1% { LIBRARY ‘ MICHIGAN STATE ‘ UNIVERSITY 9; N WWII“ :Rnncr Mougplfifii /‘r~ PLACE IN RETURN BOX to remove this checkout from your record TO AVOID FINES return on or before date due. DATE DUE DATE DUE DATE DUE ‘21: MSU Is An Affirmafive Action/Equal Opportunity Institution $dean Int 3?“ '~7 “’37“; 1 ‘1’} i.-.;.»:~Lmud THE SMALL TOWN: AN OVERLOOKED OPPORTUNITY? By Daryl Allan Erdmsn A THESIS ' Submitted to sMichigsn State University in partial fulfillment of the requirements for the degree of MASTER OF BUSINESS ADMINISTRATION Department of Business and Public Service 1952 mus II. III. IV. V. ‘JI. VII . APPENDIX BIBLIOGRAPHY TAFLE OF CCNTENTS I53'TRODUCTIOEJ O O C O O C O O O O O O 0 On Definitions Problem Objectives Hypothesis Methods SMALL TONE-~AN OTERLOOKED OPPORTUNITY Store Location Methodology Independent Site Selection Availability of Sites Costs CHARACTE ISTISS OF THE SMALL TOWN . . Who Best Qualifies? SHALL TOWN REASURaMENT CRITERIA . . . Specific Criteria Other Measurements Which May Be Employed Further Consiflerations CAN SMALL TONN EXPANSION BE PROFITABLE FOR THE INDEPENDENT? . . . . . . . . Reasons Profit and Loss Comparison FU TIJTPLE O O O O O O Q 0 O O O I O O O 0 SUMMARY AND CONCLUSIONS . . . . . . . ii Page iii vi U'l U1 (n gl) PREFACE Since the advent of the supermarket a phenomenal growth of a form of mass merchandising never before tried can be seen. The spread of the supermarket throughout the country took place at an accelerated pace. At first little heed was given to location, but as competition grew so did the need for refinement in location theory. Today most large chains have real estate departments which employ all the very latest tools of the modern researcher in locating new sites. With this in mind, two questions come into being: "How can super- markets fail?" and "How can independents survive and compete in this atmosphere of professionals?" The truth is that supermarkets do fail, and often! As for the independent, this is the question this paper will attempt to solve. In looking around the country at various chains, one curious fact is seen-~supermarkets are in the majority con- centrated in large towns and cities, seemingly ignoring small towns. With a little reflection it is seen immediately that this is an important market which might be overlooked. Super- markets, in this era of rapid expansion, have had an over- abundance of large towns and cities in which to expand. With this overabundance they have not had to search for other ar988. Too many independents are making the mistake of °°P31ng the location methods of the chain. By copying chain iii iv methods the independent is forced into consideration of the large towns and cities where he is at the mercy of the chain and much more severe competition. He has not fully realized the profitable small town in which he could expand without fear of chain competition. By the time the chains have run out of large towns and cities in which to expand and start looking to the small town, the independent can be firmly en- trenched and the small town will not be quite as attractive to the chain. ‘ Obvious, now, is the need to point out the importance of the small town to the independent, showing that contrary to current thought, the small town will fit some of the location criteria that are currently in use. By careful application of some of these location criteria, the small town can become a boon to the independents. Until the independent realizes his abilities in this area, he is going to continue to have to take the "leftovers" Of the chains for sites. There is a place for both the chain and the independent but if the independent does not start to realize this very soon, he might face the prospect of severe competition by his chain neighbor. He must select his battleground and prepare for the fierce competition which lies ahead. This battleground for him is the small town. One further qualification needed here is that much material for this paper is drawn from personal experience gained in working in small midwestern rural towns. For this reason exceptions may be found. However, it is recOgnized - ..-(- n.- 1 ‘v; " that the small town's characteristics are quite similar throughout the United States. To this extent, then, generalizations can be drawn. Acknowledgments The author wishes to thank Dr. Barnet and Dr. Slate of the Marketing and Transportation Administration Department of Michigan State University for their encouragement and assistance in the writing of this paper. A special acknowledg- ment is due all my colleagues and friends whose ideas and assistance have greatly aided in making this paper a reality. 11. Supermarket Share of Grocery Sales . . Number of Families Per Supermarket . . Number of Grocery Stores and U. S. Population . . . . . . . . . . . . . Operations of the Largest Chains in the 258 Largest Cities . . . . . . . . . Average Number of Chain Retail Grocery Firms in Cities of Various Sizes . . Number of Competitive Supermarkets by Distance Interval and Survey Store . Customers By Distance Interval By Store Type 0 o o o o o o o o o o o e o o 0 Per Capita Sales By Store Type at a, 1i and 2 Mile Intervals . . . . , , Profit and Loss Statement for Typical Large Ch ain O I O I O O O O O O O 0 0 Profit and Loss Statement for Typical Small Town Independent . . . . . . . Questionnaire Answer Tabulation . . . . vi *1} \JJ b 14 17 18 61 65 (D CHAPTER I INTRODUCTION As the growth of the supermarket industry is studied, on the surface it appears that supermarkets have not missed any opportunities for expansion. Is this true? An attempt Will be made to show that, in fact, there are many areas in which a supermarket could be profitable, if run properly, but Which are seemingly overlooked. To many peeple, it appears that supermarket expansion has been infallible--that opportunities have not been over- looked. This is, unfortunately, not true. The problems and inaccuracies of supermarket site selection are many. This is attested to by the high death rate among supermarkets which 6lists. It is currently an accepted fact that the life ex- peCtancy of a new supermarket averages about ten years. What has been overlooked by supermarket expansion? It 18felt that the small town has, to a great extent, been 18J‘saly overlooked in the growth of the supermarket. This has been largely a result of the fact of an overabundant Supply of sites elsewhere. "The flow of prOposals for BhoDrbingncenters and solo locations continues unabated. Some chaddas are receiving as many as'a hundred pr0posals a week."1 \ Lo 1"Chains Reveal Rules-of-Thumb for Choosing Store cations," Chain Stgre 556, January 1960. P- 333° 1 [‘0 With this amount of site offerings it is no wonder the small town is being bypassed. It must be kept in mind here that these offerings are going to chains, not independents. The independent must still use his own site selection methods. This often in- volves copying chain store methods for lack of something better and entering the city. By doing this, the independent is brought into considering the same areas in the cities as does the chain. He must compete with large chains for sites, and the majority of times he loses out. In this era of demanding and severe competition, each competitor must select his own "battleground," so to speak, in order to be able to succeed and compete effectively. It appears that the chain has already selected his in the city. What is left? The small town-~which will be shown to be the refuge or overlooked opportunity of the independent. It is obvious that the saturation point for super- market expansion is rapidly approaching in many areas. In fact, not too many years ago it was assumed that when super- market sales reached 70 per cent of total grocery sales the market would be completely saturated.2 However, there 13 That full agreement concerning this, for many states have already exceeded this 70 per cent limit. Supermarket sales enJOy over 85 per cent in some states, as is evident in Table 1. n 20hristos D. Lillios, "Super Market Site Selection“ published M.A. thesis, Michigan State College, 1953), p. (un 118 TABLE 1 SUPERMARFTET SHARE OF GROCERY SALES Super % of State grocery sales Colorado 93 Nevada 92 Delaware 87 New Jersey 85 South Carolina 84 Utah 34 Florida 83 Washington, D. C. 83 New Mexico 82 Alabama 80 Arizona 78 Virginia 78 Washington 77 Georgia 77 North Carolina 76 Connecticut 75 Source: Sgperr£arket_Merchandi§;ng, May, 1960, p. 70. Granted this shows only total sales distribution and ‘Ulat under this there comes the breakdown of the chains and 'Uie various independent groups. But the fact remains that 33 this share of grocery sales increases, the proportionate nLHaber of available expansion opportunities is bound to de- crease. It is obvious that expansion will not have to cease at"'70 per cent of total grocery sales, but it is also obvi- ‘flls that this saturation point is nearing rapidly. As this haDDens, supermarkets are going to be forced into considering ‘mDPe and more areas; one of these areas, it is felt, will be the small town. The number of families available per store has de- creased 59 per cent since 1940. In 1940 there were 5,659 families for every supermarket--in 1959 there were only 2,310. This is another valid indication of our approaching saturation point and is brought out in Table 2. TMflEQ NUMBER OF FAMILIES PER SUPERMARKET No. of families Year per supermarket 1940 5.659 1950 3,014 1959 2.310 Source: Super Market Merchandising, May 1960, p. 70. Of course, it must be remembered that the tremendous Concentration of supermarkets in population centers affects this, but not to the extent that it invalidates the data completely. It is still something which needs attention drawn to it and an awareness made of it. A previous researcher has determined that it takes from 1,000 to 1,500 regular customers to support a super- market designed to do a twenty thousand dollar weekly v°lume.3 From the table it is seen that this figure is not far from being reached. The startling fact is that a ‘ 3Ibid., p. 43. majority of new supermarkets are designed for well over a twenty thousand dollar a week volume. It should be obvious from the above discussion that the supermarket Operator of today must begin looking for available sites outside large communities and heavily pepu- Lated.suburban areas. It is felt that one of these places ‘uo look is the small town. This is the possibility which Will be under examination. ' 0n Definitions This section will deal with definitions which will nuake possible the establishment of the vocabulary which Will be used in the remainder of the paper. In beginning to study the supermarket industry, one Sltxring fact emerges--a complete lack of a standardized vocabulary. A prime example of this can be found in examining the definition of "super market" itself. There are perhaps as many definitions existing of the term as there are writers (”I the subject. Some, in fact a majority, base the definition on a yearly sales figure. Anything under this f1Sure is not a supermarket. How ridiculous and unrealistic can a definition be? A figure often used today is the re- quirement of $375,000 yearly sales.4 With just a little refleetion, there can be seen many stores doing less than ML 4"Facts in Grocery Distribution," Pregressive Grocer (1961), p. F6. 0\ 37,900 in sales per week, especially in small towns. In dealing with this for the purpose of this discussion, another definition of a supermarket would explain the actual con- cept or operation involved more fully. With this in mind, a definition which is far superior and one which will be used throughout the paper will be set down. The definition to be applied is: a supermarket is a self-service type re- tail outlet which is departmentalized to the extent that it sells groceries, fresh meat, and fresh produce. It also Will have some general merchandise and will have varying proportions of all of the former. No restrictions on the amount of sales or type of ownership will be made. It is recognized that this definition does not distinguish between a bantam or superette and a supermarket. For purposes here this is recognized, but it is felt that a supermarket can have equal sales and still be distinguished from a bantam because of a broader and more diversified product line. EB-Ch case must be studied and considered separately, but it 13 felt that the latter definition will suffice here. The next area of conflict comes when considering a definition for independents and chains. We find that definitions run from the type of buying to the number of outlets involved. Progressive Grocer defines an independent as an organization having ten or less stores, and a chain as One having eleven or more.5 This is a very limited defin- 1"i'ion which does not encompass the true meaning of \ _ 5Ih1d., p. F6. independence. A definition has also been given which states something to the effect that a chain is under centralized buying and management. If this were taken literally, it can also be seen that an independent is also under central- ized buying and management. The question of who is truly independent, in the broad context of the term, in today's supermarket is questionable. There may be a few, but it is feared that severe limitations would be imposed by holding to the broader meaning of the term. As it is thought of today,.the concept of independence has changed to a great extent. Perhaps the definition of Mr. Joseph Poy, general manager of Spartan Stores, would suffice. Mr. Foy prefers to define the independent as an ”individual Operator." This would help solve the problem to a great extent if elaborated upon. The independent supermarket Operator will be defined as an individual who owns and Operates his own store or Stores on a local basis. By the term "local," reference is made to one area or section of a single state. This definition could perhaps be expanded to include the fact that, the individual is also recognized in the community as the owner and Operator of his own stores. In this sense, it 18 said that he has a "local" image. This definition, it is felt, will satisfy purposes to a greater extent in fur't-her discussions. It will be usedin-all cases except Where otherwise indicated. It must be realized that all historical data applies different definitions, so whenever (D the data encompasses a different definition, it will be noted. There will be no differentiation made between co- Operative and voluntary type Operators. The next problem area involves the definition of a chain. Progressive Grocer defines it as an operator of eleven or more supermarkets, as noted earlier. Again, a Problem must be considered, for it is quite conceivable that the independent Operator, as defined, could own eleven or more~stores. The definition must be such that no overlap- Ping exists. A chain will be defined as an operator of more than cuie store of which total ownership is not closely held by One or two individuals and whose stores are located on a rustional or regional basis. By "closely held," reference is made to one or two individuals having a minimum of 51 per Cenit interest. The term "national" encompasses more than One state and "regional" usually refers to an entire state or~ a majority of a state. This will again be qualified fu1"‘ther by saying ownership is not identifiable to indivi- dmale in the community. In this sense, the chain does not have a "local" image. Again, indication will be made when a Chain is used in a different sense. In the discussion, the term ”supermarket Operator" is often used. When found stated in this manner, it refers to IQAJL supermarket Operators--both chain and independent. Supermarket expansion will also be discussed. Ex- panSion concerns building, developing. and operating a supermarket in a particular area. From the above discussion it is seen that the criticism of a lack Of vocabulary is completely justified. Until the supermarket industry realizes this, it will always be hampered. This difficulty will arise whenever an attempt is made to write on or discuss the topic of the supermarket industry. This is a serious charge to be leveled at any industry. If there is no common vocabulary, how can dis— cussion and comparison of Operations, Operators or anything The truth being that it is impossible unless This else be made? it; is quite plain as to the definitions implied. serious flaw will continue to exist until members of the irudustry decide to get together and establish the necessary Sruaundwork in a working vocabulary, that is so desperately needed today. The next definitions can be dealt with more easily. Comisider a small town as a town of 5,000 pOpulation or less and larger towns and cities as greater than 5,000 pOpu- la-tion. In most cases the discussion of small towns will 1rlvolve the rural agriculture type community. However, this will be indicated as such in the discussion. Problem Does the small town hold a hidden potential for pro- fltable expansion of supermarkets? If so, for independents moBtly, or also for chains? 1O Objectives To study over-all growth of supermarkets into various areas to discover whether expansion of supermarkets into small towns has been overlooked. To study the characteristics of the small town market and relate this to the type of data and Operation which will be necessary to compete in this particular market. To discover whether the small town is actually profit- able. To discover whether the small town is better suited for chain or independent expansion. To urge the consideration of small towns if they do turn out to be profitable. To construct recommended site selection procedures fox? adequately measuring the small town. MW There is an untapped potential for supermarkets in the small towns of America. The methods to be employed are basically historical and descriptive analytical. The first intention will be to Strudy current definitions and to adopt others while point- inS out existing fallacies. A study of supermarket expan- 31011 Will be made from a historical viewpoint, relating it t0 the chain, independent, and small town. 11 In making use of the descriptive analytical technique, a questionnaire was employed. This questionnaire was sent to seven of the tOp fifteen national chains picked at random--three regional chains and one voluntary group. It is hoped that this would give a good representative sample of chain stores. Armed with historical information from independents, fairly valid assumptions can be made. Refer to Appendix A for a fuller treatment of our questionnaire. Ch: the basis of this and the historical data, a study will be made on the growth of supermarkets, differentiating when- ever possible the independent and the chain store. A study of both past and current growth into the small town will be included. An attempt will be made to determine the reasons for supermarket expansion seemingly overlooking the small town. In this sense, store location methodology for both the independent and the chain will be studied, as will the availability of sites in relation to expansion, the market 8tructure Of the small town, costs of locating in a small town, and any other data which would be pertinent to the discussion. I The next attempt will be to analyze the small town to determine whether it is better suited for chain or inde- perlC'ient expansion and to determined whether small town BuDermarket expansion _i_s_ profitable. To do this, a compar- ative profit and loss statement between large city based cMains and small town independents will be constructed. From this comparative profit and loss statement it will be shown that the net profit obtained in small towns is greater than the chain in a large city. It will be seen that the return on capital investment is greater and that competitors are fewer in the small town. By careful projection of the two sources Of data, it will be noted that in the future the importance of the small town market will continue to grow rather than decline. By careful analysis both of existing historical information and the questionnaire, it is hoped to prove to the inde- pendent that he has a great many advantages and an unlimited number of available sites in small town areas. CHAPTER II THE SMALL TOWN--AN OVERLOCKED OPPORTUNITY When studying the concentration of the supermarket industry by town size, a stumbling block is met: there are very few published figures as to concentration by town size. However, the figures for the year 1941 are available to give an idea.of the conditions as they existed then. The present distribution of supermarkets is as follows: 28.4% in cities of 500,000 and over; 21.4% in cities from 100,000 to 500,000; 22% in cities from 25,000 to 100,0 0; 12.9% in cities from 10,000 to 25,000; 7.3% in cities from 5,000 to 10,000; 4.7% in cities from 2,500 to 5,000; and 3.3% in cities under 2,500. In 989 cities of 10,000 population and over, we find the greatest supermarket concentration, With 8#.7% of the total.1 According to this, it can be seen how the supermarket indus- try as a whole has avoided cities under 5,000 population almost entirely--only 8 per cent of all supermarkets are fOund in.towns under 5,000. One may ask if this information can be applicable to today. It is felt that today this f1Sure of 8 per cent is grossly overstated, for "the total number of grocery stores declined from 444,950 in 1940 to 285.000 in 1958, or about 36 per cent."2 -‘ This can also be 1M. M. Zimmerman, "The Supermarket and the Changing Retail Structure," Journal of Marketing (April 1941). p- 403- 2Mueller and Garoian, p. 20. 13 14 made more clear by the use of a table showing the amount of population per store. TABLE 3 NUMBER OF GROCERY STORES AND U.S. POPULATION POpulation Grocery stores Population Year (iii llions) (Thousands) per store 1940 132. 1 444.9 297 1945 139.9 397.7 352 1950 151.7 400.7 378 1958 175.4 285.0 615 Source: Willard F. Mueller and Leon Garoian, p. 20. This does not give a true indication of the growth of the supermarket itself for it has to be noted that a large share of this decline can be attributed to the closing of several small stores and the opening of one large one. This "as the practice of the majority of peOple in the grocery business when the era of supermarketing rapidly became a fully accepted practice. The table also gives only grocery atOres and not supermarkets. In this sense it is quite 111111131118, . ’ However, if there were only 8 per cent of the super- Imamkets in towns under 5,000 population in 1942 and if the 150178.1 number of grocery stores (which includes small "ma and pa" Operations) declined 36 per cent, it would seem likely that this was felt in all areas. A better insight of this matter was gained from the questionnaire. 15 0f the five national chains replying, representing a total of 3,186 supermarkets, only two had supermarkets in towns under 5,000 pOpulation. Among the two chains, these units added up to a total of only 57 supermarkets in these small towns, which only approximated 2 per cent of the total stores owned by all five. This is a very interesting fact: It shows that chains, up to now, have not been tempted to enter small towns. Three of these chains said that they were planning to tilose some of the stores in the small towns for lack of Pinofitability. This point will be examined more fully in a letter section of this paper. It is interesting to note, however, that among all these chains, the absolute floor they would consider was a population of at least 6,000 people. In the questionnaire, replies were also received from tWTI regional chains. Of these two, one would consider towns of 3,000 pOpulation and the other set a limit at 10.000 population. In the smallest town entered last year by aanw of the seven national and regional chains which re- POPted, the population was 3,500 and four chains indicated they would definitely not consider a town with under 5,000 90130. lation. The most interesting point in the questionnaire came akKHJt from a reply received from a very successful voluntary group, In this reply the group stated it would consider a store in a town with a population under 5,000. In fact, it 16 mauld.consider a town with as low a pOpulation as 1,000. It had entered, and planned to enter towns of this size and laznger. It considered towns with p0pulation under 5,000 to be liighly profitable! 'The significant factor here is that the voluntary grmnap is a representative of independents and shows that perfiiaps the small town is only profitable for the independent. This fact shall be substantiated later. _ If chains have not and are not considering small towns foz‘ the installation of their own stores, then there is Just one other place where they could be building-~the larger town. As an average, the 20 largest chains in 1958 have in- creased their Operations 114 per cent in the 258 largest citixes. Table 6 shows this quite vividly. One may note in the: table that all chains listed have expanded quite rapidly lntm> these cities since 1942. Only one, A & P, has actually dECIined in the number of cities operated in. One chain, Weitugarten, has increased its Operations in these large cities a phenomenal 800 per cent from 1942 to 1957. This certainly points up the fact that the main eXpansion of the client; has been. in the larger cities. In using percentages for comparison, caution must be taken in order not to inflate actual comparisons. For ex- ample“ Jewel Tea Operated in only one of these cities in 1942. In 1957 they operated in eight. An increase of some 700 per cent, but in actual number only seven more cities ‘17 TABL” 4 [I OPERATIONS 0 THE LARGEST CHAINS IN THE 258 LARGEST CITIESa W 1942 1957 per cent per cent Per cent of total of total change Chains 1942 1957 cities cities 1942-57 A dc P 2‘12 200 82.2 77.5 '5.7 Safeway 75 79 29. 1 30.6 5.3 Kroger 78 100 30.2 38.8 23.2 American 32 35 12.4 13.6 9.4 First National 18 18 7.0 7.0 0 National Food 19 58 7.4 22.5 205.3 Colonial 16 37 6.2 14.3 131.3 Jewel Tea 1 8 0.4 3.1 700.0 Grand Union 13 21 5.1 8.1 61.5 Food Fair ‘8 35 7.0 13.6 94.4 Bohack 4 4 1.6 1.6 0 Loblaw 7 13 2.7 5.0 85.7 StOp & ShOp 5 10 1.9 3.9 100.0 Weingarten 1 9 0.4 3.5 800.0 Red Owl . 5 14 1.9 5.4 1530.0 Winn-Dixie 6 29 2. 3 11.2 383. 3 Lucky 2 10 0.8 3.9 400.0 ACF-‘.1Irig1ey - 14 5.4 Penn Fruit 1 5 0.4 1.9 400.0 Fltzsimmons 1 4 0.4 1.6 300.0 ‘ aThese cities are the largest in 1942. The smallest of these cities in 1942 had a pOpulation of 18,000. Source: Willard F. Mueller and Leon Garoian, p. 29. Were used. Perhaps it would be better to see Just what the avBl‘age increase in the number of cities Operated in was. From the table one can compute this average easily, and we find that the average is 9.45 more large cities Operated in by the chains in the period from 1942 to 1957. This still 18 ha quite significant, pointing out that the chain considered the; large city his most important growth area. This fact is also borne out by studying I-Zoody's Industrials for the past teu1 years as to the activities of expansion and contraction engaged in by the chains. From this it can be noted that as a generality the chains have tended to move away from the small town and into the larger city and more heavily popu- lated areas. This might give the independent a clue to the fact that he might be too strong in these areas for the chain to be able to compete successfully. One other comparison might be important to show and thad: is the average number of chains in cities of various sizes. This is given in Table 5, comparing 1942 with 1957. TABLE 5 AVERAGE NUMB'R OF CHAIN RETAIL GROCERY FIRMS IN CITIES OF VARIOUS SIZES NO. Cities in each Average No. Average tOp Population group chain firms 20 chains 19 2 1957 19 2 1957 1952 1957 Under 35.00081 33 6 3.2 4.7 1.8 2.2 35.000 - 59.999 52 58 3.0 5.3 1.8 2.5 50.000 - 99,999 45 46 3.4 6.1 1.9 2.6 100.000 - 249,999 42 54 3.3 5.8 1.8 2.? 2‘50.000 - 499,999 17 19 3.1 8.0 1.8 2.8 500,000 and Over 11 11 6.4 9.6 2.2 3.1 Total 200 200 ¥ 8'The smallest city in 1942 had a pOpulation of 18,000; the smallest in 1957 had a population of 31,000. Source: Willard F. Mueller and Leon Garoian, p. 32. ,- 19 From this table it is seen that in the period from 1942 to 1957 in cities of over 500,000 population, the aver- age number of chains Operating in these cities increased from 6.4 to 9.6, an increase of 3.2 chains. While in cities under 35,000 pOpulation, the smallest of which was 18,000, the number of chains increased only 1.5. The greatest in- crease was in cities with a population from 250,000 to 499,999. There was an increase of 4.9 chains Operating in these cities in 1957 from 1942. This table, along with the others, shows the great importance that the large city holds for chain expansion. From the data given and what can be inferred from previous readings and studies, one can be quite safe to say that as far as this author has gone, the past movements seem to be for the chains to be leaving the small town and entering the city. As for the independent, it is rather hard to say for there are very few areas in which the inde- Pendent does not exist and the data is hard to Obtain as far as his past movement is concerned. But it must be noted that from pages 14 and 15 in this paper, it would seem that the independent probably has followed this movement of the chain, perhaps to his own detriment. Interestingly enough "‘1301-1811. the voluntary group reOOgnizes and promotes the Value or the small town to the independent. If this keeps up. the importance of the small town should become more fully realized. 20 In closing, it might be well to note that prior to World War II, towns under 5,000 pOpulation represented only 11 per cent of the total population, maintained 40 per cent of the stores and did 23 per cent of the total business in the United States.3 It is also interesting to note that during this time, 25 per cent of the nation's food sales were done in towns with population under 5,000.4 This is the last study of this nature done. In the future this type of study could prove quite valuable to the small town Operator. In the ten years from 1950 to 1960 the pOpulation in rural areas declined from 54,478,981 in 1950 to 54,054,425 Which is a decline of 424,556 people or approximately 0.8 per cent.5 This decline is not really too significant since this included areas generally under a pOpulation Of 2,500, also all rural areas, including farms. In the 1950 census there were 2,315 towns with a population of 5,000 and under; in the 1960 census this had W to 2,748 towns.6 These towns accounted for 4.6 Per cent of the population of the United States.7 It is F 3Nelson A. Miller, ”Small Towns: A Most Important Market," ngestic Commerce (August 1944), p. 3. 4Ibid., p. 3. U 5Bureau of the Census; U. S. Department of Commerce, —:_._..g.3 Census of Pogulation 3960: U, S. Summary: No. of lflfléflaédemfiaa pp. 1-5. . 61bid., pp. 1-13. 7Ibid., pp. 1-13. 21 quite evident from these figures that the small town, taken in total, is not on the decline, but rather the reverse. This is very significant for operators wishing to locate stores in small towns. Store Location Methodology Supermarket site selection methods appear to be one of the reasons for supermarket eXpansion seemingly overlooking the small town. The reasons are many--some supermarkets have already lost out in small towns, while for the most part they limit their choices by the criteria they set down. In examining these criteria the reasons become obvious. ”If the location is in a community of less than 10,000 pOpulation, we don't take it," a midwest food executive says. "This is not the result of bad experiences but of the fact that the smaller community represents a greater gamble because the smaller community can more easily be over-stored. The larger communities in our experience, seem 1 e as vulnerable . " We are not interested in older communities where buying habits are firmly established. We would turn down any site served only by a limited access highway, regardless of the traffic it carries. There must be 40,000 peOple residing in a radigs of two or three miles, and with room for growth. In the questionnaire done for this paper, it was found that of the food chains answering, 100 per cent considered pmPalation as the paramount factor, but they limited this to a pOpulation of 6,000 or more on an average. The \ Lo 8"Chains Reveal Rules-of-Thumb for Choosing Store Cations," Chain Store Age (January, 1960), pp. 1333-334, consensus of opinion seemed to be that there "was not enough business in a small town to support a supermarket type of Operation.” Some of the other factors considered were: Number of competitors, growth possibilities, avail- able sites, profit and loss estimate, warehouse distance, accessibility, traffic counts, income of the area, and aeri al photo 3 . "Labor expense is by far the largest single Operating expense. Hence, there is always the consideration of avail- able 1abor supply, pay rates, and union conditions."9 Yet in the questionnaire 80 per cent of the answering chains gave no consideration to this at all. They seemed to go on the assumption that these were constant factors. Consider- ing that union organizers keep close tab on chain stores, this may very well be true for chains, but an independent should be able to exploit this to the full advantage. Unions are not usually as concerned with a small independent as they are with chains. What are some more of the "scientific measurements" used by supermarkets in determining sites? At American Stores, for example, C. 111. Parkhill, manager of the real-estate department, first Checks these factors: Is the road pattern right? Is the site big enough? (For a solo store, American Stores looks for no less than 90,000 to 700,000 square feet so that it can achieve a parking ratio of about 4 to 1.) Does the location now have the needed population within a limited r‘adius? \ Det 91111119111 Applebaum, "Evaluating Store Sites and p ggining Store Rents," Chain Store Age (March, 1958), 23 A West Coast food chain, Thriftimart, Inc., uses this rule-of-thumb in considering a proposal for a center location: Are there 3500 homes within a radius of a mile? . . . At Penn Fruit, Christian Brenneman, in charge of real estate, looks for one factor before all others: the competitive situation. Another Philadelphia food chain, Food Fair, rates the location "must" factors as follows: competi- tion, access, size of pOpulation in the trading area, size and physical condition of the site. Purity Stores, Ltd., 100-store California food chain, must know: presence of required number of families within i mile and % mile, number of resi- cation. It must be on at least one major high- way, possibly two. If it is a limited income area, we are not inter- eB‘ted. We go back 10 years investigating retail sales in the area 8nd buying trends to determine its desirability.‘ (One other main criteria cited by chain stores was the prox1m1ty of their warehouse. If the warehouse was not withidn a.reasonably close radius easily accessible, the site Was not considered. This is quite important, but one begins \ 1O"Chains Reveal Rules-of-Thumb for Choosing Store Loo a'l‘J-ons , " pp . E33-E34. 24 to wonder if it is not "putting the cart before the horse." It seems a shame to think of profitable sites being dis- carded for this reason. This perhaps may be another reason for the small town failing to meet chain store criteria. It can easily be seen that the independent cannot cOpy the location methodology of the chains if he wants to consider this volatile market in the small town. Granted, for the chain store type of Operation there is little choice, if the chain wants to be successful, but to remain in the city. This is where the chain can compete and com- pete very effectively, but this is not where the independent belongs. In fact, in evaluating the success of some of this methodology, it can be questioned if it is of any value What soever. There are several indications of this--one, of course, 18 the high obsolescence rate of a new supermarket. A current figure for the life of a supermarket is ten years. Another indication of some of the shortcomings 1Tlvolved in site location research is made clear by Curt Kornblau, research director of the Super Market Institute, who reports that: "Over half, 52 per cent, of the new Super Markets bult in 1959 are doing less business than anticipated, and 13 per cent are doing just about as pre- dicted. " 11 The most frequently cited reasons (for this failure) have to do with competitive factors, a><>cording to what operators themselves admitted. Such explanations as: saturation with Supers, \ Mark 11"How Scientific is Location Research?" Supeg w Merchaasiaims (May. 1960). p. 61. 25 difficulty in winning shOppers away from other stores, heavy counter-advertising, and so forth.12 However, this probably is more the case of imprOperly applied methodOIOgy, rather than a complete failure of the methodology itself. It is felt that if location methodOIOgy is carefully selected and applied that it can become a valuable aid in the location of stores. One hundred per cent of the supermarket Operators interviewed said they would 1% locate a store in an area saturated with supermarkets just for the sake of gaining a r‘epresentation in the area. Yet, in almost every case, an example is cited where these very supermarkets did just that. In a private interview with the head of a large national chain's real estate department, it was admitted that, this very thing was done. This is borne out further fr’Om previous studies which show that ”in almost every large city there are areas that are overstored and have too many- supermarkets servicing the pOpulation of the area to allow a reasonable return on investment for the stores in the area."13 This is absolutely ridiculous, for instead of a few making a profit they all lose money. Joseph Seitz, fDriller president of Colonial Stores, Inc. (11th largest Chain), voices a common complaint: "The way stores have been located in past years has been pure insanity on the part of \ 12113111., p. 61. :11 13Bernard Joseph Lalonde, "Differentials in Super- arket Drawing Power and Per Capita Sales by Store Complex and Store Size" (unpublished Ph.D. dissertation, M.S.U., ()1. 1" 1) the chains.""4 No wonder such a high failure rate among supermarkets exists. Not only is the element of locating for representation contributing to this high failure, but the criteria used to measure areas themselves is also poorly constructed. No- where could it be found that a supermarket used an actual statistical sample to survey an area, thus allowing accu- rate: mathematical predictions to be made. Operators have triexi to lay down standardized quantitative criteria which Will. apply generally in all areas, failing to realize that by dC>ing so the validity of results become questionable. Anotller'crdticism is that "the selection of a site is fre- qUenizly a 'take what is available' proposition."15 This amourlts to the fact that most operators use expensive Quarltiutative measures for an area and then make a qualit- atiVEE decision on their "feel" for the area. In studying the problem of quantitative analysis, one author stumbled onto something which he felt in some 1“stances overshadowed all benefit received from quantitative r“asei'mwch. These were qualitative factors, which may explain theinconsistency of quantitative store site selection. Sou“? of'these qualitative factors were seasonal factors, weaifller, accidental variations, general business conditions, pl‘11"(3hasing power of the community, special locational \ 14Ibid., p. 61. D 1 8.5Chr13t08 D: Lillios, "Super Narket Site Selection,” 0 1 . R) \1 factors, variations in types of stores, price levels, competition, size of stores, proprietor's standard of living, phone orders, and definition of locations. 15 It can easily be seen that by trying to generalize, standardize, and cOpy location methodology of the chains, the independent will not realize that he is better suited for other areas. Also, the ideas which work in one area may not necessarily work in another. Flexibility is a necessity as inflexibility can never succeed in the demanding, competitive economy which exists today. Granted, standards are needed, but so is the ability to recognize and institute change when old standards become outmoded. Flexibility in this sense becomes an importantelement of success. It is interesting to note that a previous researcher disc3Overed this very thing in working with another type of reta11 outlet. He says, ”The ‘i’ounkers Operation again illuStrates the fact that no matter how excellent an original mer‘t'ihandising idea may be, it must be adapted to the peculiarities of its particular environment, and it must have that balance of ingredients, internal and external, which can assure its commercial survival."17 \ —— .‘.“ A ‘5Kenneth Hutchinson, "Traffic and Trade Correlations: ‘(OTGChnique in Store Location," Journal of Marketing ct-Ober, 1940), pp. 140-1142. d 17EdWard M. Barnet. "Innovate or Perish” (UHDUblished 1338,, 01‘ Ph.D. dissertation, Columbia University, 1954), FD LD Independent Site Selection "It should be emphasized that store site selection evaluation or store location research is still more art than science.”18 This is probably due to the effort to standardize and also to inflexibility as mentioned above. This is where the independent should flourish because the often repeated reason for his success is his flexibility. He can adapt to areas, situations, peOple, etc. This Sho‘dld not prove a stumbling block to him whatsoever. By being able to adjust to surrounding conditions, he should have little trouble in being successful in places where the chain cannot, for instance, the small town. By a few well chosen criteria (which will be developed in Chapter IV) on the Use of consumer preference surveys, which can be easily and inexpensively done, the independent should be able to be quite successful in the small town. In the questionnaire it was found that the successful Voluntary group surveyed used this very thing. It did a "°°mplete and thorough consumer research program to deter- mine specific consumer wants along with vulnerability of existing competition." It has "established new techniques for location analysis utilizing consumer research intensely with E‘roven results." It is interesting to note that this particular group <"malder's towns under a pOpulation of 5,000 to be quite xx 18William Apolebaum, p. 241. 29 Profitable; in fact, they consider towns with as low a popu- lation as 1,000. The independent should then stop and re-evaluate his site selection criteria in an effort to determine whether or not he is OOpying chain methodOIOgy. Lie should determine his assets and then determine the best methods for utilizing those assets. By using the methods prOpOsed, the independent BhOUId be able to Operate quite successfully in the small town. The chain, by the very nature of its Operations, should not and cannot Operate in this way. The significant fact. is that the independent can Operate profitably in this manner. Availability of Sites In the past, the chief reason for the supermarket avoiding the small town has been the overabundance of better 1°Cat1on sites available in larger population centers. In fact , there is some indication that this condition still h°lds true. It is estimated that some chains receive as many as 100 proposals a week for locations. 19 The overabundance of sites which supposedly exists to- day is questioned for several reasons. .iost of these I‘ee-Sons were mentioned in the first chapter, but for review the? will be mentioned again. \ Lo 19"Chain's Reveal Rules-Of-Thumb for Choosing Store cactions, ” p. E33. 30 First, the supermarket has reached a 69 per cent share of total grocery sales. Growth has, and will continue to slow down considerably. The saturation point for super- markets is rapidly approaching. Secondly, the number of families available per super- market has declined 59 per cent since 1940. In 1959 there were only 2,310 families per store with an estimated need 01' 1.500 to support a $320,000 weekly volume. The important c(Drieicleration is that many supermarkets are designed to do well over this volume, sometimes as high as five times greater. This tends to reduce this figure considerably. Thirdly, with an average of about 3,000 new super- markets being built yearly. the profit squeeze and fight f0? sites is upon us. Fourthly, a againess Week's study disclosed that trad- ins areas have shrunk rapidly and all the supermarkets are now simply fighting each other. They should instead be Serving the consumer, which was their original intent.20 It seems that an Obvious conclusion to be made would be that as the availability of these so called "choice" 811"es dwindles, the supermarket will be forced to consider the small town if continued expansion is desired. It seems 1”Walther? ridiculous for them to be forced into consideration or the small town. It has existed all along and, as will be Shown later, it is perhaps even more profitable when used correctly. \ p 45 20"Not Much Room to Grow," Business Week (June 4, 1960). 31 Costs Costs certainly play a large part in confining most supermarkets in the larger towns and cities. Certainly, in most cases, it is harder and more expensive to advertise in a small town because advertising must be done for one rather than several stores. It is usually more expensive for transportation facilities to and from a small town. However, to be adequate in the discussion differentiation between Chiilrl and independent must be made here so that a compari- son may be had. A chain will have higher labor costs, generally speak- line. for union organizers tend to follow their expansion ac1tlilities quite closely. The chain has higher overhead 008138 in the form of administrative costs. It could also be mentioned that the cost for chain store servicing in the Small town probably would be quite prohibitive. For an independent, the majority of these costs are either non-existent or they are considerably lower than thC'se the chain incurs. For instance, in the majority of cages, the independent does not have union wage scales. H("'Vever, his cost of goods sold will usually run higher because he does not always enjoy the economies of large scale purchasing available to the chains. It can be seen that some cost differences may account TOP the chains of the small town, but it is felt that many or 1'ol'lese Obstacles of profitability are overstated. There are many other costs in chain operations which would seem to make small town Operation much more pro- hibitive for chain than for the independent. Some of these are supplies, heat, light, water, refrigeration, and power because of a closer interest and control exhibited by the 1ndependent. Administrative overhead, something the inde- Dendent has not even got in the sense the chain has, is Quite important here. There are several evidences of the lower Operating expense of the independent. The independents' published data were studied and it was discovered that the composite Operating expense was 12 per cent of total sales in 1956.21 Chain stores, for the same period, were running around 16 per cent?2 Currently, it is noticed that Operating ex- pauses have risen, but it is felt that through observation this margin of a 4 per cent spread in Operating expense advantage is still enjoyed by the independent. Since these are average figures, the range may vary greatly, but it can be Quite safely generalized to say the independent GHJOYB approximately a 1+ per cent lower cost advantage over the chain. \ M f1 21This figure was obtained by combining the reported pegul‘es of stores, which could be obtained, during this Mailed and also figures of George E. Kline, Modern Super Wd Superettes (New York: Progressive Grocer, 1956). en these Operating profits were Obtained a mean average was then computed . Dri 22This figure was Obtained by examining three sources (b marily: I~Ioody's Industriaig, Super Market Indugtry Speaks Ity S.M.I.) and Operating Results of Fogd Chains {Harvard} Neils recognized that this is quite a conglomeration, but by b “8 weighted averages, a reasonably accurate figure has een discovered. 33 In observing this, it is questioned whether so called "economies of scale" even exist. It can be answered that they do, but not in all areas. For example, a chain has economies of scale in buying, but generally has higher labor costs, higher administrative costs, warehousing costs, etc. It would appear that as chains grow, they reach a point where diseconomies of scale set in. Exactly where this point. is Would be practically impossible to determine. One way wOuld be to measure costs gained from ”scale" versus the costs saved from “scale." “when the former outweighs the latter, it is time to do some re-evaluation Of goals and ObJectives. It is quite obvious, therefore, that strictly from a coat, VieWpoint, the independent would be particularly suited f0? the small town. The main reason is that although one Cannot expect the same volume in a small town as in a city, the Same volume is not necessary with lower 008153 and correspondingly higher net income. For example, a small town independent with a sales volume of $10,000 a week at a 4 per cent profit margin is not inferior to his big city helghbor chain with sales of $340,000 a week at 1 per cent. It 18 easy to see that the independent is just as well Off-- at One-fourth the volume! CHAPTER III CHARACTERIE TIC 3 OF THE S.- ALL TOIIN "The small town and rural market constitutes a chal- lenge to the marketing man for its size and quality make it something to be reckoned with."1 When examining the market Structure of the small town, one can see that here there eXISts many reasons for chains to avoid the small town. As noted previously, the size Of the small town is cerlJainly a formidable obstacle for the supermarket to 0V‘5?1"<':ome. It certainly would not be profitable to put a 25'000 square foot supermarket in a town Of 2,000 people. ConVersely, though, it seems that in the past many chains have even underestimated the potential of a small town with disastrous results. A large Midwest chain was finally con- Vineed to enter a small town. For fear of their "risky" in- Ves"talent, they built a store so small that business has had to be turned away. The most important consideration for the supermarket Operator going into small towns (or anywhere) is the mea; B“Filament of the desires Of consumers. Here the small town dlffers widely from its larger city counterpart. This \ 1Nelson A. Miller, "Small Towns: A Most Important I‘Iarketfl‘ Domestic Commerce (August, 1944). p. 3- 34 35 point Will necessitate a discussion of social psychology.2 It seems that in small towns the peOple consider themselves members of one group much more than their large city neighbors. "There are two conditions under which two or more people constitute a group. First, a group includes only nersgps who share ng_r_ms. The second condition is that 3 group contains persons whose social roles clrosely inter- lQQE-B The factors affecting this sharing of norms and interlocking Of social roles can be loosely classed under one heading--group interaction or intermingling. In this sense this factor exists much more strongly in a small town than in the larger city. Almost all of rural life receives its justifi- tne part Of, the community. One other Observation would be the proximity of this town tO other towns and cities. Recall that in Chapter III, 1'5 Was discussed that a large city apparently does not draw peeple from a smaller town for food purchases. dith clever Promotion and advertising campaigns, the small town super- market may even realize a nice market from the city. As Was mentioned, this very thing has been observed. ¥ 31bid., pp. 463-470. 45 Check for a newspaper in the town. This appears to be a very important factor for "it was found that approxi- mately 22/} of the consumers did most of their shOpping in towns whose papers they read."z' Perhaps the small independent should not consider too I‘apldly growing and progressive small towns. In a few years he will be faced with added competition in the form Of both more independents and chain stores. Unless he feels quite secure in his competence to compete, this is a factor to be weighed very heavily. It might be better for such an inde- pendent to find a small town, or towns, which are experienc- ing a reasonable growth rate and one in which he would not have to fear further competition for years to come. All the while he can enJoy a reasonable, profitable, and steady SPOWth along with the community. The second thing to consider is the factor of competition. Competition in the town under scrutiny needs to be evaluated carefully. This is done easily by visiting the town and the competitors yourself. From experience the person should be able to size up competitors quite accurately. Theil‘ stores should be checked for service, courtesy, cleanliness, width of product line, and above all, their perishable departments (i.e., meat and produce) should have Careful evaluation. If ever a supermarket will be vulnerable to OOmDetition this is a main area. Their “701L131e can be \ Trad 4Austin 3. Bratcher, ”Methods of Delineatin Retail e Zones," Journal Of Marketing (January, 1939 , p, 252, 1+6 estimated by allowing between $2.50 and 33.00 sales per square foot. This seems to be a very standard figure which was brought out in the answers on the questionnaire. Check for saturation in the town by estimating volume of all the stores and then determine total food sales in the town by taking the pOpulation times $323.5 If the stores do not appear vulnerable and the town seems to be saturated from Dre-estimates, it is useless to continue any further. One word of caution, since the small town has such a great drawing power, supermarkets within a five to ten mile Padius would be worth examining. Generally, the small town will have no other super- market besides the "run of the mill, ma and pa" type stores. In this case the competition will be extremely vulnerable to an independent supermarket. As hypothesized before, it might be well to examine these competitors for a possible manager. In many cases the small town will have a very ca-Da.ble individual who has never had the capital backing to build a small town supermarket. It may be possible to offer a share to this Operator (e.g., let him build and own the building) and train him to manage the store. In such a c=e.se an independent identity would be quickly established and an immediate customer following could be had. Upon deciding that competition would be vulnerable from the above overview, a closer study is needed. This \ __l 5This was per capita food sales in 1960 determined by IFacts in Grocery Distribution," Prggressive Grocer (1961). tlaide cover. 1+7 involves consumer research to a great extent. It is neces- sary to take a-sample of the pOpulation and interview peOple throughthe means of questionnaires. Since a small town has a great drawing power, it would probably be wise to also include surrounding farms when selecting the sample of the Population to be interviewed. Discover competitors' strengths and weaknesses, how loyal his customers are, ascertain consumer wants, dislikes, desires, and preferences in a supermarket. Determine shopping patterns and where People shop. Killers would they like a supermarket located? What, would they like in it? needs to be built to the tastes and preferences of the Upon obtaining this, a store areas-not the ovmer. This needs to be re-evaluated constantly and changed with time; for this there are also many means available. In some cases it might be best to use a general QUGStionnaire which would not identify the purpose or the Sponsor of the survey. by not doing so peOple will not 1"Balize who it is done for and, therefore, will not form precOnceived negative attitudes toward your new store. This "111 be left to the discretion of the individual. Every case will be different and the survey adjusted accordingly. It must be emphasized, in light of the discussion of Chapters III and IV, that the necessity of consumer measure- ment, in a small town is vital to success. Because of the market structure existing, the supermarket has to be built C’onf‘orming to the class image and bending to the desires as of the people. The supermarket also has to build and maintain the ”image of independency," for without these two factors any degree of successful expansion into the small town will be nearly impossible. Upon completing the survey and deciding to build a supermarket, the next factor for consideration is a sales estimate. This can be obtained from data obtained in the previous survey. After preferences have been established, "the analyst should then make an estimate. bIOCk by block, of the percentage of business that would go to a new facility, based upon an analysis of all these factors, in- cluding the circulation patterns of the peOple in the trading area. "6 Upon estimating sales potential, the size of the store needed can be approximated by allowing a 33.50 to 33-00 sales per square foot. The expenses need to be studied and evaluated separately and eatimates made separately for each one. Since labor is the ma}, or expense, the labor market and also the cost needs to be studied most thoroughly. Check for available From here the emplOYees, unions, and the going wage rateBo I'emalning expanses may be estimated. "The evaluation of any location, therefore, should include a study of not only the prospective sales but also t he Dr'ofit Opportunities of a new unit."7 The 9101’“; \ . (Ne 6Richard L. Nelson, The Selection of Retail Locations "' York: F. W. Dodge Corporation, 195 9 Do 1 2. 7Christos D. Lillios, p. 113. 49 potential of a store must (then) be related to return on capital investment. "8 With the above information reliably and accurately obtained, the supermarket operator should be able to main- tain a successful expansion prOgram into small towns. How- ever, there are some general and miscellaneous criteria to consider. In most cases the small independent cannot afford the techniques employed by chains and for this reason the above discussion contained what is considered to be a minimum of criteria needed for small town expansion. gins: Measurements which May Be Elnployejd The first of the ”other" criteria is the use of aerial DhOtographs. This gives a good indication of pOpulation concentration, type of farms, quality of farms, highways, and other transportation facilities. The more wealthy entrepeneur may hire professional r"538-1 estate and market research experts to come into the area to survey the land. They can adapt a broader and more Spec1f1c knowledge to an analysis of the trading area. In View of costs, and accuracy of estimates in the first place, this would seem quite prohibitive. It is possible also to obtain the number of telephones in existence, the number of farms having electricity and Purlhing water. The postal service can be evaluated. Traffic \ 1) 8311111311; Applebaum, "Evaluating Store Sites and 2:‘germining Store Rents," Chain Store Age (March, 1953). p- 50 counts by the prOposed site can be taken and compared with other sites. Extra parking facilities in the town should be located. More of these ”other” criteria were already given and can be found in Chapter II on the discussion of site selection methodology. The above discussion should, however, give the supermarket operator a good idea of the many tools available if he should choose to use them.9 Further Considerations Again the fact of drawing power needs to be urged when considering a small tow . This and market adaptation are two of the most important factors to consider. A past researcher has reached other interesting con- clusions bearing mention at this time: On the basis of the research the following general conclusions can be drawn: (1) Store complex is an important influence in determin- ing the drawing power and per capita sales of the supermarket. (2) Store size is not an important variable in determining the drawing power and per capita sales of the supermarket. (3) There exist distinct and significant patterns of drawing power and per capita sales Vfliich can be isolated and quantitatively analyzed as a basis for future location decision. ‘0 In areas with tourist trade and seasonal employment, this ”floating population" mustbe taken into consideration _* fu 9If the reader is interested in investigating even borther in retail site selection methodology, consult the (“Gk by Richard L. Nelson, The Selection of Retail Location ‘9" York: F. W. Dodge Corporation, 195 . 1O‘semard Joseph LaLonde, p. 4. 51 idlen determining market potential.11 There are many such considerations, too numerous and teatimportant to go into at any great length here. It is :felt.that if the original specific criteria are followed Clxasely, with an attempt to achieve a reasonable degree of accniracy, the supermarket Operator of today should be able to (expand into the untapped market of the small town with remarkable success . After a store is in Operation for a while, there are mauiyr ways to continue to fit your store to the town you serve. Of course, the success of the store initially is a good indication to this. Another valuable area would be an analysis of operating data. This again can be used to a twofold purpose of Silligng us future information and a measure of effectiveness 0f the fact. The next section goes into the latter area more extensively. This will concern itself with only the prediction aspects. The operating data that can be particularly useful arms: 1. Sales per product 2. Sales per department 3. Sales per hour of labor 4. Sales per customer 5. Total store sales <3: ,IReinhold P. Wolff, "Estimating the Market Potential E1 Floating Population," Journal of Marketing (July, 1954), 6. Store profit 7. Various other miscellaneous measurements, such as observation of competition, profit and loss statements, etc. If these were broken down into days and weeks, it would be possible to predict trends and determine much valu- able information about the market served. For example, by sales per product we may determine that Kosher products move very well and one can realize that a predominately Jewish area. is being served and, therefore, merchandise accordingly. The sales figures tell peak traffic times, when the largest Orders are bought, and when you should therefore advertise and what you should advertise. It is felt that many more uSees. can be gathered to determine more about the market area and its characteristics. This, in turn, will make merchandising more effective. Another good method which can be used is comparison flsures of Operating data between stores. One word of caution here is that accounting methods vary greatly; be Sure that the system used for recording is the same before comparing. Also recall, areas differ. One other word of <3addition, and that is on sales per customer. If located in all area close to a school with children buying a large cll-‘leultity of candy and gum, this may invalidate sales per Q L1Btomer. There are some direct means available for obtaining Valuable market information and this is through employees, QLlstomers, salesmen, and personal observation. It is felt tfliat employees and salesmen are particularly valuable be- canise they are usually well acquainted with the area and its peculiar characteristics. Other sources available to you are various government reports and various commercial firms, such as Super Market Institute. It is felt that it would be particularly valu- able to list a few of these sources for those not familiar with them: 1. Survey of Current Business honthly publication of the U. S. Department of Commerce. Price is 33 per year. Order from Superintendent of Documents, U. 3. Government Printing Office, Washington 25, D. C. 2. Supplement to the Survey of Current Business honthly publication of the U. S. Department of Commerce. Price is $3 per year. Order from Superintendent of Documents, U. S. Government Printing Office, dashington 25, DOC. 3. Monthly Labor Review Published by the Bureau of Labor Statistics of the U. S. Department of Labor. $3.50 per year. Order from Superintendent of Documents, U. S. Government Printing Office, Washington 25, D. C. 4. Editor and Publisher Market Guide Editor and Publisher 00., Inc., Times Tower, New YOrk 18, New York. 85 per OOpy. 5. Survey of Buying Power Sales Management, Inc., 386 4th Avenue, New York 16, New York. $3 per copy. 6. Dun's Review Dun & Bradstreet, Inc., 290 Broadway, New York 8, New York. 34 per year. '7- The Conference Board Mans ement Record National Industrial Conference Board, Inc., 247 Park Avenue, New York 17, New York. $7.50 per year. 54 8. U. 8. Government Printing Office Division of Public Documents Washington 25, D. C. By writing, a list of various selected government publications will be sent which may be ordered for a nominal fee. 9. Census Data This can be purchased from the Government Printing Office or be borrowed at most libraries. This by no means professes to be an exhaustive list, but iit should give a good indication as to the type of data whickl is available. Supplementing this with personal information should help tremendously in obtaining needed market information. Before leaving this area of market information en- tirely, mention should perhaps be made of two of the most VaJllalale sources of information that exist. These are trades publications and newspapers. These should be followed for trends, Operating policies, merchandising methods, and VariCNJs other important market information. CHAPTER V CAN SHALL TOWN EXPANSION BE PROFITABLE FOR THE I [*1 ‘TI m NDENT? IND" Can volume and profitable Operations be had in a small towmr? Fbr the answer to this question the small town inde- pendent will speak for himself: With all these new features of speed and (efficiency we expect to do well over one-half tnillion dollars a year in 36000 square feet of selling space.1 (Author's note: This store is located in Coachella, California, a town of ‘25755 pOpulation, is not close to any large city.) Our expansion develOped the store from a 70 13y 110 ft. operation with a 5100 sq. ft. sell- :ing floor to a 110 by 110 ft. super with 8700 sq. ft. of selling space. Weekly sales have :increased approximately 25% following the en- Ilargement and we hOpe to Seach $1,000,000 in seales by the end of ‘959. (Author's note: 13118 store is located in Oak Harbor, Washington, 51 town of 1,193 pOpulation, not close to any large city.) In less than 10 years Ken Fox and Verne a time. The expansion must be done in the manner outlined in previous chapters or the failure rate is going to be fant astic. The "small town is a segment of the national business which rates major attention."1 It is nothing to be con- Sixieioed a secondary market, rather an affluent and challeng- ing One. It requires more skill in management than even perhaps the larger city store. It can be seen that nothing short of a small earth- quake will jar orthodox chain management into thinking in SUCh "leftist" terms, thereby leaving the small town market wide Open for independent exploitation. In the first place, it requires absolutely no re- c”.‘1entation of thinking for the independent to consider and apply methodOIOgy prOposed in this paper. He has been thinking along these lines for years--even if they were never presented in such a formal manner, it is something he Pecosnizes. The independent fears the ruthless chain store 1.. . Aelson A. liller, p. 3. compeetition to an even greater extent today. The chain is makir1g;damaging inroads into former exclusive independent terucixtory. The independent must also be jarred to the ex- tent. that he will re-evaluate his assets, liabilities, adxlaxitages, disadvantages, and limitations. From here he muest. realize that in order to succeed he will have to expand ixrtc: areas for which he is best suited--that area is the 81111.1 town. If he does so he will be an established ccnntaetitor when chains finally do re-orient themselves, making the small town less lucrative, if not impossible, fYDI‘ their consideration. From Chapter II it was seen that the growth and eXpansion of the supermarket industry continues unabated. ’TPle' saturation point is narrowing and as it does the lJDCBation sites become harder and harder to obtain. As tdli.s happens, perhaps there will be a reorientation of chain EStore thinking. Very likely they will begin to look to the Sinetll town to expand further. Granted they cannot do this l3rw>fitably, nor would it be wise for them to do this now. Th'Ei‘y'have enough profitable sites where they are, but what about the future? This unabated flow of city location pro- FK>sals will not continue forever--then what? This is some- thixu; very important for the independent to consider, and consider today! CHAPTER VII 3L?‘Cv§.‘-kRY AN! COB-ICLUSIONS It has been shown in this paper that small town super- market expansion can be profitable. It was also shown that the small town is no ordinary market. It is one which de- Ser‘ves special attention and consideration. This must be dOne by an application of unorthodox methodology which, When applied properly, can lead to a very profitable market. It was noticed that through many limitations in site Selection methodolOgy, standardized Operating procedures, and costs, the small town has remained in relative ob- SCharity as supermarket expansion blazed spectacular success Stories in the larger cities. This will no longer be the clase as saturation approaches--that day for the small town E“wroermarket expansion is nearing rapidly. It is shown that the small town takes the "unorthodox methodology of independent operation" in order for any degree of success to be obtained. It was also conceived that the independent Operator of today is the only person capable of pT'Gper small town operation. The chain store will not be able to succeed in this market under present operating methods; nor should it want to--1t is successful where it is. The site methodology that has been laid out in this paper in all consideration appears to be the only way to 76 77 measure and enter a small town successfully. It is hOped that the methodology given will be given serious thought and consideration. The small town market is there and with the seemingly insane competition and site location policies existing in the cities of today, it appears on the surface that the small town should offer a peaceful and profitable haven. If selected properly and carefully the supermarket can en- joy a long and constant growth in the small town. The potential is there, all that is needed is someone who knows how to tap it. Growth in any industry requires the person who is un- afraid of the different. He is a person who can adapt to changing, conditions rapidly. He has the ability to fore- see and change. Two key words--awareness and alertness-- are the keys to growth. These keys are for the taking-ma form of it offered in this paper. dill it be the chain or the independent who will seize the Opportunity? In closing, a quote from a previous author who seems t9 Sum it up quite well: "The mass merchandiser must be wred to egperiment, test, adapt and test again--or lose Mpetitlveitatus and ultimately perish."1 \ 1Edward m. Barnet, p. 56. Questionnaire Methodology In conducting the questionnaire the first fifteen (fluaitl stores listed in "Facts in Grocery Distribution," Progressive Grocer (1961), p. F19, were written down and numbered as follows: 01 A i “U 02 Safeway 03 Kroger 04 American Stores 05 National Tea 06 Food Fair 07 Einn-Dixie 03 Grand Union 09 First National Food Stores 10 Jewel Tea 11 Colonial Stores 12 Dominion 15 ACF-Wrigley, Inc. 14 StOp and ShOp 15 Red Owl Stores Feeling that this list comprised the majority of the 1311393"; natl-Onel chains in existence today, it was decided that a random sample from these would be quite representative. 79 FY©m this list a sample of seven chains was selected randomly as follows: Going to the Chemical Rubber Company's 12tY1 Ehdition of the Standard Kath Tables, a page in the tab]_e> of’random numbers was selected. On this page an axl>1fltzcary starting place was chosen and then the first and 1311136 integer of the numbers listed were considered. Doing tfiiiss, it is felt, gave a representative sample of the chain stc>rwes listed. The actual names of the chains selected will have to remain anonymous. Answers were received from five of the seven chain stuotres, representing a respectable 71 per cent return. The cfl351111 stores returning questionnaires represented 3,186 Stores. Questionnaires were also sent to three regional (Vvlfibhin a state) chains which were arbitrarily selected in all sittempt to cover three different sections of the country. Th“) (of the three returned questionnaires representing 52 stores in two states. Lastly a questionnaire was sent to a leading voluntary SrVDUUD in an effort to obtain representative and prOgressive it"idependent thinking. RecogniZIUg that this was, perhaps, .YMJt ‘the best method, it was felt that their experience and knoWledge gained from dealing with hundreds of independent allDermarkets was much more vast and representative than Vfllaii could be obtained from mailing hundreds of question- nalPes. The main purpose of the questionnaire was to determine ("1) *1 past, present, and future thinking towards small town super- market expansion. The answers, Of course, are only as representative of the industry as a whole as the sample taken is representative. An attempt was made in the questionnaire to determine some current site selection processes and to see if they were in any way restricting the consideration of small towns for expansion. The questionnaire which was used for the study follows On the next four pages. SupermarkeLStore Location Questionnaire Please base all replies on the assumption that you are lo- catinz an average size store of your particular chain. 1 . L” Li st the number of store you have in the following Size towns. ( Listed by population) 5,000 - 7,500 7,500 - 10,000 Over 10,000 Are you considering closing any of your stores in small towns? Why? Are you planning to build new stores and enter towns of any of the following pOpulations? Under 2,500 2,500 - 5,000 5,000 - 7,500 7,500 - 10,003 Over 10,000 What is the smallest town (by population) that you would Consider for a site? ’u‘v'hat is the smallest town (by population) that you entered last year? Ll) \ 5. <3?1€3ck all of the following that s e lection process. population of town population of area number of competitors available sites growth possibilities profit and loss statement (estimated) labor situation ll IIIIII warehouse accessibility List any others: you use in your site accessibility traffic counts income of area aerial photos sales forecast area building costs, coes, taxes, etc. area pay scale '7~ lvould you go into an area which is seemingly saturated vvith supermarkets Just to gain representation in the area? Yes ___.No {3‘ 130 you differentiate between a strong independent and <3hain competitors when deciding on a certain site? _ Yes .___ No Check reasons Chain Independent a) because of greater strength in ___, ___ b) harder to break into area with strong ___ ___ c) compete more successfully with ___, ____ 9. eVery square foot of store? Vflnat do you consider to be the population necessary for ____ one more-~give figure ____ two less-~give figure ____ three 31+ 10. qulai.is your average net investment for a new store? 11. kalat is the percentage return you receive on your (:5ipital investment? Iftlat percentage would you like? H2. Enqat is the average size of your stores? 13- hfliat are your labor costs for an average store, ex- zoressed as a percentage of sales? lit. :fliat weekly volume would you desire per sq. ft. of store? $.50 - 1.00 32.00 - 2.50 31.00 - 1.50 $2.50 - 3.00 31.50 - 2.00 List any other 15. ’Nhat is your realized volume per sq. ft.? ”so What is your estimate of the average number of competitors you have within a one-mile square radius? ____1 - 2 ____4 - 5 ___ 7 - 8 .___ 2 - 3 ___.5 - 5 More--how many ____ 3 - 4 ____6 - 7 ___ less--how many 17- If you have not already done so, check your major ob- Jections to entering a small town of under 5,000 pOpulation. . strong independents not pOpulated enough Operation not geared not enough potential to small town too large an Operation warehouse facilities to adjust to small too far away to handle town it prOperly ___ not flexible enough ___ not profitable enough List others (-0 U1 18. Ennat is the size of an average store in your chain? 79- lfhat is the radius of the normal area you consider for your main drawing power? to,» J mile ____ O a — 1 mile 2C)- What pOpulation do 500 - 2,500 2,500 " 59030 5:000 " 79500 you 2 - 2; miles e ,4- F“ U) 1 .. 1 - 13 In 2% - 3 miles 1 - 2 mile (034 (,0 More-~please'indicate consider necessary in this area? 7,500 - 10,000 More--please indicate (M An attempt to tabulate the answers to the questions zas 'best possible was made in the tables below. The questions w1.1LL be referred to by number and answers will be separated loy' ruational chain, regional chain, and independent voluntary group. TABLE 11 QUESTIONNAIRfl ANSWEF TABULATION Chaeastion National Regional Independent Phlnmber Chain Chain Voluntary Group 1 2% of total 30% of total An unknown, but stores in towns stores in towns numerous quant- under 5,000 under 5,000 ity of stores population pOpulation in towns under 5,000 2 80% yes for 1001 no No profit reasons 3 203 were going 501 were going In favor of ahead in towns into towns towns under under 5,000 under 5,000 5,000 popu- p0pulation (one population lation chain) 4 6,000 pOpula- 6,500 pOpu- 1,000 popu- tion (average) lation (average) lation 5 5,000 p0pu- None 1,200 popu- lation (average) lation 6 Generally all iajority All + consumer but labor situ- research ation and pay scale 7 1001 No 100% a No ~3 801 No 100% No Yes, indepen- dent is harder to unseat than chain. Checked all three items. 97 TAsLa 11--Cont;gued W Question National Regional Independent Zfiuunber Chain Chain Voluntary Group 9 Not considered Not considered Not considered 10 $290,000 $550,000 Varies -1 157 (average) 161 (averare) Unknown 12 14,600 sq. ft. 15,000 sq. ft. Unknown 13 7.7% (average) 6.5% (average) 7? (average) 14 ._.SO-33.00 32.50-15.00 32.50-33.00 75 32.24 $2.50-E3.00 $2.50-d3.00 16 2-5 4i-5E (average) 2-4 17 Operation not Not answered No objections geared, not profitable, not enough potential 18 Same as u; Same as 12 Same as 12 19 1i-2 miles 1-5 or more Not known (average) miles (aver- age) 20 Varies Varies Varies It is the hOpe and intention that this questionnaire ‘VilJl give the reader some insight as to the thinking cur- Pentlygoing on concerning the small town and location ‘netilodology. This by no means can be claimed to be all the ‘Uniriking, but it is a representative sample which does give S°m£3 insight to the small town question. 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I 1- .u 1i)? .l t. , . 11 . . \. - l .. r . 1 1...!”1. (IIILII III)» , MIC BRRRIES ”WWI 40 1111111111