Assignment 4: Trader Joe’s Site Selection

1 Introduction

1.1  Purpose of this Study

The purpose of this study is work with Trader Joe’s in potential site selection for future development of their grocery stores. Trader Joe’s is looking to create a profit, therefore, an analysis of what is happening in the Minneapolis-St. Paul area will be conducted. In the end, there will be enough information to decipher where a new Trader Joe’s can be placed.

1.2  Scope of this study, sources, and methods

Customer data has been given for six different Trader Joes in Hennepin and Ramsey Counties in Minnesota (Figure 1). Each customer is also fixed to the Trader Joe’s store they are loyal to.

Figure 1. Location of Trader Joe'e in Hennepin and Ramsey Counties.

To understand the study area, a series of analyses will be completed: a market penetration report, finding the optimal store location, locating ideal customers, and selecting three sites and ranking them. Market penetration is a method that determines how well the market is being reached. The number of customers are divided by the total number of people in each area (zip codes) to give a percentage of how well the market is being penetrated. The optimal location will be found by detecting the mean center of all of the Trader Joe's customers. The ideal customers tool uses a method that identifies the threshold of some variable at a geographic area such as zip codes. Hot spots identify areas with high values at a given geographic scale. And lastly, ranking sites allows one to see which sites could potentially out perform the others. The rank will be based on the following variables:

Variables

2016 Total Income

2016 Median Household Income

Ind: Avg. Spent per Week by HH at Food Stores $150+

Shopped at grocery store/6 mo: Trader Joe's

The sites need to be selected based on an area that would be large enough for a Trader Joe's to actually be built, not just a general location. A 1.5 mile buffer will surround the potential sites to assess the criteria listed above. 

2        Findings and Discussion

2.1  Data Provided

The customers for Trader Joe’s are sporadically located across Hennepin and Ramsey County. Six zones can clearly be spit based on the stores. Each grocery store has a clear number of customers that are loyal to a particular location shown in Figure 2. One thing to note is that there are not as many Trader Joe’s customers to the west of the study area.

Figure 2. Location of Trader Joe's customers by store.

2.2  Optimal Location

The optimal location was influenced by the customers. By finding the mean center of the customers, a location was placed near downtown Minneapolis (Figure 3). The city of Minneapolis itself does not have customers clustered in its bounds. Due to the infrastructure of businesses and entertainment that are prominent in downtown Minneapolis, there are not many customers living there. The mean center in this particular instance may not be the best because there are still current Trader Joe’s locations that could be closer to the customers.

Figure 3. Mean center of Trader Joe's customers.

2.3  Market Penetration

To inspect how well the market is reached in the MSP area, the number of customers is divided by the total number of people in each area. This is based on total population in each zip code. The 2016 Total Population is 56,104 people for the study area with a Median Household Income of $145,958. With these statistics in mind, the percentage of how well Trader Joe’s is penetrating the market is more prominent in the Minneapolis and St. Paul areas. This is where 4 of the 6 Trader Joe’s are located (Figure 4).

Figure 4. Market penetration of customers. 

2.4  Hot Spot Analysis

The map in Figure 5 shows hot spots (clusters) of high population based on the Median Household Income. Typically, those with higher incomes do not live in the heart of the city (Minneapolis-St. Paul). This is why majority of the yellow overlays the Twin Cities, while the red lies more towards the suburbs.

Figure 5. Hot spots of population based on median household income.

2.5 Ideal Customers

Locations that contain potential areas for future development are shown in Figure 6. The ideal customers are classified by zip codes and contain a population with at least 20,000 people. Contrary to past analyses, the prospecting customers are located outside Minneapolis-St.Paul specifically. In other words, the customers are not in the heart of the two large cities but in the cities around them. However, looking at ideal customers takes into consideration the entire population of the area. This could useful when looking for new markets or future potential customers. 

Figure 6. Ideal customers of Trader Joe's.

2.6 Ranking Site

After looking at the demographics of the customers, population, and store locations, three sites were selected for potential future development locations for Trader Joe’s. These sites that were selected were on empty lots in commercial areas around The Cities. With a 1.5 mile buffer around the three sites, variables were considered in order to see which sites may outperform others. The variables included 2016 Total Income, 2016 Median Household Income, the Average Spent per week by Households at Food Store $150+, and Shopped at Grocery store (Trader Joe’s). Figure 7 shows that the number one site is located North West of the cities. There is only one Trader Joe’s in that direction along with a large cluster of customers. The second best option was East of St. Paul where there is not a Trader Joe’s that close. The last site is not as ideal as the other two. After it was geocoded, the location was too close to another store. That would create competition between the customers.

Figure 7. Ranking site of potential locations for Trader Joe's.

3        Conclusions & Recommendations

The ranked sites were heavily influenced by ideal customers in the selection process. The first and second site are located closely to an ideal customer area. All three of the sites are in the highest percentage block. However, the third site is in a less populated area. Site 1 is the nearest to the mean center as well. After the ranking of the sites was completed, the northern most site was selected based on the series of variables. With all other analyses in mind, in the end, Site 1 would be the best selection for another Trader Joe's to built at 5801 Xerxes Ave. N, Minneapolis, MN 55430 (45.060469, -93.321479). 

4        References

ESRI. 2016. "Esri Business Analyst."