CFA Guidebook Series
LEVERAGING DATA & ANALYTICS TO SCALE YOUR FRANCHISE
Lyn Little, BDO Canada LLP
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PRESIDENT & CEO
Andrew Hrywnak, Print Three Franchising RimmaCorporationS.Jaciw, CFE, WSI Digital
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David Druker*, The UPS Store
Darrell Jarvis*, Fasken
The Canadian Franchise Association (CFA) helps everyday Canadians realize the dream of building their own business through the power of franchising. The CFA advocates on issues that impact this dream on behalf of more than 700 corporate members and over 40,000 franchisees from many of Canada’s bestknown and emerging franchise brands. Beyond its role as the voice of the franchise industry, The CFA strengthens and develops franchising by delivering best-practice education and creating rewarding connections between Canadians and the opportunities in franchising. Canadian franchises contribute over $100 billion per year to the Canadian economy and create jobs for more than two million Canadians. Learn more at www.cfa.ca or
Joel Levesque, McDonald’s Restaurants of KenCanadaOtto, Redberry Restaurants
ABOUT THE CANADIAN FRANCHISE ASSOCIATION (CFA)
1ST VICE CHAIR
Gerry Docherty*, Good Earth Coffeehouse
Gary Prenevost, FranNet John Prittie, TWO MEN AND A TRUCK
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Frank Stanschus, Little Kickers
Sherry McNeil*, Canadian Franchise Association
Published by the Canadian Franchise Association
SECRETARY & GENERAL COUNSEL
Thomas Wong, Chatime
CHAIR, FRANCHISE SUPPORT SERVICES
Ryan Picklyk, A&W Food Services of Canada Inc.
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Stephen Schober, Metal Supermarkets Family of Companies
Larry Weinberg*, Cassels Brock & Blackwell LLP
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Kirk Allen*, Reshift Media Inc.
Sponsored by: PiinPoint.com 5 TABLE OF CONTENTS Leveraging Data & Analytics to Scale Your Franchise ������������������������������������������������� 6 Leveraging Data for Site Selection ����������������������������������������������������������������������������������������7 Finding New Markets for Growth ����������������������������������������������������������������������������������������� 10 Optimize Your Franchise Network for Profitability ������������������������������������������������������� 13 Fast Facts & Keyword Definitions ������������������������������������������������������������������������������������������ 17 The CFA wishes to acknowledge and thank these National Sponsors for their support throughout the year. Find out more about these companies at www.cfa.ca/sponsorship. LAW FRANCHISESSHOWCASEDFIRMS:
3. With a mature store network, how do I optimize the network for overall profitability?
6 www.cfa.ca CFA Guidebook Series: Leveraging Data & Analytics to Scale Your Franchise Leveraging Data & Analytics to Scale Your Franchise
2. Where are the ideal markets to grow my network over the next three years?
franchising brands are planning to expand their physical networks, just as many are planning on rationalizing and optimizing their existing networks in the face of rising digital e-commerce demand and rising operational costs. Now more than ever, developing a data-driven expansion/optimization strategy, and then executing that plan with speed and precision, is critical for gaining or maintaining a competitive advantage for access to the most desirable markets and real estate listings.
If there’s one thing we know in retail, it’s that consumer demand is always changing. While this constant and accelerating evolution can feel overwhelming, there are moves you can make to confidently plan for success, regardless of the maturity of your network, even amid uncertainty.Manyretail
LEVERAGING DATA & ANALYTICS TO SCALE YOUR FRANCHISE
The three most common questions that retail and franchise organizations ask are:
1. Where do I put my next location?
In this guidebook, we outline our thoughts on how franchisor organizations can leverage data and market insights to address these important and ongoing questions.
3. What are the vehicle and pedestrian traffic counts in the area, and do the high-volume times align with your hours?
4. Is this area growing or declining?
1. What demographics, preferences, and behaviours define your target customer?
Sponsored by: PiinPoint.com 7 Leveraging Data for Site Selection
5. What is the competition like in the area?
LEVERAGING DATA FOR SITE SELECTION
The process of selecting a new location has a particular workflow. These days, it involves far more than just finding available listings and choosing based on gut feel or past expe rience. It’s critical that you have a thorough understanding of the consumers who live and shop there, the flow of people and traffic at various times of day, the competitive landscape, co-tenancy, and a range of other considerations. Best practices would suggest that you need to begin by identifying the right
One of the more frequent questions we hear from clients is “where do I put my next loca tion to ensure success?” Choosing new loca tions is one of the most important decisions you can make for your company. Whether you’re a real estate professional for a large franchisor, or the CEO of a growing small business, this decision will have long-term effects on the health of your brand.
Choose the right market
From marketing to product development, real estate to sales, the entire company needs to answer a few not-so-simple questions:
market and trade area, and then select the right site within that market using fundamen tal data points about the trade area that loca tion would serve. Therefore, choose the right market, and then choose the right site.
2. What anchors and complementary brands exist in the trade area that will drive traf fic to your business?
8 www.cfa.ca CFA Guidebook Series: Leveraging Data & Analytics to Scale Your Franchise Leveraging Data for Site Selection
Traffic data will tell you how visible your potential storefront will be based on time of day and day of the week, and even how much
organic traffic it might be able to generate. The days of sitting in a parking lot and watch ing cars pass by are long gone. Leveraging traffic models built using mobile location data gives businesses reliable and up-to-date traffic information. This data can even iden tify the difference in traffic for the right and left sides of the road.
Another consideration is accessibility. You’ll want to know if a potential location is only accessible by a left-hand turn or if there’s a road median blocking traffic in and out of the parking lot. Make sure you have access to photos from the street view of a potential location to determine how acces sible it is for your customers. While Google Street View will give an initial insight into a location, there’s nothing like visiting it in per son to fully gauge the location’s accessibility.
(Fig. 1. Demographics, traffic counts, mobile location data, and points of interest all provide an excellent bird’seye view into the profile of people and businesses in an area; Geosocial Segmentation; Piinpoint.com; 22 Aug 2022; neighbourhood.)https://help.piinpoint.com/en/articles/3840181-geosocial-segmentation-explore-the-personality-of-a-
Demographics and customer segmenta tions systems are the best way to identify and locate your target market. By combin ing demographics such as median income, education level, and population in a set age range, as well as preferences and behaviours through commercial or home-grown segmen tation systems, real estate decision-makers are equipped with important demand signals that can make or break the launch of a new location. Customer segmentation data con tains rich variation in customer preferences, spending behaviour, and potential loyalty to your brand to get a better idea of what a suit able area might look like.
Is the location in an area that’s growing or in urban decline? An indicator of future opportunity is the status of new developments in the area, which indicate up-and-coming neighbourhoods for modern buildings and an increased population. Investing in locations early will establish your brand as a key player in the neigh
Anchors can be any high-traffic location that serves as a focal point within a neigh bourhood. Perhaps it’s a shopping centre, grocery store, or even a sports facility. For instance, universities are often major com munity anchors for low-cost restaurants because the university students’ annual restaurant food expenditure matches their product offerings.
What real estate is available and how can I make sure it meets my criteria for success?
bourhood before competition becomes fierce. Another source of information is understanding the population shifts from one municipality to another. Statistics Canada and other databases will have this information available to show how the population has changed over a five-year period and what areas have seen the greatest increase.
1. How do I determine if a particular site will be successful?
2. Where are the available sites/listings in the target area?
3. How do I prioritize listings to increase the potential performance of the new site?
Sponsored by: PiinPoint.com 9 Leveraging Data for Site Selection
The store format and physical attributes that are correlated with existing high-per forming stores can be derived from histor ical data. This data can help you and your brokers optimize your real estate listings. For example, certain retailers would strongly consider a mall location simply because placement within a shopping centre will drive traffic to their site.
Success scorecards for listings are a great way to prioritize the available site inventory to improve long-term success. Efficiency and accuracy are everything, and having a consistent “scoring” mechanism for listing submissions by brokers or agents is important to reduce the time to leasing nego tiations. It’s just as important to keep the scoring mechanisms fresh over time, as data refreshes and things change in the market, such as a competitor opening in your market or population growth due to immigration, for example. As location intelligence technology evolves, real estate departments are moving to automated scoring and sales forecasting systems to prioritize listings as they come in. Automation technology ensures that your broker network sticks to your “success” pro file and isn’t wasting time by chasing bad sites.
The density of competitors around a new location can be both a win or a loss. Regional and national brands in the area may be well known, but don’t underestimate your momand-pop shop competitors. Local businesses often have a deep connection with the com munity that will be difficult to replicate as a newcomer.
Choose the right site
Now that you’ve found the right market and determined that there’s significant demand for your product or service, you need to answer three more critical questions:
Real estate departments need to guide their broker networks to identify the properties based on the physical attributes you know are successful. Simple scorecards or templates provided to agents ahead of time go a long way in reducing the time spent on analysis after they’re submitted.
The trick to finding the right “white space” market is to figure out which factors have the most influence on a market’s potential value. Site characteristics and operational management issues will have a significant influence on store performance, but only after a specific piece of dirt is converted to a
As outlined in the previous “Leveraging Data for Site Selection” article, finding the “ideal” market fit for your concept, value proposition, and product offering is the first step in an ongoing battle for real estate and store operations development executives. Historically, supporting these decisions has been the domain of geographic informa tion systems (GIS) analytics teams armed with reams of internal and external data. Advancements over the last 10 years in big data, machine learning, and artificial intelli gence have helped in making location intelli gence more accessible!
If you can identify these key market fac tors, you can build a scoring system using your existing network’s high-performing markets as the baseline data. Brokers appreciate it when you can narrow down their search and allow them to focus on what they do best: finding the right listings!
FINDING NEW MARKETS FOR GROWTH
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Predicting successful new markets
Finding New Markets for Growth
(Fig. 2. A 5-, 10-, 15-, 20-, and 25-minute drive time heat map in St. Catharines, ON; Build a Trade Area; Piinpoint. com; 22 Aug 2022; articles/422809-build-a-trade-area.)https://help.piinpoint.com/en/
location. One has to identify whether the fun damentals of the market can support a solid baseline of revenues prior to the real estate approval process.
2. Run a statistical analysis among trade area attributes (demographics, com petitive density, etc.) against top- and bottom-performing stores and identify those attributes that differentiate them the most;
7. Competition and other related retail pro files (called “points of interest”).
2. Daytime population;
Predicting the performance of potential sites using modern machine learning and statistical methodology depends on the availability of historical data at the dissemi nation area (e.g. Canada) or block group (e.g. United States of America) that covers these five “buckets” of variables.
Step 2: Run a statistical analysis among trade area attributes against top and bottom performers
There are many ways to build a scoring sys tem. The best practice these days is to use data and predictive modelling methods to remove the “broker or experience bias” from the system and allow the data to drive the outcome. There are three major steps in doing this:
In our experience, the factors that influ ence the potential of a new market (or a trade area) fall into one of five areas:
Step 1: Identify top- and bottomperforming stores through annual sales metrics
The key to coming up with a benchmarking scorecard at scale is to understand where the top and bottom performers can be found in your store network. It’s critical to identify these two groups, such as the top 20 per cent and bottom 20 per cent on store annual sales, or you can normalize it and use sales per square foot. Either way, you need a con sistent way to identify top performers.
5. Consumer/customer preferences and behaviours;
3. Vehicular and pedestrian traffic;
Building the scorecard
6. Proximity to your existing locations (can nibalization effects); and,
The concept of a “retail trade area” has been around for a long time. By broad definition, a retail trade area is the geographic area that a retail store draws customers from. Defining your trade area provides you with a geographic zone within which you can pro file all the variables that define the variation and potential for demand in the area around any store. The assumption is that this area covers most of your potential customers, competitors, and retail anchors that will be major contributors or detractors to driving market potential.
Traditionally, there are three methods you can use to define a trade area: rings, polygons, or drive/walk times. These methods are purely geographically-based distance measures. However, advanced retailers are collecting postal codes at the POS, while others have established loyalty or rewards programs that integrate with their POS system, providing a wide range of insights about customers’ buying habits, in addition to where they live. At a minimum, customers’ postal codes provide the most accuracy about the size and dimension of your trade areas. With spending data by customers, as well, you have the “gold standard” for trade area construction. Now you can not only understand the size of the trade area but also your spending share of that trade area!
1. Demographic and socioeconomic profiles (census variables like population density, median income, household size, ethnicity, etc.);
4. Urban-rural profile of the area;
Statistical modelling techniques (multiple correlations or regression analysis) can estimate the impact of thousands of variables to derive the significant relationships among high-/low-performing markets.
Sponsored by: PiinPoint.com 11 Finding New Markets for Growth
1. Identify top- and bottom-performing stores through annual sales metrics;
3. Build the analysis into an automatic scor ing system—a scorecard.
Step 3: Build the analysis into a scorecard
Statistical models aren’t a universal solution; they’re representations of reality based on historical data. Accuracy varies in direct proportion to the amount of data you have. However, the models can provide a first look at all markets and provide the franchi sor with a tool to improve the efficiency of, and remove decision bias from, their market selection process. They enhance the real estate approvals protocols by ruling out evi dent underperformers from the system and allow decision makers to focus on those with the best chance of success.
In this scorecard, the trade area is a sev en-minute drive time around a point on a map (e.g. intersection) and receives a score
(Fig. 3. Sample scorecard from hypothetical case study; Giving Restauranteurs a Road Map for Market Growth; PiinPoint.com, 22 Aug. 2022, www.piinpoint.com/keto-cafe-case-study-download.)
of 79 out of 100, meaning it has a medium-tohigh probability of “looking like” a high-per forming market. You can see the factors that have varying levels of influence on the overall score outlined in the table. The fac tor scores and weights are derived from the analysis in Step 2.
12 www.cfa.ca CFA Guidebook Series: Leveraging Data & Analytics to Scale Your Franchise Finding New Markets for Growth
The statistical relationships derived in step 2 are then compiled into a prediction algo rithm that can be applied to potential sites (e.g. intersections, dissemination areas, census blocks, or trade areas) to provide a ranking and allow real estate professionals to prioritize markets for further investigation, and provide their brokers with guidance on finding the right “dirt.” This will show which prospective markets are over- and underper forming, and identify the markets with the highest potential based on the surrounding localized market’s characteristics.
The denotation of the term network optimi zation suggests moving toward the one true outcome from which you can’t improve any further, ”all else held equal”. This is a scien tific definition but is difficult to apply in busi ness decision-making, as we know that world events, consumer behaviour, and competitor actions are continually evolving. That is, it’s a moving target!
As mature retail and franchise organiza tions look to the future, unit growth is only one of several strategies to reach profit ability goals. Those organizations who seek profit per unit growth need to look at “opti mizing” the existing network to improve profitability, as well. Real estate teams are charged with building strategic plans for closures, relocations, consolidations, and renovations to support the brand. Many are also refreshing the brand to increase prof itability of poor performers and/or replace them with alternatives. As such, real estate planners are leveraging geospatial machine learning tools to help simulate how changing the network strategy will impact long-term organizational value.
(Fig. 4. Customized and interactive sales forecasting models can help you quickly query a candidate location and predict mature store sales; Sales Forecasting; Piinpoint.com; 22 Aug 2022; com/en/articles/2020940-how-will-this-site-do-in-sales.)https://help.piinpoint.
Network optimization: Moving toward more profitable outcomes
As such, we think of store network opti mization as a process by which multiple changes to an existing network of stores have a predicted net positive impact on organizational profitability with a margin of error, subject to market constraints, such as changing consumer behaviour, market satu ration, store unit performance, and predict able competitor impacts. Hence, the process of “optimizing” is incremental by executing manageable ongoing adjustments toward higher performance.
Sponsored by: PiinPoint.com 13 Optimize Your Franchise Network for Profitability
The path to success isn’t as straightforward as it used to be. The pandemic has impacted consumer choices and behaviour, requiring the physical store network to pivot. Retailers’ brick-and-mortar growth and performance formulas must also be altered to appease franchisees and investors alike.
models have been used for decades, and in retail, a well-understood field of practice is evaluating store success and replicating it in a geospatial platform.
(Fig. 5a. Sample network optimization opportunity prediction; Network Analysis; piinpoint.com; Aug 2022.)
• Time-to-maturity estimation using histori cal patterns,
• A forecast model based on historical growth beyond maturity.
A new combination of data, machine learning methods, and interactive scenario planning can inform retailers seeking optimized per formance across an evolving omnichannel network. The tools in this endeavour include, but are not limited to:
• Sales prediction models (forecasting),
• Cannibalization (sales transfer) models,
The tools required
Cannibalization (sales transfer) mod els are built on historical patterns of sales changes to existing stores when a new store opens up in the same trade area. The sales prediction and the cannibalization predic tion work together to establish the “net sales impact” of adding a new store. In mature, larger networks, overpopulating territories is a real threat to franchisee value and the organization as a whole.
14 www.cfa.ca CFA Guidebook Series: Leveraging Data & Analytics to Scale Your Franchise Optimize Your Franchise Network for Profitability
A sales forecasting model consists of three •components:Maturestore/unit sales prediction model,
In mature networks looking for infill, or other changes like replacing or closing poor performers, the sales forecasting capability is not enough - enter the cannibalization model.
The main purpose of these models taken together is to predict the potential sales at a new location from day zero to maturity, at maturity, and from maturity onwards. In smaller organizations where unit growth is the goal and there is lots of white space, sales predictions are all that’s needed to grow profitably.
• Simulation engine for multiple scenario analysis.Salesforecasting
Sponsored by: PiinPoint.com 15 Optimize Your Franchise Network for Profitability
Chances are you’ve encountered all of these decisions at one time or another. It’s likely your internal real estate teams, working together with the finance department, come up with calculations for a business case. These days, the game is getting more sophisticated, and the use of the tools outlined above is fast becoming best practice. They are data-driven and scalable to allow you to estimate the net revenue and/or profitability impact of several different real estate decisions (perhaps multiple at a time or across time) that you would consider on your three-to-five-year road map.
1. Store openings: When evaluating expan sion opportunities, you want to predict sales with precision and confidence by measuring incremental and mature store sales, as well as the potential cannibal ization to your existing network. Retailers also can’t forget to consider how their mar ket share changes with new store openings.
(Fig. 5b. The Network Optimization exercise is formatted into layers that allows for visualization at the local, regional, provincial, or national level. In Fig. 5b, the Greater Toronto Area is depicted and the green dots represent opportunities to expand or relocate; for example, the Scarborough area; Piinpoint.com; 22 Aug 2022.)
Real estate events that drive improved network productivity
Both model types (sales and cannibaliza tion models) are used in a simulation engine to provide insight into the net revenue or profit impacts of several real estate events. Such events include opening or closing a location, relocations (essentially a clos ing and an opening together), renovations (downsizing or upsizing floor space), or con solidations (essentially closing locations in a market of several).
2. Store relocations: Sometimes a neigh bourhood might be just right for your concept, but you can miss out on fully capturing the market due to poor real estate conditions, such as when access to the centre is awkward, you’re on the wrong side of the street, or updates to the unit are cost prohibitive. Ensure you can distinguish whether your unexpected low performance is due to the geography versus the real estate, and/or operational issues. While it’s easier said than done (and dependent on listing availability) if your store is already in a high potential market, try maximizing your revenue opportunity by moving it to an optimal location nearby.
4. Store renovations: How are you redefining the purpose of your physical footprint to better match expectations consumers have for your store space? Your real estate must become increasingly digital, safe and health-conscious, purposeful, and convenient. As you strategically plan for potential changes to store format, adding or removing selling area, increasing accessibility, offering curbside pickup or delivery options, or better meeting physical distancing protocol, leverage these tools to help you to predict and demonstrate how changing the specs at a site can impact your network.
5. Store consolidations: Brands that even tually right-size their network often do so as a result of growth that happened too quickly. That, or the market has changed, and the stores required to service a trade area are suddenly redundant based on updates to transit access, population change, or economic health. Consolidations can make sense when you have multiple stores near one another and now none are hitting their targets due to the changing market attributes. Consolidation decisions can be simulated by estimating the “sales transfer or recapture” of the closing store by the one(s) still open.
The bottom line is that having a full suite of prediction tools can help real estate planners plot strategy with a data-driven approach to complex network changes rather than rely ing solely on historical intuition.
16 www.cfa.ca CFA Guidebook Series: Leveraging Data & Analytics to Scale Your Franchise Optimize Your Franchise Network for Profitability
3. Store closures: As spending migrates online and accessing goods and services evolves, it might not make sense to have a physical presence in the same way you do now. If your business model is favourable for e-commerce and products can be delivered through alternate forms of sale, downsizing real estate may make good sense. In uncertain economic times, capital efficiency is your organization’s guiding principle. Retailers are choosing to close underperforming stores. While these closures may feel like the obvious, clear-cut thing to do, there are best prac tices to follow when downsizing:
1) Identify the optimal locations to exit based on their future potential. Closing stores should be low performing because they struggle operationally, in addition to being located in markets where there is low potential for success. 2) Make sure to understand your sales transfer due to a store closure and where those sales will go: your sister stores or your competition.
● GIS (Geographic Information System): A geographic information system is a type of database that combines software tools for managing, analyzing, and displaying geographic data with the database itself.
● Demographics: Demographics are statistical data relating to the population and particular groups within it.
● Traffic data/traffic counts: Traffic counts are counts of vehicular and pedestrian traffic, which is conducted along a particular road, path, or intersection.
Sponsored by: PiinPoint.com 17 Fast Facts & Keyword Definitions
● Geosocial data: Location-based social media data is known as geosocial data. On social media platforms, people create media material that is linked to particular places. Latitude and longitude coordinates are frequently used as the location component.
● Cannibalization: In marketing strategy, cannibalization is a reduction in sales volume, sales revenue, or market share of one location when the same company introduces a new location within a competitive distance of an existing location.
● Network optimization: In order to monitor, manage, and enhance network performance, a variety of technologies, tactics, and best practices are together referred to as “network optimization.”
● PiinPoint was founded by Jim Robeson and Adam Saunders in 2013, after meeting at the University of Waterloo. The company was accepted into the Y Combinator startup accelerator program, where the company grew and evolved.
● Daytime population: Daytime population is a term used to describe the total population of a place, usually a city or an urban region, during regular business hours. This includes both local inhabitants and commuters from places outside the city or urban area.
● PiinPoint acquires data from data providers such as ChainXY, Spatial.ai, NEAR, Statistics Canada, U.S. Census Bureau, and Synergos Technologies.
● Site selection: Site selection is the practice of new facility location. Site selection involves measuring the requirements of potential locations.
● PiinPoint is located in KitchenerWaterloo, Ontario.
● Location intelligence: Geospatial data visualization and analysis enable location intelligence. Analysis of spatial data improves comprehension, insight, forecasting, and decision-making.