UK supermarket location assessment
The Authors
Richard M. Clarkson, Research Student, Business Policy at the School of Business,
University of Huddersfield, Huddersfield, UK.
Colin M. Clarke-Hill, Research Student Principal Lecturer in Business Policy at
the School of Business, University of Huddersfield, Huddersfield, UK.
Terry Robinson, Reader and Principal Lecturer at Teeside Business School,
University of Teesside, Middlesbrough, UK.
Abstract
States that the choice of a store’s location is considered to be the single most
important decision a retail organization has to make, and that location is seen as a
critical factor of success. Reviews the literature on store location models and how
grocery retailers in the UK assess store location sites in terms of site potential and the
location models that they apply to these potential sites. Also develops and highlights
issues of the use of existing store location models to geographical areas of Eastern and
Central Europe.
Article Type:
Research paper
Keyword(s):
Central Europe; Eastern Europe; Grocery industry; Location; Retail trade; Stores;
United Kingdom.
Journal:
International Journal of Retail & Distribution Management
Volume:
24
Number:
6
Year:
1996
pp:
22-33
Copyright ©
MCB UP Ltd
ISSN:
0959-0552
Introduction
The study of the ways in which retailers make their location decisions can be traced
back as far as the works of Haig[1, 2] and the competitive bidding for specific sites
based on anticipated future returns; Hotelling’s[3] explanation of the clustering of
similar stores; Reilly[4] with the famous Law of Retail Gravitation combining the
effects on patronage of both distance and centre attractiveness; and Christaller’s[5]
focus on the “real price” of a good which includes a notional transportation “cost”.
The attempt to set a theoretical framework for retail location in the UK context has
been largely confined to the reviews of Brown[6, 7, 8]; the regression modelling work
of Simkin[9, 10] with his Store Location Assessment Model (SLAM); and the recent
work of Clarke et al.[11] concerning an integrated framework for location positioning
and strategies.
During the 1980s and early 1990s the major thrust of the growth of UK supermarket
multiples has been by what is often described as “organic” methods namely the
opening of more and more stores to a standard format in new townships. This is
illustrated by the gradual move northward by J. Sainsbury and southward by Asda.
The very nature of this form of growth suggests the importance of those decisions that
evaluate the trading potential of stores in specific towns. This article attempts to
explore whether or not any of the theoretical models of store location are used in
practice by UK grocery multiples or whether any “new” models or techniques have
emerged.
The broad aim of this article is to ascertain the type, nature and extent to which
location models are used by UK grocery retailers in their location decisions. More
specifically, the objectives of the work are to:
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review the literature on retail location models;
ascertain whether or not major UK grocery retailers use any models for their
location decisions;
examine the models that are used individually or in combination;
identify issues that need to be addressed in the future use of such models in a
“post saturation” grocery retailing environment in the UK;
explore the applicability of location models to decision making in the
emerging retail environments of mainland Europe including the newly
democratised states of eastern and central Europe.
Retail location theory
Retail location theory can be said to rest on four broad theoretical approaches, namely:
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central place theory;
spatial interaction theory;
land value theory;
the principle of minimum differentiation.
Central place theory
Central place theory was first formulated by Christaller[5] and subsequently
developed by Losch[12], and is described by Craig et al.[13] as “the best developed
normative theory of retail location”. Stevens[14] believes it to be “the most innovative
and successful attempt to construct a fully realised theory of spatial structure”, while
Marshall[15] considers it “too implausible to serve as a basis for empirical work”.
Central place theory seeks to explain an apparent order among the pattern of
settlements, or central places that dispensed goods and services to a surrounding area.
Christaller’s original theory of central place rests on two fundamental concepts; the
range and the threshold of a good (or service). Christaller’s theory attempts to explain
retail patterns by the notion of a hierarchy of centres proposing that the process of
centralization would lead to a clearly recognizable stepped hierarchy of centres.
Losch’s work strengthens many of Christaller’s suggestions, yet differs in the
consideration of hierarchies. He proposed that there would be so many extrinsic
influences in the real world that size groups would become indistinct and merge into a
continuum. Several authors have provided empirical evidence to support Losch’s
view. Berry and Garrison’s[16] “theory of tertiary activity” made a significant
modification to the central place model drawing an analogy between a hierarchy of
settlements. Berry[17] was criticized for this approach, to which he responded by
expanding it and formalizing the widely accepted typology of centres, ribbons and
specialized areas.
Central place theory over the past 60 years has been extremely influential in providing
a framework for the analysis of both spatial and non-spatial retailing patterns,
although it is subject to certain limitations discussed by Carter[18] and by Brown[8].
The major criticisms start with Kivell and Shaws’s[19] observation that any model
which attempts to reduce a complex reality into a simplified and manageable form
suffers from a high degree of abstraction in terms of the assumptions of identical
consumers, an even distribution of population and the concept of single purpose
(product) shopping trips to the nearest centre that supplies the merchandise. Central
place theory assumes consumers to be identical, adopting the economist’s “optimizing
man”. This is not seen to be a very realistic concept as shown by Golledge et al.[20]
in that consumers do not always follow the exact precepts of central place theory.
Curry[21] argued that his “summation man”, a kind of group average of individual
choices, which, at the general level, have a considerable random element, is more
realistic. The inclusion of a random or stochastic element has been clearly
recognized[22], and substantial attempts have been made to interpret central place
theory within a probabilistic framework.
It is generally accepted that the central place theory’s failure to accommodate change
successfully is its single most significant shortcoming, Brown[8] argues that:
Central place theory is predicated upon static, equilibrium-seeking assumptions which
have become increasingly divorced from today’s highly dynamic retailing
environment.
The concept of single purpose shopping trips is arguably the most talked about
assumption made by central place theory. Authors have criticized the lack of
sophistication of a single product approach, arguing for a multi-product perspective.
Thompson[23] believed that even where the focus is moved from products/purpose to
stores there is an implicit assumption that the only factor differentiating one store
from another of the same type is location, thus ignoring such factors as price, quality
and image. In response to this, formal attempts have been made in recent years to
develop mathematical modelling in central place theory which incorporates multipurpose shopping.
A review of intra-urban shopping patterns in British towns by Warnes and Daniels[24]
suggests that:
To a very large extent, the residents of British towns do use the nearest shopping
centre offering a given type, quality and combination of goods and services. There are
certain factors which can over-ride movement minimization, but this assumption is
unusually valid: there are few spatial generalizations concerning human behaviour
that are empirically so well supported.
Even though this review is now almost 20 years old, the commercial structures of
many western cities are still built around centres based upon national and regional
“hierarchies”.
To summarize, central place theory provides a partial explanation for shopping
behaviour in the intra-urban environment with the refinements necessary to rectify
this situation being likely to prove extremely difficult to develop and even more so in
providing valid empirical evidence. Consequently, it is suggested that the value of
central place theory in the study of consumer spatial behaviour in cities is most
relevant to an understanding of the fundamentals of the spatial structure of shopping
opportunities, and serves as a useful pedagogic introduction to study consumer
behaviour[8].
Spatial interaction theory
Spatial interaction theory is based on the hypothesis that consumers trade off the
attractiveness of alternative shopping areas against the deterrent effect of distance.
This offers an alternative normative model to explain behavioural interaction. In
doing so it discards the assumption made by central place theory that behaviour is
explained by consumers using the nearest offering of a good or service.
The origins of spatial interaction theory are fairly ambiguous, however, retailingrelated applications date from the pioneering studies of William J. Reilly[4]. Reilly
based his “Law of Retail Gravitation”, on an analogy with Newtonian physics linked
with empirical observations of shopping behaviour placed in an inter-urban structural
context[8]. Although some empirical studies showed that Reilly’s model performed
reasonably well in practical situations, others found its performance inconsistent. The
basic problem with the original gravity model is that its variables; population and road
distance, and the parameters on these variables, unity and the inverse square, do not
always perform well in practice[22, 26].
The first recognized refinements and modifications to Reilly’s Law came from
Converse[25] in identifying an “inertia factor” that reflected the reluctance of a
consumer to move any distance in making a purchase. Others have refined and
modified the variables and parameters in Reilly’s Law.
Arguably the single most significant post-war contribution to spatial interaction
theory came from Huff[22, 26]. He believed that consumers patronize competing
shopping areas as the basis of their overall “utility.” The Lakshmanan and
Hansen’s[27] refined version of Huff’s[22, 26] model has been used subsequently in
many planning studies. Their model, devised for metropolitan regions, states that a
shopping centre located in a given zone will attract consumer expenditure from
another zone in direct proportion to the size of the centre measured in floor space, and
in inverse proportion to the distance to the consumer expressed in travel time, and to
competing facilities. In this way it allows for overlapping trade areas.
The simplicity of the gravity model has given rise to considerable operational
problems. Apart from the absence of a satisfactory test to measure their closeness of
fit[8, 19], the operational difficulties mostly revolve around the subjective indexing of
variables and calibration of the model.
Arguably the most difficult variables to define are measures of attraction and distance.
The variables used depend on personal opinion, data availability and time or cost
constraints; with numbers of shops, retail employment, sales turnover, retail floor
space and types of stores having all been used as measure of attraction; while
geographic distance, road distance, travel times and travel costs have all been used as
measures of distance[8, 19].
Calibration is regarded as problematic. It is normally carried out by feeding in known
data and/or by the undertaking of trial runs. Openshaw[28] identifies a pressing need
for model calibration based on observed trip data, a need partly fulfilled by ParrLewis and Bridges[29] in their two-stage shopping model.
Apart from the operational problems discussed above, spatial interaction modelling is
essentially an equilibrium seeking model which fails to predict the dynamics of the
changing retail environment. Furthermore, Jensen-Butler[30] criticizes spatial
interaction modelling for having a very weak theoretical base, suggesting the
assumption that the slope of the distance decay function is negative represents only an
empirical observation which has no theoretical base.
In recent years, gravity modellers have made several attempts to optimize the
calibration procedure and numerous investigations into alternatives and improvements
to ordinary least squares for estimating goodness of fit. Further to this, attempts have
been made to incorporate “trip changing”, multi-purpose shopping behaviour and the
development of a dynamic perspective into the gravity model. Although many of
these investigations have led to little success, retail gravity modelling has been
rejuvenated with the prospect of having real commercial applications. This follows on
from Jenson-Butler’s[30] view that gravity modelling would have value as a shortterm allocative model because of its potential for further refinement and calibration in
the context of goods.
Land value theory
Land value theory, also known as bid rent theory and urban rent theory, first achieved
recognition in a retailing context from the early work of Haig[1, 2]. He argued that
competition for an inelastic supply of land ensures that, in the long run, all urban sites
are occupied by the activity capable of paying the highest rentals, and land is thereby
put to its “highest and best” use. Land value theory proposes that the location of
different activities (retailing formats) will depend on competitive bidding for specific
sites.
Haig’s work formed the basis of Alonso’s seminal land use model. Alonso[31]
constructed bid rent curves for each land use function, their slope reflecting the
sensitivity of that activity to changes in accessibility. In a desire to attract custom
from the entire urban area and, as a result, requiring the most central sites, businesses
are prepared to bid the highest rentals, but the amount they are willing to pay falls off
rapidly with distance. However, Alonso’s analysis is concerned with business,
residential and agricultural land uses and is often considered too broad to show a true
reflection of retail location.
Within the context of retailing, these principles have been taken up notably by Firey
and Garner. Assuming equal accessibility from all directions, perfect knowledge on
the part of the retailer and no legal or social constraints, Firey[32] suggests that a
systematic retail pattern is determined by the maximum rent that retailers are able and
to pay. Garner[33] incorporates the concept that total sales volume decreases with
distance from the peak intersection into his spatial model of business centre structure.
He equates high threshold functions with high rent paying ability and concludes that
these will be found on high value land at the centre of retail nucleations. Thus
demonstrating a clear distinction between regional, neighbourhood and community
business types. Garner also recognized the over simplification of his model and
pointed out that establishments of a given type are by no means always associated
with discrete economic distances from the peak land value intersection. Furthermore,
he recognized that real world rent gradients are neither smooth nor symmetrical, but
are characterized rather by subsidiary peaks alongside arterials and ring road
intersections.
Davies[34] extended Garner’s model, going beyond the consideration of accessibility
and rent theory. He uses the varying accessibility requirement and rent-paying
abilities of different business to link with the previous identification of three
distinctive kinds of retail complexes (Centres, Ribbons and Specialized Areas). This
overlaps with the hierarchical tenets of central place theory. Garner, Davies and other
land value modellers have been strongly criticized over the model’s assumptions
regarding accessibility, segregation of land use, a free market in property and again
like central place theory, the existence of the economist’s “optimizing man”. The
model ignores Curry’s[21] “summation man” and believes individuals to be fully
informed utility maximizes who are not influenced by non-economic forces, including
whim, tradition, aesthetics, prestige and sheer ignorance. The model ignores
imperfections that occur in the property market as pointed out by Brown[8]:
The developers of planned shopping centres ensure that the tenant mix and rentals
paid are carefully controlled, with the highest order anchor stores often paying the
lowest rentals per square foot. He concludes a free market in property does not exist,
therefore, nor are rent curves smooth.
As with central place theory and spatial interaction theory discussed earlier, land
value theory fails to take the temporal dimension into account. Land use activities
occupy locations sequentially and once established they can prove difficult to move.
In an urban area there will always be non-conforming or outmoded land uses
“interfering” with the logic of bid rent theory. Modern cities such as London are
plagued with pedestrianization, congestion and restrictions on vehicular access and
parking and, in addition, the centre has lost much of the accessibility expressed in
land value theory. This has led to the existence of positive and non-negative rent
gradients, which do not always decline with distance.
Fine tuning by land value modellers in recent years have made substantial attempts to
overcome the criticisms discussed earlier. However, Brown[8] highlights that the
attention has focused on the residential sector, and that studies of retailing and internal
structure of business districts being conspicuous by their absence.
The principle of minimum differentiation
The principle of minimum differentiation originates from Harold Hotelling’s[3]
classic paper “stability in competition”. The prin-ciple suggests, in a retailing context,
that a given number of stores operating within the same market sector will achieve
superior performance if they are clustered together.
In his original model, Hotelling makes key assumptions concerning location, pricing,
transport costs, consumer behaviour, conjectural variations, market shape, and
number of competitors; which in reality are not always consistent[35]. Brown[6, 8]
believes, despite the interesting empirical work that supports the clustering of
compatible retail entities, the bulk of the studies support Eaton and Lipsey’s[35]
conclusion that:
The Hotelling model is not able to explain the local clustering of firms … Indeed,
once the assumptions are relaxed very slightly in the direction of realism, Hotelling’s
model predicts that no two firms should be clustered together.
Although Hotelling’s work is strongly criticized, there has been a considerable
amount of research effort since publication. In a retailing context a number of
empirical studies support the principle of minimum differentiation’s hypotheses that
sellers of the same or similar categories of merchandise tend to cluster closely
together. These studies have been carried out in a number of different countries,
incorporating a variety of statistical techniques while referring to a wide range of
retailing trades. Brown explains that high order retail trades, like ladies outfitters or
department stores, exhibit the most clustered distributions, whereas low order retail
businesses such as convenience stores and personal services, are the least
agglomerated of all. However, it fails to explain why out-of-town supermarkets often
out-perform supermarkets in the centre of the business district in close proximity to
their competitors.
In recent years, formal attempts to relax the traditional assumption of Hotelling’s
perfectly informed and, thus completely rational, retailers and consumers, have
provided a means of rehabilitating the principle in a retailing context. Arguably, the
introduction of uncertainty and risk-reducing behaviour into Hotelling’s model has
improved the accuracy of the principle. Brown[6] suggests that the reduction of
uncertainty has provided the mechanism for mending the principle of minimum
differentiation and melding it with the best known and inductive insights into retail
location at the micro scale
Methodology
In order to pursue the aims and objectives outlined in the introduction, a content
analysis of information gained from a multimethod research process was conducted to
establish the underlying trends in location procedures used by UK grocery retailers.
The first stage involved an in-depth interview with an acknowledged industry expert
in order to establish an understanding of the industry and its terminology. The second
stage involved semi-structured in-depth interviews with two major grocery retailers
based around secondary research and the interview with the industry expert. The third
stage involved the administration of a questionnaire to 16 grocery multiples based
around secondary research and the interviews in stage one. The questionnaire was
designed to gather information on location procedures used by the retailers studied.
The directors of supermarket operations at 16 of the major UK grocery retailers were
targeted with the questionnaire. The directors where asked to indicate their location
procedures, frequency of use, factors considered in assessing a store’s location, their
knowledge of location theory and data sources used. Open-ended questions were
asked concerning the levels of accuracy, anticipated changes in procedures used and
market saturation. A 25 per cent response rate was achieved for the questionnaire. In
addition, two grocery retailers sent information regarding their location procedures
instead of completing the questionnaire.
To summarize, five major UK retailers were studied, accounting for in excess of 50
per cent of UK grocery retailing turnover. Due to the requirement for confidentiality
these will henceforth be described as companies A to E.
As grocery retailing in the UK approaches what is often called “saturation”, the
detailed operationalization of location models forms part of a retailer’s competitive
advantage. Respondents, while co-operative, where obviously reticent to fully
elaborate on the way in which their in-house models were used in practice and the
specific forms of input data that drive such models. This inevitably tends to constrain
the level of insight that can be elaborated from their results.
Location assessment procedures used in UK grocery multiples
The research identified that five different location assessment procedures were being
used by the sample retailers. These were:
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Checklist analysis. The checklist consists of a simple list of relevant factors
regarding population, accessibility to the proposed store, competition and cost.
Checklist analysis is often informal and represents a picture in the mind of the
researcher. A typical checklist can be found in McGoldrick[36].
Analogue method. The analogue method attempts to predict turnover of a
proposed site by assessing it against existing stores′ performance after
adjusting for differences between the proposed site and existing stores. Such
methods are not new and can be credited to the work of Applebaum[37] as far
back as 1968. In a grocery retailing context, the main areas of examination are
customer surveys, competitive analysis and the collection of demographic and
socio-economic information. More recently, Geographic Information Systems
(GIS) and loyalty card data have been incorporated into this method.
Financial analysis. This simply studies the financial aspects of the
development and operation of a store, comparing the development costs in
terms of site acquisition, building and operational costs against estimated
turnover. This approach does not take into account the competitive
environment or consumer behaviour patterns as it is intended to serve as a
complementary procedure rather than an assessment procedure in its own right.
Regression modelling. In a grocery retailing context, multiple regression
models have been developed around a number of determinants, i.e.
competition (C), trading area composition and characteristics (T), the site
accessibility (S), store physical attributes (A), and catchment area
demographics (D); to estimate potential turnover (T/O) of a store. In algebraic
terms: T/O = f[C, T, S, A, D]. The regression coefficients indicate the effects
of each determinant on turnover, and the corresponding beta weights show the
relative importance of each determinant. Regression models used by the
sample retailers were SITEX (a store location model developed for a major
retailer in the 1980s), SLAM, and a model developed in-house.
Gravity modelling. The gravity model used by the retailers in the sample stems
from the deductively derived spatial interaction theory, being a modified
version of Reilly’s[4] Law of Retail Gravitation.
From the location assessment procedures used by the sample retailers, only gravity
modelling stems from a deductively derived (or derivable) theories of retail location,
that is spatial interaction theory. Checklist analysis, the analogue method and
financial analysis, can be best classified as techniques and regression modelling as a
mechanism rather than deductively derived (or derivable) theories of retail location.
There are, however, slight similarities between the analogue method and central place
theory, in that central place theory states that the nearest store is patronized and the
analogue method’s use of time bands with the majority of customers coming from the
nearest time band. The way financial analysis assesses the viability of a site is to some
extent anchored in the theory of land value. However, while financial analysis and the
analogue method have similarities with deductively derived theories of retail location,
they are not part of them.
Of the five procedures identified in the research by the sample retailers, all five (A to
E) used the checklist analysis, analogue approach and financial analysis, in one form
or another. Three retailers (B, D and E) from the sample used regression modelling,
while gravity modelling was only used by only two (A & B). This is shown in Table I
below.
The research indicated that the different location assessment procedures were
complementary to each other, being used in sequence to maximize their overall
effectiveness. This sequence is shown diagrammatically in Figure 1.
The sequence of procedures starts initially with checklist analysis consisting of map
work involving a detailed study of the proposed site and its catchment area; looking at
the road system, urban development, the location of other supermarkets and urban
distribution. This preliminary analysis enables the retailer to screen a large amount of
potential sites (100+) with only the more suitable ones being analysed further, thus
helping restrict the cost of location assessment. Checklist analysis has limitations in
its inability to predict turnover, but the way in which it is used as a screening tool
presents a cost-beneficial assessment method to the grocery retailer.
After the initial checklist procedure, the retailers studied then applied the analogue
approach. First, the retailers undertake an in-store intercept interview of customers at
their existing stores. This normally entails 1,000 such interviews, which is a
continuous process with each existing store’s customers being surveyed every two
years. The results of the surveys provide the retailer with information about the
origins of the store’s customers, their spending characteristics, the demographic
composition, shopping behaviour and media usage habits. Generally the survey
includes questions on the following topics:
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customer address;
customer socio-economic characteristics: age, income, occupation, race, etc;
customers’ patronage of the competition: identification of the major
competitors;
shopping behaviour: frequency, amount spent etc;
media habits: newspaper readership, advertising awareness and recall.
Second, the retailer identifies current and future stores of their competitors, which are
then visited to develop a quantitative and qualitative database of information on
competitors’ stores. Quantitatively, their distances in drive-time from the proposed
site are calculated and their selling square footage estimated. When future
competitors’ stores are assessed, the retailers studied used general press information
and building contract leads from organizations such as ABI. Qualitatively,
competitors are evaluated in terms of store appearance, merchandise presentation and
quality, location and service levels. Third, demographic and socio-economic
information about a proposed store’s catchment area and its component parts are
collected by the retailer. The retailers in the sample all receive regular updates of UK
geo-demographic data on computer disk or CD-ROM, mainly classified on a
residential neighbourhood basis together with a clustering of environmental, personal
and household variables (ACORN), or alternatively by types of neighbourhood plus
lifestyle groupings (MOSAIC), or other computerized bibliographic search services
(e.g. ABI/INFORM). The geo-demographic data is compared with the results of the
in-store customer survey in order to identify certain trends. The comparisons will
identify the average spending patterns, socio-economic group, car and house
ownership. This in turn will enable the retailer to estimate the potential market share
within the store’s catchment area and potential returns. Recent trends have seen three
major grocery retailers introduce store loyalty cards while a further major retailer is
assessing their viability. The information gained from these loyalty cards will
inevitably be incorporated into location assessment procedures in that much of the
customer data stored electronically is fundamentally similar to the data suggested
earlier.
It can be said that the analogue sales forecasting technique is only as strong as:
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the quality of the data collection effort;
the experience of the analyst; and
the analyst’s ability to demonstrate commonsense and good judgement in
forecasting sales.
However, Drummey[40] believes that this does not mean that it is not effective since
the sensitivity of judgement can also be a major asset. The authors’ research agrees
with Drummey. It shows that retailer C’s store location assessment procedures are
based around this approach, using financial and checklist analysis to assist it. They
reported a significantly high level of accuracy from the analogue approach and intend
to continue with it. Retailer C found it particularly useful in locating sites for their
new discount store concept where the use of gravity and regression modelling is not
possible because of the low number of analogue stores[40, 41].
After the analogue approach the sample retailers location procedures varied. Retailer
A then used gravity modelling and financial analysis; retailer B used gravity
modelling, regression modelling and financial analysis, and was the only retailer in
the sample to use all five procedures; retailer C only used financial analysis in
addition to the checklist and analogue analysis; retailers D and E both used gravity
modelling and financial analysis after checklist and analogue analysis.
The research on the whole agreed with the previously stated advantages and
disadvantages of sales forecasting models, including regression modelling and gravity
modelling that Rogers[41] has identified. However, there are some contradictions.
Regression modelling as expected, requires a database of at least 30 stores per model
and is therefore irrelevant to smaller retailers. Nevertheless, the research showed a
regression model successfully developed for grocery retailer E operating only 20
stores (at the date of the research). Here, 19 stores had built up the database of
information to predict the “control store”. This was repeated, using each store as the
control. Additionally, the level of “abuse” and “misuse” that Rogers believes occurs
during the initial development has been overcome by retailer E, who employed a
regression modelling expert who had experience in developing over 20 such models.
Thus showing the importance of the learning curve when developing regression
models.
The volume of detailed fieldwork needed for gravity modelling is classed as a major
disadvantage of this location assessment procedure[41]. However, in a grocery
retailing context, the majority of the fieldwork research needed for gravity modelling
has already been undertaken for the analogue analysis.
The research shows that the procedures used by major grocery retailers operating
within the UK, do not rely on one approach, but a combination of approaches. This
combination of approaches reduces the risk involved in store location assessment by
comparing their predicted turnovers. The initial use of checklist analysis reduces the
cost and time required to assess a large number of stores before using the analogue
approach, regression or gravity modelling. These, in comparison, have a greater
degree of accuracy but require more time and money. These procedures provide the
retailers in the sample with a high level of accuracy for predicting a store’s potential
turnover. They are comprehensive and relatively easy to understand. The information
required to use these procedures is readily available to the retailers. There is no one
“best” method of assessing retail location.
The research also looked at other models that have been developed to assess a store’s
location. First, the Automatic Interaction Detector (AID) initially developed by
Sonquist et al.[42]. Heard[43] suggested that a combination of the AID and multiple
regression techniques could be used to provide criteria for judging outlets and
assessing the potential of new sites. The main feature of this approach is the
measurement of approximately 50 factors which may influence turnover and the
inclusion of attitudinal data, derived from a sample survey of shoppers and
quantifying factors such as the appearance and image of a store. This approach helps
to understand the relationship between measures of performance and the predictor
variables[37]. It provides a clear way of searching for structure among the variables.
However, at least 1,000 (analogue) stores are required for the reliable use of this
technique which is currently in excess of the maximum number of stores operated by
any of the major UK grocery retailers.
Second, the MCI (Multiplicative Competitive Interaction Model), is an extension to
the basic form of spatial interaction models discussed earlier. This was developed by
Nakanishi and Copper[44], building on Huff’s model to include more explicitly the
specific competitive situation. Nakanishi and Copper demonstrated that the
parameters of the model could be effectively estimated using the least squares
approach, as in multiple regression analysis.
However, the research undertaken by the authors of this paper showed that, unlike the
gravity model, the majority of grocery retailers are unaware of the MCI model and/or
unwilling to try new ideas which have had limited empirical testing in this context.
Nakanishi and Copper did not relate the MCI model specifically to retail patronage
forecasting. Although used by US firms in a retailing context[45], the research
showed that grocery retailers operating within the UK believed that the consumer
spatial behaviour in cities and the spatial structure of shopping opportunities differs to
that found in the US. One retailer believed models developed for the US market
cannot be easily adapted to the UK market, this view was also expressed by the
industry expert.
Third, the multiple store location (MULTILOC) model, developed by Achabal et
al.[45] extends the MCI model discussed above to the multistore location problem
utilizing a random search procedure combined with an interchange heuristic to
identify optimal or near-optimal sets of locations. Although the MULTILOC model is
used by retailers in the US, the authors’ research showed that none of the sample
retailers operating in the UK actually use this approach. In fact, research showed that
just like the MCI model, and unlike the gravity models, the majority of grocery
retailers are unaware of this model or unwilling to adopt it.
Conclusion
To some extent the research only tells us “what is obvious” in that retailers use a
series of models and often use them in combination and in a clearly defined sequence.
However, deductively derived theories give a useful background to the understanding
of location research. However, with the exception of spatial interaction theory gravity modelling, the theories discussed earlier are not used by the sample retailers.
Instead they used a combination of checklist analysis, analogue analysis, financial
analysis, gravity modelling and regression modelling. The grocery retailers believed
their current location assessment procedures to be sufficiently accurate, generally
predicting turnover within ±10 per cent. Retailer A stated that:
No changes are anticipated to the procedures employed within this department (store
location department). All tools/procedures are well tried and tested to cope with any
subtle changes in market trends over the coming years.
Following on from this, retailer C believes that:
Store location assessment cannot be 100 per cent accurate and expects location
assessment procedures to move away from being an exact science over the coming
years and be based more around managerial judgement rather than mathematical
modelling.
The sample retailers are not developing new procedures, instead they are modifying
their current approach to location assessment by the incorporation of geographical
information systems (GIS) into their store location assessment procedures. This trend
is expected to accelerate in the future in both the grocery and non-grocery retail
sectors mainly because new procedures take time to develop and implement, require
relatively large amounts of finance and often have little empirical testing. This is
particularly apparent in a grocery retailing context. However, academics will continue
to make modifications, improvements and provide alternatives to the theories
reviewed in this research. These will inevitably suffer from a lack of empirical testing
in a retailing context within western economies as companies are becoming less
willing to “risk” developing new location procedures because of the time and cost
constraints.
Further to this, there is a noticeable slowdown in grocery retailers store expansion
programmes as the UK market nears saturation level. Although grocery retailers are
combating this by developing new concept stores, this causes problems in location
assessment as the use of gravity and regression modelling is not possible (due to the
lack of a databank of analogue stores) and the use of checklists, financial analysis and
analogues have to be used. This arguably reduces the need for research into location
theories and procedures within the UK grocery retail market.
The future of retail location theory
As the UK grocery market becomes increasingly saturated, the development of new
stores on new sites would diminish in importance. The need for more sophisticated
location assessment procedures would then become significantly less important to the
retailers in their pursuit of growth strategies. Broadly, two strategic options are open
for growth within their existing product formats in this emerging climate.
First, retailers would embark on revamping or even re-building existing stores on their
existing sites. The concept of the store re-vamp consisting of redecoration, new
fixturization and re-merchandising has been around for many years. The concept of
re-building on the existing site - “build and smash” - is newer and involves building
what is essentially a new store on the existing store site, and on completion,
demolishing the old store. This does not involve a location decision as we have
known it, but more of an evaluation of the future potential of the existing site as a
result of a capital injection. Thus, location assessment procedures will inevitably be
modified to meet the assessment requirements of this phenomenon.
The second strategic option is the expansion into non-domestic markets. The move by
UK-domiciled retailers overseas has been examined by numerous authors and is
comprehensively reviewed by Akehurst and Alexander[46]. From the perspective of
location theory, those countries into which UK food retailers move can be classified
into:


Countries which are rich in location data from existing stores. Analogue data
would, however, not be readily available to any new entrant unless the mode
of market entry was by acquisition or joint venture with an indigenous partner.
Other forms of location data, typically of the geo-demographic type, could be
acquired from research organizations to help with the location decision.
Countries with rich geo- demographic data would include the nations of
northern Europe and north America. This would imply that location models
used by retailers in the UK could be adapted to the new market environment.
Countries which lack sophisticated geo- demographic data and where the
analogue data of partners may be of doubtful quality and quantity, such as the
emerging nations of eastern and central Europe. The issue then arises as to
what is the future for location theory in these emergent states where westernstyle retailing will inevitably develop over time. Retailers expanding into
those countries with less available data will presumably revert back to using
location theory in conjunction with checklist analysis along with a less dataintensive analogue approach provided that the method of entry involves local
partners and those partners have suitable historical data.
To attempt some prediction as to the type of location theories that might have
credence in the emergent nations is difficult. Clearly the inherent simplicity, limited
data requirements and to some extent the subjectivity of the checklist, makes it a
favourite as a potential method. The efficacy in the use of the analogue method is
dependent on base data from existing retail operations. Direct entry onto “green field”
sites in central and eastern Europe would effectively prevent the use of this method
until such time as data is built up from stores in that country or countries of similar
economic and social development. However, if entry is effected by joint venture or
acquisitions, then, provided that the indigenous retailer has the necessary base data,
the analogue method becomes a practical possibility in the short term. A similar set of
criteria would apply to financial analysis, but this method may be more capable of
being implemented in the shorter term on the basis of a more limited number of
comparative stores. However, unlike the UK, where it is essentially used as a
complementary measure to other forms of assessment, financial analysis may in the
short term have to be used as a primary store assessment method. Using regression
modelling, and in particular its in-house variants, would seem at first observation to
be problematic in the emergent countries. However, the collection of vast quantities of
economic data was a feature of the former command economies and the question to be
posed is whether or not this data is capable of being utilized in a modern competitive
environment. Basic catchment area data would have existed, site accessibility is
calculable, and store physical attributes are to a large extent self-determined. Thus,
the practicality of the use of regression modelling may lie more in the manipulation of
the data and in the weighting of the various attributes in a new context rather that the
existence of the raw data itself.
There is little doubt that, over time, some of the basic tenets of location theory will
come into use in some form or other in the new Europe. Indeed, some preliminary
research into, for example, the Czech Republic, has found some interesting evidence
of central place type relationships between overall levels of retail activity and the
existence of commercial and cultural infrastructure[47]. Clearly the notion of central
place and spatial interaction will have some degree of applicability in the virgin
retailing landscapes of eastern and central Europe, especially when coupled with the
relatively low per capita incomes and low levels of car ownership and subsequent
population immobility. Indeed, the sheer vastness of the former Soviet Union would
suggest an almost classical case of Christaller’s[5] “unbounded and featureless plains”.
What is clear, however, is that we know so little about retail location outside of the
developed nations, and this must therefore be an area in which the retailing academic
and practitioner community will need to study as we reach the end of the millennium.
This may act as a catalyst for re-visiting the research into the theories of retail
location and perhaps this may indeed aid our understanding of retailing at a global
level.
Table ILocation procedures used by the sample retailers
Figure 1Grocery location assessment process
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