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6 Pitfalls of Growing Your Retail/Restaurant Chain Too Fast

Posted by Sam Lowder on Aug 4, 2017 1:00:00 PM
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In the world of retail, it’s very common to see businesses that experience some success with one location make the (sometimes hasty) decision to add another (or several)—and for them to want to move quickly. Whether it’s a private company that has their sights set on growing and selling their business or a public company aiming to achieve growth goals, there are lots of reasons that companies want to grow.

Expansion is an exciting thing, of course, but there are landmines to avoid along the way, especially if you’re growing rapidly. Doing so without abandon can be problematic for lots of reasons. Here are six common pitfalls we see with retail and restaurant companies that grow too fast:

They stop listening to customers.

Certainly a company must understand who their target customers are before opening any new location, but it’s critical to never stop listening to customers’ feedback. This means continuously analyzing customer data to identify your best customers and surveying your customers—in real time—to hear about their experiences and satisfaction. Winning new customers is important, but so is retaining those customers (and turning them into repeat customers). To do so effectively, you must know what they want and deliver each and every time they buy from you.

They ignore their competition.

A company may have a pretty good handle on competition in one location, but it’s a big mistake to make assumptions about the competitive landscape in a new market. Who are your competitors’ customers? What are your competitors’ strengths and weaknesses in the market you’re looking at? What’s the opportunity to grab market share? Ask lots of questions and research your competition heavily.

They assume a new market is similar to the market they know.

If a company is expanding into an unfamiliar market, it’s critical to have “boots on the ground” there. Why? Because everything is different: your customers’ behaviors and lifestyles, the commercial real estate market, your competitors, and the culture of the city and state. You’ll need to study your competitors, target customers effectively, and assess the demand for your product or service before you make any move or begin any marketing campaign. Moving too quickly into a new market puts your entire portfolio of stores at risk and can put significant financial strain on your company overall.

They don’t optimize territories.

Whether a franchise or operator of stand-alone stores, it’s important to do plenty of homework on how many locations a business can support before moving into a market. Understanding the potential of a market is essential, and it’s also important to identify trade areas that match the target customer profile (and choose locations based on that data). Upfront analysis will help you ensure that all of your locations are successful and avoid opening locations destined to underperform in the long run. It also ensures you don’t leave revenue on the table.

They fail to train employees appropriately.

Without question, a big part of a company’s future success depends on the front-line employees. You must ramp up your employees to ensure your location is successful, and remember that it’s not just a matter of teaching them how to run a sales transaction on the computer. You must have a thoroughly developed orientation and training program that introduces employees to your organization, brand, and culture, the customers they’re serving, the community, and of course, their jobs. A veteran employee to serve as area or store manager is a good idea if possible.

They haphazardly pick new locations.

Perhaps the biggest issue we see with companies in expansion mode is the tendency to skim over the upfront research needed to pick the best sites. This could lead to shoehorning stores into a saturated market and high sales cannibalization, or other issues. At a minimum, you must understand your customers so that you only consider locations that fit that “best customer profile” and narrow locations based on customer data, not gut feel. Here’s a more thorough discussion about best practices in site selection.

If you’re working hard to execute a successful expansion plan, do it smart. Site selection is a big part of that, but there’s more to it. Don’t move so quickly that you skip over important research. Investing in intelligent expansion—not just fast expansion—will be time and money well-spent in the long run and ensure that your growth is sustainable.

Whether you invest in tools that augment your site selection decision-making, do better market research, or both, the key is to grow smart without falling into some of the common traps. Speed of growth might look impressive on paper, but long-term sustainability is much more important.

 

Topics: Smart Retail Growth, Improving Store Locations, Retail Industry, Restaurant Industry