Today I was buying gas, and went to my usual gas station. Now, this station sits at the intersection of two roads, and on this intersection there are THREE GAS STATIONS on the corners (corner #4 is a house). Usually, one of the gas stations is a penny or two higher than the other two - I can only assume that they intentionally price themselves a penny less, because I have never seen it any other way.
I don’t understand how it makes good business sense to have three stations right on top of each other. Don’t they cancel out each others’ business? Wouldn’t it make more sense to put your station at least a few blocks away from direct competition?
I’ve noticed that, frequently, Home Depot and Lowe’s follow each other in location, and often Rite Aid, Walgreens, CVS, etc. tend to be clustered together. Fast food places, that I get; they are all fast food but appeal to different tastes. But how do these directly competing businesses survive? Or does the very fact that they are competing help their business?
As far as gas stations go, they may be limited to certain intersections by zoning laws. The local city/county may want want fewer noisy intersections that stink of gasoline fumes.
Well, the town would want the rateable anyway, they would encourage another gas station or grocery store so they can collect the taxes as long as it fits their Master Plan and zoning laws. But from the business’s point of view, I don’t understand the business logic.
So there’s a Lowe’s in the shopping center, and Home Depot execs think, “Hmm, people are coming to Lowe’s anyway, maybe they’ll see our HD sign and come to our store instead?” If it were me, I’d want my HD store to be in an area where there was no direct competition, so people would choose MY store for convenience (HD can usually beat a local hardware store in prices anyway); I wouldn’t want to lose half my customers to Lowe’s because they’re on the other side of the intersection. But I don’t get how a company can choose that location over another, when it seems counter-intuitive. What am I missing?
Agglomeration of resources. It’s especially evident in certain types of businesses such as new and used car dealers, RV dealers, heavy equipment rental, and other “mechanical commercial” uses. When people shop for cars, they like having a large number of dealers in a certain location; thus, the “Miracle Mile” and “Auto Row” phenomenon. In exurban areas, clusters of “rugged retail” or “redneck retail” uses are common; shed dealers, bobcat rental, heavy truck dealers, trailer dealers, mobile home dealers, and the like. They’re all businesses that cater to the same demographic; working class exurban/rural.
The same criteria that makes a location ideal for one gas station (high amount of traffic, corner location, easy access) makes it a good location for other gas stations.
The formulas and criteria used for site selection by retailers, restaurants, banks and the like do not consider the proximity of competitors. For example, if a location has X amount of vehicles driving by a site every day, Y number of households within three miles of a site, Z number of households with an income of over $75,000 a year, Q number of people employed within three miles of the site, and R number of people employed within three miles of the site with salaries of over $50,000 a year, it’s going to meet the criteria for both Thingamajig Retailer A and Thingamajig Retailer B. Basically, if it’s a good location for Home Depot, it’s also probably a good location for Lowe’s too. Good corner for Walgreen’s? That’s what the site selection studies performed by CVS and Rite Aid will also say.
This makes sense, but why DON’T they consider the other competitors nearby? If there is already a Lowe’s across the street, doesn’t their number of nearby households with the right income level get cut in half (since the other half are going to Lowe’s instead of HD)? Or is HD hoping that they can lure all of Lowe’s customers away? I mean, the first store there made a good business decision; but once they are there, why do the other ones move in so close?
In suburban areas, Starbucks, Tim Horton Donuts, and Dunkin Donuts will far more often than not be located on the side of the street that gets more traffic in the morning.
National chain drug stores will ALWAYS locate in a freestanding building on a corner lot, and almost always at a corner with a traffic signal. If the chance at a better location emerges, they’ll take it, even if it means abandoning a successful location a block or two away that was built just a few years earlier.
Many chains locate only in neighborhoods dominated by a certain ethnicity, for example Pizza Patron and Church’s Fried Chicken. Some mainly locate in areas with a large population of college students, such as Mellow Mushroom.
Ikea will not locate in a community with strict zoning regulations, no matter how good the location or market may be, because they insist on a blue building (many cities and towns limit the use of primary colors) and a high-rise sign (a rapidly growing number of cities and towns in the US have very strict sign regulations). Ikea almost opened a store in Denver a decade ago, but Denver’s suburbs have among the strictest architectural design and signage regulations in the United States. They finally found a location in Centennial, where a special zoning district was created just for Ikea.
I’ve noticed this on Ventura in Studio City: Sushi Row. I swear there’s a sushi restaurant every th storefront. I can’t imagine how they all survive…or WHY they decided to cluster like that.
Similar types of businesses use very similar site selection criteria. Often, there may only be one suitable location that meets the criteria for each retailer. Thus, a good location for Lowe’s will also be a good location for Home Depot. If Home Depot locates a bit further away, to be away from the competition, they might find themselves getting even less business than they would get next to Lowe’s, because the “dynamic” will be different; for example, slightly less traffic, a site that’s not as easy to reach, or a location a bit further away from an expressway exit that would be a major generator of traffic for the store.
Also understand that HD and Lowe’s differentiate themselves quite well. Lowe’s positions itself as being slightly more upscale and female-friendly than HD, while HD positions itself as being more professional oriented. HD stocks American-made Levitton switches and outlets; Lowe’s carries Chinese-made Cooper equivalents. HD’s house paint is Behr; Lowe’s is Valspar. HD’s house tool brand is Husky; Lowe’s is Kobalt. Each has their fans.
Hutto, Texas, a suburb of Austin. has a Lowe’s and Home Depot right next to each other. Why? For a while, it was the fastest growing city in the state, and the housing stock is dominated almost exclusively by owner-occupied single-family houses. However, Hutto doesn’t have a supermarket. There’s only two major supermarket chains in the Austin area, HEB and Randall’s. Hutto is considered too close to an existing massive HEB in Round Rock, and too middle-class for upscale-leaning Randall’s.
I used to work at a Lone Star Steakhouse. They were nearly always right next to an Outback Steakhouse. Ownership claimed it was deliberate, because it piggybacked on people’s memory of the other steakhouse when they wanted steak, and would reinforce that geographic location.
This was the first thing that came to my mind on opening the thread. If you’re selling the sort of thing that people aren’t buying everyday, when they do buy such items they’re likely to think “where do people go to buy <x>?” and go there first - so that’s where you want your store to be.
This is actually an active field of research in economics, whether it’s more advantageous for businesses to cluster together or be evenly dispersed. Here’s an NPR Story about it.
This also happens a lot with small businesses. For example, there are a huge number of antique stores on Notre-Dame Ouest in Little Burgundy, and Plaza Saint-Hubert in the Petite-Patrie is well-known for being the exclusive province of wedding dress stores, of all things. I guess it’s because once people realize that’s where you go to go antiquing/wedding dress shopping, that’s where it makes sense for new antiques stores/wedding dress stores to set up, because people will often be going from store to store to browse or comparison shop.
I noticed that about hospitals, at least in Chicago. If you look at them (before they all started closing in the 80s), they all tended to be in the same area. Often in the same block.
Now they closed a lot of them and the reason was they are too close and duplicating service. Most of them date from the 1910s or later so I wonder if the car had something to do with it.
I was wondering about the smaller business aspect of this myself. In Austin there’s an area with a whole bunch - dozens, I swear - of tile and stone yards and stores. It’s great for the consumer; we didn’t have to drive all over Austin looking at different stores so I guess that’s one way it works for the retailer.
Here in the SF Bay Area, I notice that all the hydroponic supply stores :dubious: seem to be clustered. Near the hospitals, for some reason.
If it’s a major intersection in an urban area, then they want to catch traffic coming from the opposite direction as the guy across the street.
I live in L.A. and there are some intersections where it is no small task to make a left turn into a station that’s on the wrong side of the road - worse still if the road has a median. I always look for stations on the right-hand side.
It does get weird sometimes especially with places like Duncan Donuts and Starbucks. There is a joke in the movie Best in Show about how it took the really obnoxious Type A yuppie couple a long time to meet because he was always noticing him from the Starbucks across the street because she went into the other one and vice versa. They kept switching to the other Starbucks at the same time to try to hook up and messed it up for a while.
There is a place not far from here where you can see four Dunkin Donuts within a 10 minute walk of one another. Two are free standing locations, one is in a gas station, and another is in a supermarket. Dunkin Donuts is based in Massachusetts and is insanely popular but this is a very suburban area and not urban. There has to be lots of market cannibalism going on.
Yes - assuming there is some variety between them, they collectively offer the consumer a venue in which they can browse a wider range of choices than in a single store - footfall in the area will increase because people will go there to shop around, and increased footfall can mean increased sales for all of the stores.