4 ms·

Why do competitors open their stores next to one another? [4min video]

7 points by johnx123-up 14y ago

patio11 14y ago
This is interesting in a fake world with flat demand. In the world we actually live in, the world is very lumpy, and information about the disposition of lumps is not exactly trivially available, but information about the disposition of competitors is. There are boring real-estate specific reasons why having two coffee shops on the same intersection is very unlike having one very big coffee shop at the same intersection, by the way, chiefly with regards to traffic flow. Traffic flow is a key consideration for "non-destination" commercial stores, like Starbucks. You don't get in your car to go to Starbucks, you get in your car to go to work, home, or your "third place" for the day -- perhaps that swanky restaurant you're visiting with the missus. (You will note that work/home/third place are statistically unlikely to be on corners, principally because there is a price premium for corners, given that they are commercially much more valuable for non-destination commerce than mid-street.) Any Starbucks which catches your fancy while you're in your car can catch your business, but they're overwhelmingly more likely to be a) directly on your path between A and B and b) require a minimum of complicated driving to deviate from your path to their cut to the street (i.e. you statistically prefer a right turn straight into a store on your right versus doing a U-turn onto the other direction of a busy street, etc). Given that you want simple turns into your place of business, it's trivially obvious why one would prefer having two streets for ingress/egress versus one street, which is only available on a corner. (Fun driving game: try to find any retail establishment on a corner which is a location that the average customer would specifically get into their car to go there. Fun variant: attempt to convince them to sell their property to you, because you're already 50% of the way to flipping it to a bank/fast food restaurant/WalGreens profitably.) There's another wrinkle: all corners are more valuable than non-corners, but all corners are very much not equally valuable. How valuable a given corner is for a particular business is a very hard problem to solve for. Some firms and individuals are very good at solving for it. A very effective way to piggyback off of their expertise is to simply grab the corner opposite of them: while the lumpy world of geographically distributed demand for coffee is very non-trivial to access, the simple rule "If you see a Starbucks, to a first approximation, siting our next coffee shop across the street from it will be profitable" generally works.
- euroclydon 14y ago
  Where I went to college there was a Starbucks on the most prominent corner of the most prominent street that runs directly north of and within spitting distance of the main campus. An independent coffee shop opened up on the opposite corner (actually one unit down from the corner). Within a year, the Starbucks had lost so much business that it was closed down.
- unreal37 14y ago
  In Canada, Tim Horton's is much more popular than Starbucks. There is one intersection I know that has THREE Tim Horton's across from each other on three of the four corners. As you said, its to capture traffic going one way and cars/people are unlikely to cross the street so sales is effectively doubled at the three locations that it would be at one. Also this technique works for businesses that always have a line up (like Starbucks does in some places) as a distributed way to serve more customers. No one wants to wait 10 minutes for a coffee, but if there are two Starbucks across from each other they will only have to wait 5. I always thought the grouping of unrelated businesses had more to do with attracting more customers from farther away, as opposed to this Nash Equilibrium theory. So if there are five car dealerships on one street, customers will come from 50 miles away to go car shopping there instead of only one car dealer only attracting local customers. So the "car shopping street" is what people go to, not that specific dealer. I don't know if its this way everywhere, but in Toronto there is one street that sells expensive clothes (Prada, Louis Vuitton, Gucci, etc.) and all those stores are within a block of each other, one street that sells computer stuff, one street that has a lot of restaurants side-by-side-by-side, one street that has a lot of dance clubs... Is it Nash Equilibrium or is it new businesses going where their target market already is? If you want to open a dance club, do you go where there are no dance clubs, or where there are 5 others and you know there will be people on a Saturday night?

7 points by johnx123-up 14y ago

This is interesting in a fake world with flat demand. In the world we actually live in, the world is very lumpy, and information about the disposition of lumps is not exactly trivially available, but information about the disposition of competitors is. There are boring real-estate specific reasons why having two coffee shops on the same intersection is very unlike having one very big coffee shop at the same intersection, by the way, chiefly with regards to traffic flow. Traffic flow is a key consideration for "non-destination" commercial stores, like Starbucks. You don't get in your car to go to Starbucks, you get in your car to go to work, home, or your "third place" for the day -- perhaps that swanky restaurant you're visiting with the missus. (You will note that work/home/third place are statistically unlikely to be on corners, principally because there is a price premium for corners, given that they are commercially much more valuable for non-destination commerce than mid-street.) Any Starbucks which catches your fancy while you're in your car can catch your business, but they're overwhelmingly more likely to be a) directly on your path between A and B and b) require a minimum of complicated driving to deviate from your path to their cut to the street (i.e. you statistically prefer a right turn straight into a store on your right versus doing a U-turn onto the other direction of a busy street, etc). Given that you want simple turns into your place of business, it's trivially obvious why one would prefer having two streets for ingress/egress versus one street, which is only available on a corner. (Fun driving game: try to find any retail establishment on a corner which is a location that the average customer would specifically get into their car to go there. Fun variant: attempt to convince them to sell their property to you, because you're already 50% of the way to flipping it to a bank/fast food restaurant/WalGreens profitably.) There's another wrinkle: all corners are more valuable than non-corners, but all corners are very much not equally valuable. How valuable a given corner is for a particular business is a very hard problem to solve for. Some firms and individuals are very good at solving for it. A very effective way to piggyback off of their expertise is to simply grab the corner opposite of them: while the lumpy world of geographically distributed demand for coffee is very non-trivial to access, the simple rule "If you see a Starbucks, to a first approximation, siting our next coffee shop across the street from it will be profitable" generally works.

euroclydon 14y ago
Where I went to college there was a Starbucks on the most prominent corner of the most prominent street that runs directly north of and within spitting distance of the main campus. An independent coffee shop opened up on the opposite corner (actually one unit down from the corner). Within a year, the Starbucks had lost so much business that it was closed down.
unreal37 14y ago
In Canada, Tim Horton's is much more popular than Starbucks. There is one intersection I know that has THREE Tim Horton's across from each other on three of the four corners. As you said, its to capture traffic going one way and cars/people are unlikely to cross the street so sales is effectively doubled at the three locations that it would be at one. Also this technique works for businesses that always have a line up (like Starbucks does in some places) as a distributed way to serve more customers. No one wants to wait 10 minutes for a coffee, but if there are two Starbucks across from each other they will only have to wait 5. I always thought the grouping of unrelated businesses had more to do with attracting more customers from farther away, as opposed to this Nash Equilibrium theory. So if there are five car dealerships on one street, customers will come from 50 miles away to go car shopping there instead of only one car dealer only attracting local customers. So the "car shopping street" is what people go to, not that specific dealer. I don't know if its this way everywhere, but in Toronto there is one street that sells expensive clothes (Prada, Louis Vuitton, Gucci, etc.) and all those stores are within a block of each other, one street that sells computer stuff, one street that has a lot of restaurants side-by-side-by-side, one street that has a lot of dance clubs... Is it Nash Equilibrium or is it new businesses going where their target market already is? If you want to open a dance club, do you go where there are no dance clubs, or where there are 5 others and you know there will be people on a Saturday night?