Running Room Site Selection

Introduction

In order to guide The Running Room's continued expansion in the Minneapolis/St. Paul metropolitan area, this report analyzes the company's current market situation by considering current store locations, competitors, and potential growth areas. 

Using ESRI Business Analyst software, this analysis will include looking at:

• market structure/saturation
• drive-time trade areas
• hot-spot analysis
• gravity model.point of indifference
• optimal store locations
• ideal customers

Based on this analysis, four site proposals will be examined and ranked to present one recommended location for Running Room expansion. 

Case Study

The Running Room, started in 1984 and based in Edmonton Canada, has a stated focus of expanding into the U.S. market. As a result, there are now more than 110 stores throughout the United States and Canada. Spurred by a huge boom in the areas of running and walking, this very specific niche store has seen further growth opportunities beyond high-density CBDs which would typically be required to provide the needed customer base. Metropolitan areas, in particular, where there are a large number of high-income suburbs are ripe for expansion on the part of running/walking focused companies. 

 Running Room’s reputation has been built on product innovation, quality, and the knowledge of the sport of running. Its private-label products have been developed to provide customers with the best in style, functionality, fabric innovations, and reasonable price, and have been developed with the input of customers and staff alike. 

Though there are currently eight Running Rome locations in the metropolitan Twin Cities market, it remains an area they would like to expand into as the reputation of the city has been spurred by recent recognition for health as well as overall growth in the running/walking market.  

Study Area

The city of Minneapolis was recently rated by Forbes Magazine as the #1 Healthiest City in America. Thus, it is little wonder that the Running Room has expanding rapidly into the larger Twin Cities metropolitan area. Typically a store with such a specific focus would only find the needed concentration of customers by being located directly in the urban core of large cities. However, The Running Room has begun to expand into the greater metropolitan Twin Cities area seeing a huge market opportunity in high-income suburbs. Now, stores can be found in Woodbury, Eden Prairie, and Apple Valley, cities located far outside the urban core (see Figure 1).

Figure 1: Current Running Room store location in the Twin Cities metro

As a result, the study area considered for Running Room expansion goes beyond Hennepin and Ramsey counties which contain both Minneapolis and St. Paul. Also included in the study area are Anoka, Washington, Dakota, Scott, and Carver Counties (see Figure 2).

Figure 2: Twin Cities Metro Area under consideration for The Running Room store expansion

Methods

Drive Time Analysis

As previously stated, much of the recent Running Room expansion in the Twin Cities market has taken place in suburban cities. Invariably this cities have 50,000 residents and push beyond the urban core. As such, there business model is clearly focused on car traffic. Drive-time analysis reveals the area where a particular location can be reached within a certain segment of time. Using 10, 20, and 30 minute buffers reveals the drive time situation that applies to the current Running Room store inventory. 

Current store location show little, if any overlap for the 10-minute buffer indicating they prefer that individual stores be spread apart far enough where two store could not be reached by one location in 10 minutes or less (see Figure 3). New store proposals should be placed at bare minimum outside of another location's 10-minute buffer. In addition two stores in the urban core tend to have longer drive times indicating they do not fit the typical model and appeal more to people utilizing public transit, walking, and biking to reach their locations.

Figure 3: Drive time areas for current Running Room store locations 

Current Competition

While there are certainly other stores that sell running shoes and equipment, the Running Room's direct competition comes from other stores that focus exclusively on running/walking clothing and equipment. The Twin Cities metro contains nine direct competitor locations from 6 different companies (see Figure 4). Run N Fun is the only competitor with more than one location. 

Figure 4: The Running Room faces direct competition in the Twin Cities Metro from nine store locations representing six different companies

The Running Room has outpaced are equaled their competition in most directions/locations. Expansion to Maple Grove to the northwest, Eden Praire to the southwest, and Apple Valley to the South has preceded or been met with other competition. Suburban expansion is seen as a viable option by multiple companies. It also indicates the growth potential for suburban expansion is seen to be able to support more than one running-specific store.

Currently, the Running Room is the first company to expand to the west while Right Fit is the first to expand directly to the north. Future expansion may be too saturated moving generally south and west from the Twin Cities Metro while options to the east and north still exist.

As noted before, running store locations tend to be located on or near major highway arteries to facilitate customers who travel by car.

Hot-Spot Analysis
In order to get a sense of the overall market the Running Room faces in the Twin Cities Metro, Hot-Spot Analysis on the following variables was undertaken.

• Median Household Income
• Bought athletic shoes in last 12 months
• Participated in running/jogging in last 12 months

The hot spot analysis reveals that the variables chosen correlate well with current Running Room locations. Typically they are found at the transition point, with high median income areas proceeding out from the urban core after Runnin Room store location (see Figure 5). There are also downtown locations that fit a different model.

 Figure 5: Hot Spot Analysis centered on Median Income with support from Running Purchases/Activity shows that current store locations tend to be located at transition points with areas of high income proceeding out toward the suburbs after running store locations (Running Room and others). 

Using  the analysis, further expansion to the West toward Plymouth and Minnetonka as well as possible exapnsion to the north and northeast should be considered. 

Ideal Customers
With no customer data available, the process of identifying an ideal customer is hampered somewhat. However Business Analyst software allows for the selection of variables applied to a given geographic area in order to determine areas containing the most suitable customer base for a specific type of retail operation.

In order to determine the ideal customers for the Running Room expansion, variables used include:

• median household income > $75,000 
• total population greater than 45,000
• bought athletic shoes in last 12 months > 3500 persons
• bought athletic shoes for walking > 1500 persons
• participated in running jogging in last 12 months > 3500 persons
• participated in walking for exercise in last 12 months > 1500 persons

Because current store locations for the Running Room and its competitors have done a very good job addressing the current needs of the market, lower variable floors were set in order to identify areas where more than one zip code fit the criteria. For example, higher floors may have only indicated one zip code meets the criteria as you move northwest from the urban core while slightly lower variable floors reveal there is a progression leading from the northwest where placing a location at the earliest location proceeding from the urban core could meet the needs of many areas (see Figure 6).

Figure 6: Ideal Customer locations based on zip code show potential expansion opportunities to the north/northwest and and the northeast. 

Somewhat surprisingly, proceeding directly west from the urban core past St. Louis Park toward Plymouth and Minnetonka did not contain any ideal customer zip codes. Moving south and southwest from the city, you will see many ideal customer areas, but the current store locations appear to meet their needs. Proceeding west shows some ideal customer areas but not enough to warrant any more than the Running Room's expansion to Woodbury. Areas to the northwest, northeast appear to present the best options for expansion based on ideal customers.

Site Proposal Identification
Without customer data to help identify some optimal sites for baseline, four sites were chosen based on previous analysis. Important to this process is knowing that the Running Room is not currently located in any city in the Twin Cities Metro with a population less than 50,000. As such cities considered for site proposals had to meet that minimum baseline.

Secondly, the direction in which there were both a limited number of current running stores, if any, and a pattern of zip codes with ideal customers were required. As mentioned previously, this ruled out expansion to the south and southwest, and east for saturation of the current ideal customer base.

This left expansion to the northwest and northeast.Three towns were identified as possibilities based on the population threshold and nearby ideal customer zip codes. These include Coon Rapids and Blaine to the north and northwest and Maplewood to the northeast (see Figure 7).

Figure 7: Four site proposals were identified based on previous analysis. Three are based ideal customer locations, and is based on hot-spot analysis.

In addition, despite no ideal customer locations directly to the west, hot-spot analysis showed expansion this direction fit the current model of Running Room locations (see Figure 5). Therefore, an additional location was selected in Ridgedale between two cities (Minnetonka and Plymouth) with ideal city populations and along Highway 12 proceeding west (see Figure 7). 

All locations are located on or near major highway arteries in prime retail locations. Also, each site proposal is located outside of the 10-minute buffer of all other Running Room locations.

Ranking Sites

Business Analyst was employed to rank the four selected sites based on the following variables. 

• median household income 
• total population
• bought athletic shoes in last 12 months
• bought athletic shoes for walking
• participated in running jogging in last 12 months
• participated in walking for exercise in last 12 months

Based on this analysis process, the Coon Rapids location was identified as the top-ranked location for Running Room expansion (see Figure 8).

Figure 8: The four site proposal were ranked based on six variables in order to determine the best site location for a new Running Room location

Point of Indifference
After identifying an ideal store location, the point of indifference is determined between Coon Rapids and three surrounding cities (Anoka, Blaine, and Fridley) in order to understand how far out a Coon Rapids Running Room location can market and advertise and have people prefer to come to Coon Rapids rather than go to the other city. This is calculated using the formula:

 

This formula compares the distance between each city to the population. The end result is the distance in miles to the point of indifference. In this study, three different cities were compared to Coon Rapids, MN. The three cities and their point of indifference are listed below.

• Blaine, MN    2.37 Miles
• Anoka, MN    2.75 Miles
• Fridley, MN    5.1  Miles 

All three cities are located less than 10 miles away from Coon Rapids and their influence out toward each of these cities will be relatively small as a result. Blaine is nearly the size of Coon Rapids, and thus if a resident living between Coon Rapids and Blaine leaves more than 2.37 miles away from Coon Rapids they will go to Blaine whenever possible. Fridley possesses the greatest reach potential for Coon Rapids.

All this being said, there are no specific competitors located in either of these three towns. So, there is a very strong possibility that a Coon Rapids Running Room can capture a large percentage of the market share in each of the surrounding cities despite a very low point of indifference.

Discussion

As the analysis revealed, Running Room expansion has taken place along major transportation arteries at the transition point between the urban core and suburbs where moving away from the urban core past their locations will be into areas with high median household income. In addition, the Running Room has made a point of not locating in a city with less than 50,000 people. 

Site 4 located in Ridgedale between Minnetonka and Plymouth (two cities fitting the Running Room profile) appears to have suffered from not having enough zipcodes with an ideal customer base nearby. So, despite hot-spot analysis painting a different picture, this was the lowest-ranked of the four site proposals.

Site 3 located in Blaine also may have suffered from not being located directly in an ideal customer zipcode. Despite huge expansion in Blaine and many ideal customer areas all around it, the lack of concentration as well as being located on a less-traveled highway artery relegated it to the third ranking. 

Maplewood does appear to be a good site. However, it sits just below the Running Room population threshold at just over 45,000 residents. In addition, there is typically fewer ideal customer areas to the east of the Twin Cities Metro as well as smaller populations.

Conclusion

The top-ranked site for Running Room expansion based on the analysis performed above is located at 1258 Riverdale Boulevard in Riverdale Village in the City of Coon Rapids (see Figure 9).

Figure 9: The top ranked site for a new Running Room is located at 1258 Riverdale Boulevard, Coon Rapids, MN

With a population of 60,000+, a large growing population nearby in Blaine, and ideal customer zip codes all along Highway 10 both before and after the city, this location is the ideal site proposal for Running Room expansion. It is also situated to receive north-south traffic from Highway 47. 

Trader Joe's Site Selection

Introduction

In order to guide Trader Joe's expansion in the Minneapolis/St. Paul metropolitan area, this report analyzes the company's current market situation by considering current store locations as well as looking at potential growth opportunities. 

Using ESRI Business Analyst software, this analysis will include looking at:

• market penetration
• hot-spot analysis
• optimal store locations
• ideal customers

Based on this analysis, four site proposals will be examined and ranked to present one ideal location for consideration. 

Study Area

While the Minneapolis/St. Paul metropolitan area is far-reaching, the scope of this analysis applies only to Hennepin and Ramsey county containing both major cities in the metro (see Figure 1).

Figure 1: Site selection analysis will be conducted for Hennepin and Ramsey counties as a single entity

Methods

Current Store Locations and Customers

Ramsey and Hennepin counties contain six current Trader Joe's locations. This, combined with current customer location data provided by the company paint the picture of the current market situation for the company (see Figure 2).

Figure 2: Six Trader Joe's locations are currently located in Hennepin and Ramsey counties leading the identified customer base

Market Penetration

Using the current store locations and customers, a market penetration report reveals the level to which the store distribution is reaching the identified market. The numbers produced indicate the ratio of customers to total people.Figure 3: Market penetration shows a highly-saturated eastern half of the study area with a less-saturated western half

Market penetration analysis reveals that the six current Trader Joe's locations hive a high level of penetration (anywhere from 32% to 229%) for the entire eastern half of the two-county area with lower level of saturation, between 0% and 32%, typically found in most of the eastern half (see Figure 3). With both Minneapolis and St. Paul located in the western half of the study area, this result is to be expected.

Hot-Spot Analysis

In order to better understand the market found in Ramsey and Hennepin counties, hot-spot analysis applied to both total population and median income will show areas of high density and high income. 

Total Population

As expected, areas with high population are located in and tightly around the city limits of Minneapolis and St. Paul toward the Southeast of the study area (see Figure 4). In addition, the eastern half of the study area is almost exclusively low-populated areas. Current Trader Joe's locations tend to be located at the transitional edge between high-population and low-population areas.

Figure 4: Highly populated areas in Ramsey and Hennepin county are located toward the southeast of the study area with Minneapolis and St. Paul at the heart

Median Household Income

Conversely, hot-spot analysis shows that areas with high median household incomes are located along the fringes of the study, especially as seen in the eastern half of the study area (see Figure 5). Areas of lower median household income correlate with areas of higher total population from Figure 4.

Figure 5: Median Household Income tends to be high in the eastern half of the study area and along the fringes

Optimal New Store Locations

Business Analyst software allows for the identification of the exact center (optimal locations) based on current customer locations. For purposes of this analysis, three optimal locations are determined. The intent of this process is to help determine ideal locations for a new store. 

As such the three optimal locations identified correlate nicely with current customers (see Figure 6) with one located to the northwest, one in the south-center, and one to the mid-east. In general, these optimal locations split the distance between two current Trader Joe's locations suggesting they may prove useful in determining new site locations.

Figure 6: Three optimal locations are identified by determining the mean ideal location based on distance from current customers.

Ideal Customers

Ideal Customer areas can be found utilizing Business Analyst Software and the data contained therein about people located within each area. For the purpose of this analysis, the variables used to identify areas of ideal customers are:

• total population
• median household income
• average spent per week by household at food stores >$150
• shopped at Trader Joe's in the last 6 months

Thirty areas were ranked in order to get a large semblance of areas of influence within the two-county study area as well as its outskirts (see Figure 7). These areas will be important in determining locations for final consideration.

Figure 7: Thirty areas containing ideal customers were identified in and around the study to guide the selection of locations for a new Trader Joe's store

Site Proposal Identification

Using the three optimal site locations identified in Figure 6 in coordination with Trader Joe's ideal customer areas from Figure 7, four sites were selected for consideration. In addition, the location of current stores was considered. 

Based on the pattern established by current Trader Joe's locations, other considerations that played a part include proximity to a main transportation artery, and location at the transition point between the high median-income suburbs and the densely populated urban core. All exact sites sit in areas with other high-traffic seeking businesses. 

The first site proposal, located in the heart of Plymouth, Minnesota is located within one of the top ideal customer areas with several other ideal areas around it. In addition, it is located approximately between two current Trader Joe's locations (see Figure 8).

Figure 8: Four site proposals are identified based on three optimal locations and thirty ideal customer locations

The second site proposal, proceed counter-clockwise, is located in the heart of Eden Prairie. While it is not located directly in an identified ideal customer area, there are several all around it where the traffic arteries will make Eden Prairie a natural hub for each area to utilize a potential Eden Prairie location. Especially important to this location is closing the distance to a Trader Joe's location for one of the top ideal customer areas between Chanhassen and Chaska.

For the third optimal location, two sites were identified for consideration. Thus, the third site proposal on the east edge of St. Paul was chosen because it is located on the edge of the Minnesota State campus where there is some new development taking place along the diagonal moving transportation artery proceeding northeast from St. Paul. 

The fourth sit proposal is located in the heart of Maplewood and sits more centrally between two Trader Joe's location in terns of distance while also being more closely located to one of the top ideal customer locations in and around Oakdale on the eastern outskirts of the study area. 

A site proposal in the heart of Richfield, while being one of the top ideal customer locations did not possess enough additional areas without strong proximity to current Trader Joe's locations.

Ranking Sites

The four proposed sites for a new Trader Joe's location were analyzed using Business Analyst. This process involves comparing each site proposals characteristics based on chosen variables to the other other current Trader Joe's location. The four site proposals were ranked by their similarity to other Trader Joe's locations in the study area using:

• total population
• median household income
• average spent per week by household at food stores >$150
• shopped at Trader Joe's in the last 6 months

Based on this analysis, the top-ranked site was the Plymouth location to the east of the study area (see Figure 9).

Figure 9: The four site proposal were ranked based on four variables in order to determine the best site location for a new Trader Joe's

Discussion

Current Trader Joe's stores are located at the transition point between high-income suburbs and a dense urban core in order to capture the largest number of potential customers. In addition, grocers tend to locate in relatively close proximity intent on capturing traffic and do not seem to be phased by being near their competitors. This is especially true in the case of Trader Joe's because they are clearly distinctive from all but a few competitors nationwide. Locating on or very near main arteries allows Trader Joe's location to capitalize on the mass exodus from the city center to the suburbs. 

Not surprisingly, therefore, these factors make the third proposed site just to the the east of the heart of St. Paul the worst location based on the analysis. It is located along the smallest artery as well as being too embedded in the urban core. 

The second-lowest ranked site suffers by not being close enough to ideal customer areas despite being in a high income area in Eden Prairie while also being surrounded by many ideal customer areas all with main arteries leading them to the areas. 

While the Maplewood location may still be a strong choice the growth in high-income population is happening at a slower rate and over a smaller area moving to the east of the cities when compared to the west. 

Conclusion

The top site revealed through this analysis is located at 15600 36th Avenue N in Plymouth, Minnesota (see Figure 10).

Figure 10: The top-ranked site for a new Trader Joe's is located at 15600 36th Avenue N in Plymouth, MN

 The Plymouth site proposal benefits from two main arteries proceeding into it as people leave the cities while also establishing itself as the nearest Trader Joe's outpost for the high-median income residents located in the entire area to the east of the city. In fact, Highway 55 is currently the only highway proceeding west from the urban core into the high-income suburbs that does not have a Trader Joe's location nearby. Also, Interstate 494 being nearby allows this location to draw in north-south traffic, as well. A very large Lifetime Fitness facility located directly across the street only enhances this potential location. 

Real Estate Analysis

Introduction

Through the process of real estate analysis, this report will attempt to "sell" a home (currently listed for sale) in the Third Ward neighborhood in Eau Claire, WI as well as determine its fair-market value. Additionally, it will identify a "target consumer" prototype in order to understand the market for this particular home.

In order to make these determinations, this report examines;

• the unique features of the home
• the location of the home (in the Third Ward neighborhood) within the context of the surrounding area
• future development affecting the value of the home
• a comparison of the home to other houses for sale or recently sold in the Third Ward

Data pertaining to homes for sale, the Third Ward Neighborhood, and surrounding regions comes from Zillow, the City of Eau Claire Comprehensive Plan 2015, and FindtheHome.com.

1524 Frederic Street

• 4 Beds ~ 4 Baths

• 3,398 sq. ft.

• Built: 1928

• Lot: 6,969 sq. ft. 

 Basic Features

• Fireplace

• Flooring: Hardwood, Tile

• Finished Basement, 600 sq. ft. 

• Detached Garage, 1 Space

Nestled deep in the quiet, cozy, historic Third Ward Neighborhood (see Figure 1) between downtown Eau Claire and the University of Wisconsin - Eau Claire campus, this expansive home at 1524 Frederic Street offers a high level of comfort amenities, accompanied by a degree of safety and prestige unparalleled in the city of Eau Claire. 

Figure 1: The home at 1524 Frederic Street within the historic Third Ward neighborhood in the heart of Eau Claire, WI

Unique Features

Making this home stand out, 1524 Frederic Street additionally features:

• An ideal 16 x 23 ft. loft above detached garage

• Cedar-shake siding

• Picturesque Porch

• Master Bedroom and Bath

• Dramatic use of windows

• Extensive Renovations
• Electrical
• Plumbing
• HVAC
• Roof

This home, built in 1928, possesses character and style newer

homes simply cannot match while also featuring essential 

updates ensuring this house matches modern homes in both quality, longevity, and future value.

Third Ward Neighborhood

Location

The historic Third Ward neighborhood is ideally positioned within the city in terms of access (see Figure 2). Surrounded to the east and south by a high ridge and, at the base of the ridge by the scenic Putnam Trail, this neighborhood possesses an element of solitude. 

On the other hand, with the bustling UWEC Campus to the west (census tract 17) and the re-energized central business district to the northwest (census tract 11.01), it retains a position near the cultural and intellectual heart of the city (see Figure 2). 

Figure 2: The Third Ward neighborhood is part of Census Tract 17

Source: Eau Claire Comprehensive Plan 2015

Housing Stock

Comparing the housing stock in the Third Ward Neighborhood Census Tract to others in the city of Eau Claire reveals that it possesses the oldest overall housing stock in the city with the smallest percentage of houses built after 1970 and, consequently, the largest precentage of houses built pre-1970 (see Figure 3). 

Figure 3: Percentage of Housing Stock per Census Tract in Eau Claire  based on the year the home was built

Source: Eau Claire Comprehensive Plan 2015

While the housing stock in the third ward is the oldest in the city, the homes in the part of the Third Ward neighborhood where 1524 Frederic Street is found possesses exclusively between 0 - 2 defects (see Figure 4), among the lowest in the city. Measuring this neighborhood with the more college-student inhabited portion to the northwest would paint an entirely different picture. However, the high quality of the homes surrounding 1524 Frederic Street is very apparent. 

Figure 4: Average of Number of Defects in homes in the city of Eau Claire

Source: Eau Claire Comprehensive Plan 2015

The impeccable quality of the homes likely contributes to the Third Ward neighborhood possessing the highest percentage of houses valued at $150,000 + by a considerable margin (see Figure 4). This is despite Census Tract 17 also including an area of extensive college rental units. Therefore, the area around 1524 Frederic Street likely contains almost exclusively homes exceeding $150,000 in estimated value. 

Figure 5: Value of Owner Occupied Housing Percentages by Census Tract for the city of Eau Claire

Source: City of Eau Claire Comprehensive Plan 2015

As noted earlier within this section, the Third Ward Neighborhood also includes college rentals, and thus college-age students. Using ESRI Tapestry Segmentation to gain a better understanding of this neighborhood would appear to contradict the data presented thus far. It indicates that the Third Ward falls 100% into the 'College Town' tapestry defined by non-family households, low-rent apartments, and people with limited income (see Figure 6).

Figure 6: ESRI Tapestry Segmentation indicates that the Third Ward neighborhood is 100% College Town

Further data dispels this notion, showing that, while the rental percentage is just above 50%, this leaves another 48% approx. of single family homes (see Figure 7). 

Figure 7: Percentage of Rental Occupied Housing by Census Tract in the city of Eau Claire

Source: City of Eau Claire Comprehensive Plan 2015

At first glance, this percentage might be enough to detract some people from this area a closer look reveals two completely different sections within the Third Ward neighborhood. The pattern of land use shows that the college rentals are located to the north and west while the south and east remains exclusively single-family residential (see Figure 8). 

Figure 8: Pattern of land use in the Third Ward Neighborhood of Eau Claire, WI

Source: City of Eau Claire Comprehensive Plan 2015

Demographics

Taking a look at the people who reside in the Third Ward Neighborhood, the expected high percentage of college students is found (39.42%). However, and notably, the second-largest age group in the Third Ward is children and teenagers indicating that there are a large number of families living in houses such as 1524 Frederic Street in the more exclusively single-family residential section. 

Figure 9: Age Distribution of Third Ward Residents compared to larger surrounding regions

Source: Findthehome.com

Taking a look at annual income, the college student population influence gives the Third Ward a higher percentage of residents below $25,000 than the surrounding city, county, state, and country (see Figure 10). However, tied to the approx. 40% of single-family residential homes in the neighborhood, 40% of residents have an annual income above $50,000. It is safe to conclude that most single-family residential homes in the area are occupied by people with this income or higher.

Figure 10: Annual Income of Third Ward Residents compared to larger surrounding regions

Source: Findthehome.com

Important to note, the Third Ward neighborhood possesses significantly higher percentages of people with graduate degrees compared to surrounding regions (see Figure 11). This reflects both the proximity to UWEC as well as the quality of the homes attracting people with white-collar jobs reflecting their high level of education. 

Figure 11: Highest Degree Attained for Third Ward Residents compared to larger surrounding regions 

Source: Findthehome.com

The commute times for residents in the Third Ward, noticeably lower than the larger surrounding regions (see Figure 12). also suggest that this region has a high level of access. Access possesses value, and professional residents of this neighborhood can afford to pay for it. 

Figure 12: Commute Length for Third Ward residents compared to the larger surrounding regions

Source: Findthehome.com

Future Development

The area around the Third Ward including the central business district of downtown Eau Claire is growing exponentially with many recently completed projects such as Phoenix Park, new major business additions like JAMF Software and RCU Corporate, and new high-end apartments. Not only that, but there are several future developments that bode well for the value of the Third Ward Neigborhood. These include the just-approved Fine Arts Center as part of the Confluence Project currently underway (see Figure 13), the UWEC Event Center and YMCA Tennis Center locating across the street from each other on Menomonie Street (see Figures 14 and 15), and the conceptual Cannery District redevelopment (see Figure 16) potentially featuring a public market as well as two new brew pubs already in place. All of these additions are located within two miles of the Third Ward neighborhood.

Figure 13: Confluence Project consisting of Fine Arts Center and Mixed-Use Development Property

Figure 14: UWEC Events Center conceptual design

Figure 15: YMCA Tennis Center conceptual design

Figure 16: Cannery District conceptual design

Housing Comparison

Two houses in the Third Ward sold in 2015 are comparable to 1524 Frederic Street. These homes at 1718 Frederic Street and 334 Lincoln Avenue both feature four bedrooms, more than two baths and two-car garages. In addition, they are all fairly similar when it comes to square footage (see Figure 17). 

Both homes sold for $240,000 setting a baseline for the sale of 1524 Frederic Street. The home at 1718 Frederic Street sold below its Zillow estimate (likely valued higher due to being built in 1975) while 334 Lincoln Street sold very close to its estimate. 

The one thing potentially impacting 1524 Frederic Street in a comparison to these homes is lot size. This is a large determinant of property value especially in an high-end, established neighborhood with limited or no growth potential. Still, 1524 Frederic Street received a Zillow estimate between $40,000 to $70,000 lower than the comparison properties. The additional difference appears to be a reflection that Zillow has not taken into account the extensive renovations done on the property. 

Figure 17: A comparison of two houses similar to 1524 Frederic Street that were sold in 2015

An additional comparison to homes currently for sale in the Third Ward reveals that 1524 Frederic Street is ideally suited to take advantage of the housing market.  Three other relatively similar homes in number of bedrooms and bathrooms. as well as square footage all are priced in $10,000 increments above its current asking price. Lot size appears to be the main differentiating factor for the other three comparison houses which helps place 1524 Frederic Street at or below them in value. The Zestimate differentials between the homes is exorbitant but this seems to be an aberration negatively reflecting on the home.

Figure 18: A comparison of three houses similar to 1524 Frederic Street that are currently for sale

Conclusion

Based on overall quality, the strong set of amenities offered, an ideal location of 1524 Frederic Street in the heart of the historic Third Ward district, and demographics pointing to high income and professional occupations, the following target market is recommended.

Target Market

• Families with children

• Annual Income >$75,000

• White collar work force reflecting graduate/professional/doctorate degrees

• Progressive, community-oriented people

Suggested Sale Price

In addition to the above-mentioned characteristics of the home and the neighborhood setting, this home has a window for sale between $240,000 (from the price of similar homes recently sold) and $279,000 (based on the prices of slightly better homes for sale in the Third Ward). 

By sliding in just underneath the prices of this better homes, they will be able to attract potential home-buyers who do not see a great deal of difference between these homes for sale in the Third Ward. While the value of the home may actually be closer to the homes recently sold at $240,000 the market allows this home to be priced at:                                                                                                                                                                        $258,900

Study Areas, Geocoding, Customers, and Trade Areas

Introduction

This report has been developed for two (separate) coffee and doughnut shops located in San Francisco who are seeking to maximize their trade areas without entering into direct competition with one another.

Within their overall goal, the store owners have identified five questions they would like answered:

• What is the market like for both stores?
• Who are the store owners' core customers?
• Are they competing for the same customers?
• Is one store in a better position than the other?
• Where are their competitors located?

In order to reach this goal, the following data will be presented:

• current customer locations relative to both store locations
• competitor locations
• customer-derived trade areas
• demographic data on current customers based on customer-derived trade areas
• walk-time trade areas

After presenting this data, conclusions and recommendations will be provided for each business in order to guide their decision-making process as they seek to maximize their trade areas while avoiding direction competition with one another.

Customer Locations

Customer addresses provided by each of the coffee and doughnut shops show the tight concentration of customers around each shop. This falls in line with the store owners' impression that a significant portion of their business comes from customers who walk.

Store 1

Store 1, to the north (see Figure 1), shows the heaviest concentration in a 3 x 4 block (square) area surrounding the shop. There is small contingent of customers extending further east into and spread throughout Chinatown.

Also, Geary Boulevard seems to pull customers from further west in the Richmond District and even down into the Sunset District.

Store 2

The heaviest concentration of customers for Store 2 are not encapsulated as the customers for Store 1, due in great part to the lack of a similar grid-like structure to surrounding streets (see Figure 1). The slightly more elongated pattern stretches tightly southwest into Bayshore while reaching out more broadly north into the Mission District and east into the west edge of Ingleside. 

In addition to the proximity patterns, the linkage between the Lames Lick Freeway and Highway 280 pulls some customers from the northeast and even the Bayview District. Similarly, the linkage between CA-1 and Highway 280 appears to pull some customers from throughout the Sunset District. 

Figure 1: Coffee and Doughnut Shop Customer Locations for two stores in question in San Francisco

Competitor Locations

Clearly, San Francisco is not lacking for competition in the coffee and doughnut shop market. Coffee and doughnut shops can be found in various concentrations throughout the study area. This includes stores almost on top of the two store-owner locations.

The most heavy concentration centers in Chinatown directly east of Store 1. This concentration pattern spreads from Chinatown to the southwest into the Mission District ending, generally, north of Clipper Street with  Store 2 further to the southeast.

Generally speaking, Store 1 (to the north) faces much heavier competition in the area directly around their location when compared to Store 2. 

Figure 2: Coffee and Doughnut Shop Competitors throughout San Francisco

Customer-Derived Trade Areas

Business Analyst, a program developed by ESRI and implemented using ArcMap software allows for the creation of customer-derived trade areas. The rings produced using this method indicate the area containing 40%, 60% and 80% of a store's customers.

Using this method of analysis, Store 1 derives its customers at each percentage interval over a significantly smaller, more compact land area than does Store 2. Particular shapes for each ring appear to reflect the location of parks, major roads and other features.

Noticeably, the concentration of coffee and doughnut shops witnessed in Figure 2 appears to influence the 80% ring for both stores. This concentration likely detracts each store from pulling customers in larger percentages from the northeast Mission District and Chinatown. 

 Figure 3: Customer-derived trade areas for both coffee and donut shops under analysis

Demographic Data

Based on the customer-derived trade areas developed (see previous section), Business Analyst ESRI software produces a Community Profile report and a report entitled Retail Goods and Services Expenditures. These will be used to develop a picture of the clientele for each store.

In addition to more typical data about population such as population age, home ownership vs. renters, and purchasing habits, Business Analyst develops a picture of residents of a certain area by breaking them into tapestry segments intending to capture many features of the population into groups based on these features. These tapestry segments are provided for the three customer-derived trade area groupings for the areas where 40%, 60%, and 80% of a store's customers are located within. Information about spending patterns, median age, and median household income are provided within each segment description.

Store 1

The top tapestry segment for each customer-derived trade area for Store 1 is entitled 'Laptops and Lattes' (see Figure 4). While this segment represents a noticeably strong 32% of Store 1's customers in the area where 40 percent of it's customers reside, this percentage continue to strengthen (to above 40%) as you move into the 60 and 80 percent areas. 

Figure 4: Laptops and Lattes tapestry segment

In addition to this predominant segmentation, two other segments follow in-step. The 'Trendsetters' segment (see Figure 2) represents between 20% - 25% of Store 1's customers in each customer derived trade area while 'Metro Renters' (see Figure 3) follows with between 15% - 20% of customers.

         Figure 5: Metro Renters tapestry segment                     Figure 6: Trendsetters tapestry segment

Using data provided for each of these tapestry segments, approximately 80% of the people living in store 1's customer derived trade areas are between 30 and 40 years old. They also have a tendency to stay connected through social media sites and their cell phone and are prone to utilize public transportation, bike or walk. 

Two other segments appear most often in Store 1's tapestry segments and appear to diverge from the predominant theme developed thus far. Both the 'Social Security Set' (see Figure 7) and 'Retirement Communities' (see Figure 8) figure into their customer derived trade area with the former representing anywhere from 8 - 15% of the population throughout and the latter representing 7% - 14% of the population in the 40% and 60% customer derived trade areas. 

            Figure 7: Social Security Set tapestry segment                       Figure 8: Retirement Communities tapestry segment

These populations are older with median ages between approx. 45-50 years, considerably less income, and tend to cook at home more. 

As a whole, each tapestry segment noted here is defined by singles living in multi-unit rentals as opposed to married couples living in single-family homes.

Looking at the Retail Goods and Services Report shows that residents in the customer-derived trade areas spend $4,000 - $5,000 on food outside of the home (see Figure 9). 

Figure 9: Money Spent on Food Away from Home per year by Customer-Derived Trade Area

Taking a look at where the population is headed from 2010 to 2020, the Community Profile report projects steady numbers for all population categories between 15 and 64 years (in ten-year increments) other than a steadily decreasing 15-24 year-old population both by 2015 and again by 2020. The 25- 34 year-old population segment is noticeably the strongest representing approximately 25% of the population in each customer-derived trade area throughout the projection window. A drop-off in population into the mid-teen percentages occurs for the 35-44 and 45-54 year-old age cohorts. this is followed by another noticeable drop-off to around 10% for the 55-64 year-old cohort.However, these numbers are not declining throughout the decade; rather they hold steady in each age cohort.

Store 2

The tapestry segment that makes up the greatest percentage of the population for Store 2 is 'Urban Chic' (see Figure 10). It makes up the largest percentage of both the 40% and 60% customer-derived trade areas at just above 25% of the population and falls to third at just above 15% of the population in the 80% trade area.

The Pacific Heights tapestry segment (see Figure 11) runs a close second representing around 20 - 25% of the population in all three customer-derived trade areas

          Figure 10: Urban Chic tapestry segment                          Figure 11: Pacific Heights tapestry segment

These two tapestry segments have a median age between 40 and 45 years old with a median income of $75,000 - $100,000. They appear to be more focused on automobile ownership, investments, and various forms of entertainment. There also is an indication they may prefer online shopping. 

As you move further away from Store 2 (by trade area), the 'Laptop and Lattes' segment (see Figure 12) becomes more and more influential increasing from 11.5% to 21.5% and again to 25.10% in the 80% customer-derived trade area where it is the most prominent tapestry segment.

Figure 12: Laptop and Lattes tapestry segment

The third grouping of note within the tapestry segments belongs to both 'City Lights' (see Figure 13) and 'Downtown Melting Pot' (see Figure 14). These segments are typically between 35 and 40 years old with median income between $45,000 and $65,000. They appear to be noted for frugality and utilize the internet for banking and entertainment. Interestingly, they are both noted for various forms of involvement with the lottery.

       Figure 13: City Lights tapestry segment                       Figure 14: Downtown Melting Pot tapestry segment

Overall, each tapestry segment noted for Store 2 is defined by married-couple households living in anything ranging from single-family homes (the most prominent) to multi-unit homes to high-density apartments.

The Retail Goods and Services report shows that residents living in the three customer-derived trade areas for Store 2 spend roughly between $5,000 and $5,500 on food away from home per year (see Figure 15). 

Figure 15:  Money Spent on Food Away from Home per year by Customer-Derived Trade Area

An overview of where the population is headed from 2010 to 2020 shows similar percentages holding steady in the mid-teens for each 10-year cohort from 25-64 years old. The 15-24 continues to hover around 10% of the population throughout the decade. 

Walk-Time Trade Analysis

Walk-time trade analysis indicates the areas that are within . 5, 1 and 1.5 mile layers around each location. As a result, barring specific obstacles impeding walking, similar walk time areas should be produced for each store. While the exact shapes for each store are different, this is ultimately due to the shape of the streets surrounding. That being said, the overall area covered appears similar for each store.  

Store 1

A very square shape develops around Store 1 with the longest reaches falling along the streets moving directly north, south, east, and west. This pattern fits with the more uniform grid pattern of streets surrounding the shop. 

Store 2

The irregular street pattern around Store 2 leads to similarly irregular walk-time areas. The pattern is longer and thinner with a slight northeast to southwest tendency. The pattern is lengthened the most along main streets proceeding directly from the store in a similar fashion.

Figure 4: Walk-Time areas for both coffee and doughnut shops under analysis

Discussion

 Store 1

Customer Location and Competition

Store 1 possesses a much more compact customer base for a couple of reasons. First, there is significantly more competition on the northeast of San Francisco. Second, the pattern of living is typically muti-unit to high-density apartments. this allows coffee shops to exist, potentially even on the same block while still wielding influence over an area with a high population. 

As a result, the customer-derived trade areas for Store 1 tend to be similarly tight and compact around the store only beginning to differentiate in shape in the '80% of customers' trade area. Where it is able to branch out a little bit is in areas that move away from the higher concentration of coffee shops to the east and southeast.

Demographics

The customer base for Store 1 is heavily influenced by a 25-34 year-old population segment consisting mainly of single households as opposed to married couples. The strongest sub-set of this category possesses a median income of above $100,000  while the remaining segment has a median income of around $50,000. 

Importantly, each of these segments appear inclined to utilize public transportation, walking and biking while also exhibiting a strong proclivity for connection by cell phone and through social media. As a result, they tend to fit the general personality of people thought to frequent coffee shops in a downtown setting. 

While the remaining population segments tend to fall into older age-cohorts, they are, notably, still mainly single households. This segment of the population has increasingly been attracted to downtown living now that children have moved out of the house and there are less responsibilities. As such, this segment may further buoy rather than detract from the more dominant young, single population around them.

The Retail Goods and Services report indicating how much these populations spend outside of the home are somewhat inconclusive but also indicate that they spend less, on average, than do those living in the customer-derived trade areas around Store 2. 

Looking toward the future, the makeup of the customer base for Store 1 appears to hold steady throughout the next decade. the only element of minor concern is a steadily decreasing population of 15-24 year-olds. Still, with strong numbers throughout the other most relevant cohorts, this should be the source of little worry.

Store 2

Customer Location and Competition

Store 2, on average pulls 40, 60 and 80% of its customers from a larger area than does Store 1. There are a couple of factors influencing the customer-derived trade areas in this way. The streets are not grid-like as seen for Store 1, meaning it is likely less easy to reach Store 2. In addition, Store 2 appears to be located in a less dense area. They are located in an area with far more single family dwellings and fewer multi-family and high-density apartments. Therefore, there are fewer customers available to them in a given area. 

The pattern of larger customer-derived trade areas encompassing a given percentage of their customers also suggest their location may pull in more customers who drive compared to Store 1. This is reinforced by the tapestry segments for Store 2 that indicate their customer base utilizes public transportation, walking and biking less and invest more in vehicles. 

There is considerably less direct competition in the area immediately surrounding Store 2 which might suggest they are in a more enviable position. However, this may simply be due to the fact that they are in a less-dense area where people tend to be slightly more car-centric. 

Store 2's customer-derived trade area comes to an abrupt end when it reaches the area to the northeast of their location where coffee shops begin to be more concentrated whereas these trade areas continue on further in other directions where there isn't the same concentration of competition.

Demographics

Store 2 faces a customer base that is distinguished by married couples living in single-family homes. While the larger sub-segment of this group have median incomes from $85,000 - $10,000, approximately, they also see a relevant amount of married couples living in multi-family or high-density apartments while also having lower median incomes between $45,000 and $65,000.

Public transportation is not an important element for three out of the four tapestry segments composing the married couple element of Store 2's customer base, indicating vehicular transportation is in high use. 

There is far less of an overall indication that the entertainment practices employed by all four of these tapestry segments are as conducive to a typical coffee shop crowd. They tend to employ different forms of entertainment out-of the-house while also focusing on online connections that tend to practiced more at home than in a coffee shop setting. 

That being said, approximately 25% of Store 2's customer base consists of the highly desirable tapestry segment, 'Laptops and Lattes'. However, this segment of the population in their customer-derived trade area is more prominent in the outer rings. This suggests that Store 2 is located in a very family-oriented setting with many single households on the fringes of their trade area. This tapestry segment of the population likely helps Store 2 but is not strong enough to warrant more dense competition.

The Retail Goods and Services Report indicates that households tend to spend more on food outside of the home in Store 2's trade area than do households in Store 1's trade area. However, it could be argued this is due to the presence of more children for the 75% of the population that is married. 

Conclusion

Market and Core Customers

Store 1 has a strong setting in a prominently single household area featuring high density living where people walk, bike, and take public transportation and utilize their phones and social media for communication. 

Store 2 is located in a market defined by married family households with the largest segment consisting of single family households. Typical vehicle transportation tends  to be employed in their trade area. Internet connection tend to be of the variety that takes place in the home.

Customer Competition

The two stores are, largely not in competition for the same customers outside of the ideal 'Laptop and Lattes' tapestry segment seen in both trade areas. However, Store 2's customer base is 75% married families - they are largely not in direct competition. In addition transportation employed by customers for each store further differentiates them.

Position

Based on the analysis, despite the fact that Store faces much stiffer competition. There trade area is strongly and ideally suited to attracting customers. The outlook for the future indicates they will continue to hold the advantage of an ideal customer base. 

Store 2 is, by no means, in a bad location. However by indicating they appeal to traffic involving walking and biking, they may be out of position by being located in an area where there greatest appeal would be to those driving automobiles.

Competitors

Store 1 faces stiff competition typically to the east and southeast of their location while competition is less prominent in every other direction. 

Store 2 faces competition of the much more sparse variety in keeping with their location in single-family households with higher density living on the fringes. Thus, there is probably less direct competition for the variety of customer they appeal to - the walk-in crowd.