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.