & D Study Second Level: Enhanced Q & D Study Third Level: Full Market Study

January 31, 2006 Co-op 500 Webinar 5 First Level: Basic Q & D An in-office assessment of the level of market potential available A macro-level estimate of sales potential available to a retail food co-op Based totally on secondary, in-office data No local input of data or observations Results in a 1-2 page summary that helps determine the likelihood of go/no-go Price: $1,000 - $1,200

January 31, 2006 Co-op 500 Webinar 6 Second Level: Enhanced Q & D Everything included in the Basic Q & D Study Also provides for local input regarding: Trade area size and configurationTrade area size and configuration Population history and growthPopulation history and growth CompetitionCompetition Site/Location characteristicsSite/Location characteristics Any other insights into the local marketAny other insights into the local market No fieldwork is conducted Provides for a somewhat more reliable evaluation of a natural food store opportunity, presented in a 2-3 page summary report Price: $1,500 - $1,800

January 31, 2006 Co-op 500 Webinar 7 Third Level: Full Market Study Utilizes both primary and secondary data Includes extensive fieldwork in order to Evaluate site & location characteristicsEvaluate site & location characteristics Evaluate competitive environmentEvaluate competitive environment Evaluate patterns of accessibilityEvaluate patterns of accessibility Evaluate extent of retail synergyEvaluate extent of retail synergy Utilizes detailed analog sales forecasting Generally acceptable by potential lenders Results in full report (25-50 pages) with tables, charts, maps Price: $7,500 - $8,500 plus expenses

January 31, 2006 Co-op 500 Webinar 8 Some Definitions Trade Area : The geographic area from which a store obtains most of its sales volume (dollars) The geographic area from which a store obtains most of its sales volume (dollars) Usually defined as that area within which the store obtains 65% - 85% of its sales volume Usually defined as that area within which the store obtains 65% - 85% of its sales volume Defined in terms of geographic sectors (usually Census Tracts) Defined in terms of geographic sectors (usually Census Tracts) Affected by population density, competition, retail synergy, trade area access, barriers, etc. Affected by population density, competition, retail synergy, trade area access, barriers, etc.

January 31, 2006 Co-op 500 Webinar 9 Some Definitions Capture Rate: The percentage of a store’s sales volume that is derived from a specific geographic area such as a trade area or trade area sector The percentage of a store’s sales volume that is derived from a specific geographic area such as a trade area or trade area sector The amount of sales derived from an area, divided by the total sales achieved by the store The amount of sales derived from an area, divided by the total sales achieved by the store Usually totals 65% - 85% for a store’s trade area Usually totals 65% - 85% for a store’s trade area

January 31, 2006 Co-op 500 Webinar 10 Some Definitions Sales Penetration Rate: Also defined as Average Sales/Capita Also defined as Average Sales/Capita The sales derived from a specific trade area sector, divided by the relevant population of that sector The sales derived from a specific trade area sector, divided by the relevant population of that sector An indicator of a store’s strength with respect to the population base that exists in the trade area sector An indicator of a store’s strength with respect to the population base that exists in the trade area sector

January 31, 2006 Co-op 500 Webinar 11 Some Definitions Demography: The characteristics of a population base The characteristics of a population base With respect to natural food stores, usually includes race or ethnicity, age, education, type of employment, and income With respect to natural food stores, usually includes race or ethnicity, age, education, type of employment, and income Certain demographic characteristics are positively related to a natural food store’s sales penetration rates while others are negatively related to a natural food store’s sales penetration rates Certain demographic characteristics are positively related to a natural food store’s sales penetration rates while others are negatively related to a natural food store’s sales penetration rates

January 31, 2006 Co-op 500 Webinar 12 Some Definitions Market Potential: The annual food-at-home expenditure potential for a population base The annual food-at-home expenditure potential for a population base Determined by the prevailing trade area socio-economic and demographic characteristics Determined by the prevailing trade area socio-economic and demographic characteristics For conventional food, it generally ranges from about $2,200 to $2,600 per person, per year For conventional food, it generally ranges from about $2,200 to $2,600 per person, per year For natural food, it generally ranges from about $225 to $450 per person, per year For natural food, it generally ranges from about $225 to $450 per person, per year

January 31, 2006 Co-op 500 Webinar 13 Phases of a Market Study for a Proposed New Retail Food Co-op Phase I - CAT Survey (existing store) Phase I - CAT Survey (existing store) Phase II - Market Area Fieldwork Phase II - Market Area Fieldwork Phase III - Data Analysis and the Preparation of a Sales Forecast Phase III - Data Analysis and the Preparation of a Sales Forecast Phase IV - Preparation of Report Phase IV - Preparation of Report Phase V – Presentation (if desired) Phase V – Presentation (if desired)

January 31, 2006 Co-op 500 Webinar 14 Phase I: What is a CAT Survey Defined as a Customer Address and Transaction Survey of shoppers at an existing retail food co-op, conducted in order to identify where they live and how much they spent at the store

January 31, 2006 Co-op 500 Webinar 15 Phase I: What is a CAT Survey CAT Survey Results are used to : Allocate a store’s sales to the specific geographic sectors from which they are derived Allocate a store’s sales to the specific geographic sectors from which they are derived Define a store’s trade area Define a store’s trade area Calculate a store’s sales penetration rates in the various sectors in its trade area Calculate a store’s sales penetration rates in the various sectors in its trade area

January 31, 2006 Co-op 500 Webinar 16 Phase I: What is a CAT Survey A CAT Survey serves as a means of measuring a store’s performance in each of its trade area sectors, under certain conditions and assumptions with respect to its facility, site and location characteristics, its competitive environment, and its merchandising and operating practices

January 31, 2006 Co-op 500 Webinar 17 Phase I: What is a CAT Survey Because CAT Surveys are interpreted in light of the facility, location, site, market and competitive conditions that exist, they form the basis for an analog sales forecasting system. Completed CAT Surveys thus comprise a database of analogs

January 31, 2006 Co-op 500 Webinar 18 Phase II: Fieldwork Fieldwork - an important part of a market study, for it allows a trained location research or site analyst to supplement population, demography and CAT Survey data with personal, impartial observations regarding facility/site/location characteristics, the competitive environment, patterns of retail synergy and trade area access, etc.

January 31, 2006 Co-op 500 Webinar 19 Phase II: Fieldwork Facility Characteristics Evaluation of: Size and shape of the facility Size and shape of the facility Its layout and position on the site Its layout and position on the site Its condition Its condition Its appearance Its appearance Its applicability as a food store Its applicability as a food store

January 31, 2006 Co-op 500 Webinar 20 Phase II: Fieldwork Location Characteristics Evaluation of: Population Density in the trade area Population Density in the trade area Demographic Characteristics of the population in the trade area and surrounding the site Demographic Characteristics of the population in the trade area and surrounding the site Retail Synergy – type, amount, proximity Retail Synergy – type, amount, proximity Trade Area Access Trade Area Access Distance and DirectionDistance and Direction Types of streets/roadsTypes of streets/roads Barriers – geographic/man-made/perceivedBarriers – geographic/man-made/perceived

January 31, 2006 Co-op 500 Webinar 21 Phase II: Fieldwork Site Characteristics Evaluation of: Visibility – direction and distance, signage Visibility – direction and distance, signage Ingress/egress – ease or difficulty, number of points, speed limits, lanes, etc. Ingress/egress – ease or difficulty, number of points, speed limits, lanes, etc. Parking – both configuration of the parking lot, and its capacity Parking – both configuration of the parking lot, and its capacity

January 31, 2006 Co-op 500 Webinar 22 Phase II: Fieldwork Competitive Environment Direct Competition: Similar merchandise mix Similar merchandise mix Primary appeal toward same shopper clientele Primary appeal toward same shopper clientele Includes other natural food stores, co-ops and specialty food stores Includes other natural food stores, co-ops and specialty food stores

January 31, 2006 Co-op 500 Webinar 23 Phase II: Fieldwork Competitive Environment Indirect Competition: Strong – usually with a natural foods “store within a store;” a readily-defined and identified department including dry grocery, bulk, HBC, frozen, refrigerated, and perhaps meat/seafood Strong – usually with a natural foods “store within a store;” a readily-defined and identified department including dry grocery, bulk, HBC, frozen, refrigerated, and perhaps meat/seafood Medium – usually 4, 8 or 12-foot sections of natural food set in conventional gondola runs, and identified by shelf-talkers, banners, etc. Medium – usually 4, 8 or 12-foot sections of natural food set in conventional gondola runs, and identified by shelf-talkers, banners, etc. Weak – limited amount of natural food, usually integrated with conventional groceries without any major product identification Weak – limited amount of natural food, usually integrated with conventional groceries without any major product identification

January 31, 2006 Co-op 500 Webinar 24 Phase II: Fieldwork Competitive Impact Adjacent – Where the competitor is in close proximity to the study store Intercepting – Where the competitor exists between a population sector and the study store Impacting – Where the competitor is closer to a population sector than is the study store A single competitor may be rated differently with respect to different population sectors

January 31, 2006 Co-op 500 Webinar 25 Phase III: Data Analysis Population – history, trends, projections Population – history, trends, projections Demography – characteristics of trade area population including race, age, education, employment, and income Demography – characteristics of trade area population including race, age, education, employment, and income Per-capita Expenditure Potential Per-capita Expenditure Potential Competition – direct and indirect, and adjacent, impacting, or intercepting Competition – direct and indirect, and adjacent, impacting, or intercepting Patterns of access – local and regional Patterns of access – local and regional Retail Synergy – amount, type, effect Retail Synergy – amount, type, effect

January 31, 2006 Co-op 500 Webinar 26 Phase IV: Analog Sales Forecast An Analog (derived from analogous, meaning similar) represents performance data about a store (given its facility, site, location, market and competitive characteristics) that can be used to forecast the performance of another store with similar facility, site, location, market and competitive characteristics.

January 31, 2006 Co-op 500 Webinar 27 Phase IV: Example of an Analog

January 31, 2006 Co-op 500 Webinar 28 Phase IV: Trade Area Map

January 31, 2006 Co-op 500 Webinar 29 Phase IV: Analog Explained Can be a store (in terms of its performance at the trade area level) Can be a sector of a store’s trade area. An Analog that represents a good match with respect to characteristics of the study store or site can thus be used to forecast sales penetration levels for the study store or site – either at the trade area level, or at the population sector level.

January 31, 2006 Co-op 500 Webinar 30 Phase IV: Analog Selection By Location Type Free-standing Free-standing Strip/Community Shopping Center Strip/Community Shopping Center CBD/SBD/FBD CBD/SBD/FBD Downtown/Suburban/Edge of Town Downtown/Suburban/Edge of Town Neighborhood/Regional/Highway Neighborhood/Regional/Highway

January 31, 2006 Co-op 500 Webinar 31 Phase IV: Analog Selection By Store Size/Specialty Departments Sales Area Size Sales Area Size Presence or Absence of Presence or Absence of Meat/Seafood DepartmentMeat/Seafood Department Deli (service/self service)Deli (service/self service) BakeryBakery Café Seating AreaCafé Seating Area Coffee bar/juice barCoffee bar/juice bar

January 31, 2006 Co-op 500 Webinar 32 Phase IV: Analog Selection By Population Density Urban Urban Suburban Suburban Rural Rural The greater the density of population, the lower sales penetration levels tend to be The greater the density of population, the lower sales penetration levels tend to be

January 31, 2006 Co-op 500 Webinar 33 Phase IV: Analog Selection According to Demography Ethnicity Ethnicity Age Groups Age Groups Educational Attainment Educational Attainment Employment Type Employment Type Income Level (MHI, % HH with incomes $50 - $150 K) Income Level (MHI, % HH with incomes $50 - $150 K)

January 31, 2006 Co-op 500 Webinar 34 Phase IV: Analog Selection According to Competition Direct Competition – number, type, locations Direct Competition – number, type, locations Indirect Competition Indirect Competition StrongStrong MediumMedium WeakWeak

January 31, 2006 Co-op 500 Webinar 35 Phase IV: Analog Selection According to Distance Other things being equal, sales/capita levels tend to decrease as distance from the store increases Other things being equal, sales/capita levels tend to decrease as distance from the store increases Because of the importance of demography in the performance of a natural food store or co-op, distance alone is not enough Because of the importance of demography in the performance of a natural food store or co-op, distance alone is not enough

January 31, 2006 Co-op 500 Webinar 36 Phase V: Market Study Report Introduction and Background Summary of Findings and Conclusions Review of Study Methodology Review of Facility, Site, Location Characteristics Definition and Description of Relevant Trade Area Review of the Competitive Environment Market Analysis of Relevant Scenarios Maps, Tables, Charts

January 31, 2006 Co-op 500 Webinar 37 SO WHY DO A MARKET STUDY? It Provides a Reliable Method for Defining the Relevant Trade Area to be Served, and the Levels of Sales Penetration to Be Achieved in it

January 31, 2006 Co-op 500 Webinar 38 SO WHY DO A MARKET STUDY? It Provides an Objective Review of the Location, Site and Facility Characteristics that Impact a Store’s Sales Performance

January 31, 2006 Co-op 500 Webinar 39 SO WHY DO A MARKET STUDY? It Provides an Impartial Review of the Competitive Environment that Affects the Store’s Sales Performance

January 31, 2006 Co-op 500 Webinar 40 SO WHY DO A MARKET STUDY? It Provides an Advanced Sales Forecasting Technique with Respect to the Anticipated Sales to be Achieved during First Few Years of the Store’s Operation

January 31, 2006 Co-op 500 Webinar 41 SO WHY DO A MARKET STUDY? It provides a means for evaluating the financial implications of opening a new retail food co-op, by providing the top line number to be used in the pro-forma operating statement

January 31, 2006 Co-op 500 Webinar 42 SO WHY DO A MARKET STUDY? It Serves as a Tool – for Management for Marketing for the Membership for the Bank

January 31, 2006 Co-op 500 Webinar 43 THANK YOU