From its first Red Lobster in 1968, the chain has grown to 705 locations, with over $2.6 billion in U.S. sales annually. The casual dining market may be crowded, with competitors such as Chili's, Ruby Tuesday, Applebee's, TGI Friday's, and Outback, but Red Lobster's continuing success means the chain thinks there is still plenty of room to grow. Robert Reiner, director of market development, is charged with identifying the sites that will maximize new store sales without cannibalizing sales at the existing Red Lobster locations. Characteristics for identifying a good site have not changed in 40 years; they still include real estate prices, customer age, competition, ethnicity, income, family size, population density, nearby hotels, and buying behavior, to name just a few.
What has changed is the powerful software that allows Reiner to analyze a new site in 5 minutes, as opposed to the 8 hours he spent just a few years ago. Red Lobster has partnered with MapInfo Corp., whose geographic information system (GIS) contains a powerful module for analyzing a trade area (see the discussion of GIS in the chapter).
With the U.S. geo-coded down to the individual block, MapInfo allows Reiner to create a psychographic profile of existing and potential Red Lobster trade areas. "We can now target areas with greatest sales potential," says Reiner. The U.S. is segmented into 72 "clusters" of customer profiles by MapInfo. If, for example, cluster #7, Equestrian Heights (see MapInfo description below), represents 1.7% of a household base within a Red Lobster trade area, but this segment also accounts for 2.4% of sales, Reiner computes that this segment is effectively spending 1.39 times more than average (Index = 2.4/1.7) and adjusts his analysis of a new site to reflect this added weight.
The majority (92%) of the Red Lobster restaurants fall into three of these classes. Which three classes do you think the chain has the most restaurants in? Why? analysis to help decide whether to purchase land and build, or to remodel an existing facility. Currently, Munday is considering four European cities for Hard Rock's next expansion. Although he could not provide the names, for competitive reasons, the following is known:
Discussion Questions *
1. From Munday's Standard Market Report checklist, select any other four categories, such as population (A1), hotels (B2), or restaurants/nightclubs (D), and provide three subcategories that should be evaluated. (See item C1 [airport] for a guide.)
2. Which is the highest rated of the four European cities under consideration, using the table?
3. Why does Hard Rock put such serious effort into its location analysis?
4. Under what conditions do you think Hard Rock prefers to franchise a cafe?