Successful Dogs and Retailers Hunt in Packs and Bark LoudBy: John Malmo
Retailers are a lot like Eskimo sled dogs.
The Huskies who survive are the ones who cluster into a furry wad to share body heat when the temperature drops to 40 below. The most successful retailers are the ones who cluster their stores by market to share management, distribution and advertising costs.
In Greater Memphis, McDonald’s has 36 stores, Wendy’s has 32 and Burger King has 26. Remember Burger Chef, Beef n’ Bird and Danver’s? Good luck Checkers. Kentucky Fried Chicken has 28 stores. Remember Minnie Pearl’s and Popeye’s? Good luck Church’s and Mrs. Winners. Walgreen’s has 35 stores. Blockbuster Video has 12 stores. Good luck, “Mom and Pops.”
But hope springs eternal in the entrepreneurial breast, and almost weekly otherwise smart guys break the rule. Build one or two stores in a major market and stand at the bottom of a hill they just can’t climb. Sales peak in the first year and seldom increase, because one or two stores in a major market simply cannot spend for an adequate share of the retail consumer’s ear. Customer counts cannot be increased. Average store sales never achieve a respectable fraction of per-store sales in clustered markets.
A fundamental of retailing is the ability to spend enough on the brand to be able to buy an adequate share of the retail category’s promotional voice to the consumers in the market. Because share of voice has always led proportionately to share of consumer awareness which leads directly to market share.
Many brands that are successful in some markets with 10, 15, 25 stores still try to move into new markets with one or two. They seldom succeed. Give or take a hundred-thousand, McDonald's spends locally a couple million bucks on advertising in this market, not including the millions more dollars worth of network TV that penetrates Memphis. A brand with a handful of local burger shops is in deep trouble competing with that level of spending.
If McDonald’s opens one new store in Memphis this year that one new hamburger stand will open Day One with the benefit of millions of dollars worth of advertising. With the best possible purchasing agreements with vendors in tact, employee training, management supervision, real estate research, lowest sign costs, legal help, etc.
Memphis is one of the more successful franchise markets for Blockbuster Video stores because the local franchisee built out the market early with adequate stores to promote. As a result, a lot of Mom and Pop video rental stores have been run out. And make no mistake. In the case of the McDonald’s and Blockbusters and the like, they don’t want to compete with their competition. They want their competition out of business. Yet many major markets have only two or three Blockbusters, and their owners make no money on substantial investments.
Hancock Fabrics is a highly successful chain of retail fabric stores headquartered in Tupelo. At the end of last year they had 459 stores in operation. Hancock will add 30-35 net new stores in ‘92. In the chairman’s letter to stockholders he says, “We continue to expand existing markets where the economies of shared advertising, distribution and management are greatest.”
But owning the territory with a massive presence isn’t just a retail rule. It applies to packaged product brands, as well. In 1955 Anheuser-Busch introduced Busch Bavarian Beer. It was one of the first brands in America whose geographic distributor selection was based not on state lines, but on television markets, so that every market that had Busch on the shelves had Busch promotion, and so that not one Busch promotional dollar fell on one ear without a Busch Beer nearby.
NTW Tires came to Memphis, built four large, strategically located outlets, pumped several hundred thousand dollars into promotion and in two years carved out a substantial chunk of the local tire market. Four large stores could dent the tire market. Beef n’ Bird opened a few hamburger drive-throughs and most were gone before the property leases expired. Fewer than 20 stores can’t dent the hamburger market.
It’s all very basic. Very fundamental. Clustering is essential. And then, like the Eskimo sled dogs, you gotta put out some “heat,” too. Take Fred’s. They had a bunch of stores here for years, but they didn’t put out any heat. The last couple of years they’ve acted like a real chain, flexed their muscles, shared the promotional benefits of their size, and sales are booming. Those same ol’ dogs are huntin’ in a pack, and barking like crazy.
© Copyright 2000, John Malmo
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