Trader Joe's Retail Site Selection

Introduction:

Recently the Trader Joe’s Company has been particularly successful. The current success of the company has established an interest in opening another store. The Minneapolis, Saint Paul area in Minnesota has been a specific area of success for the company and is an area of particular interest for a new store location. Investigation of current demographic and marketing trends in Hennepin and Ramsey County is necessary in order to determine the most desirable location for a new store in the Minneapolis, Saint Paul area. Upon Investigation of several marketing and demographic factors in Hennepin and Ramsey County, three potential Trader Joe’s Store locations will be determined and ranked based on their potential.

Methods:

Before various marketing and demographic trends can be investigated, it is necessary to determine the current locations of the existing Trader Joe’s Stores as well as each stores respective customers. The current store locations will provide an understanding of the areas to avoid for a new store location as Trader Joe’s does not want to take away sales from their current stores. Also, understanding the location of Trader Joe’s customers not only provides information on which customers utilize which store, but establish a mean center that represents an ideal store location.

In addition to understanding the locations of the current stores, it is also necessary to understand the market penetration of the current Trader Joe’s Stores in Hennepin and Ramsey County based on zip codes. The market penetration is beneficial for understanding how well Trader Joe’s is reaching their market area in a particular zip code. Understanding which areas are successfully penetrating their market and which ones are not offer insight on specific areas that would benefit from a new store.   

In combination with Trader Joe’s current market conditions, a hot spot analysis of Hennepin and Ramsey County is used to understand demographic information in the Minneapolis, Saint Paul Area. The first hot spot analysis displays total population data in 0.5 mile grids. The second hot spot analysis displays median household income in the same 0.5 grids. Comparing the population hot spot analysis to the median income analysis provides the means to determine any correlations between income and population in Hennepin and Ramsey County.

Aside from the hot spot analyses providing beneficial demographic information for Hennepin and Ramsey County, it is also necessary to determine which zip codes possess ideal customers. The ideal customers are determined by several factors including population, income, and family size. In terms of these factors the ideal customers are located in areas with a population greater than 15,000, have a median income greater than 65,000, and a family size larger than two. Zips codes that meet all three of these requirements are areas set aside as ideal customers.

After analysis of the methods above three potential Trader Joe’s Store locations are determined based on ideal location, market penetration, population and income data, and the location of ideal customers.  Based on the data, the general area of each potential store location is determined and then specifically selected based on locations that are suitable to build a new store. Once the specific locations are selected they can be ranked. The rankings for the potential stores are based on total population data, median household income data, average amount spent per week above $150 by household, and the amount of individuals shopping at Trader Joe’s over 6 months. The specific data is used to rank each store in comparison to the ideal store location set at the mean center of all Trader Joe’s customers.

Conclusion:

Trader Joe’s is successfully penetrating their market for much of Ramsey County and just over half of Hennepin County. The high market penetration in the zip codes in the western part of these two counties can be explained by the location of four out of the six stores in this area. These four stores are utilized by the majority of all the Trader Joe’s customers causing a high market penetration. The zip codes in most of the eastern part of the Hennepin County is below 32 percent as there two less stores and fewer customers.

The hot spot analysis for total population show that the higher populated areas are also located on the western half of these two counties, which account for more stores and customers’ existing in this area. The population of east Hennepin County is significantly less than the western half of the two counties as it is further away from the cities of Minneapolis and Saint Paul.

The hot spot analysis for median income shows an inverse relationship compared to the hotspot analysis for population. The areas with high income are located in east Hennepin County where the population was significantly lower than the rest of the two counties. As the population increases toward the western half of the two counties the income appears to decrease. Overall, the less populated areas appear to have a higher median income compared to densely populated areas of Minneapolis and Saint Paul.

The hot spot analysis portrays population and median income data for all of Hennepin and Ramsey County, which are essential demographic factors for determining potential store locations. In addition to population and income data, it is necessary to incorporate average family size for determining ideal customers as families tend to utilize grocery stores more often than singles and young couples. The zip codes that have a population greater than 15,000, a median income greater than 65,000 and an average family size greater than 2 are located primarily in the center of Hennepin and Ramsey County and north Ramsey County.    

Recommendations:

The three potential locations for new Trader Joe’s Store were determined based on analysis of the above conclusions. Based on the ideal customer locations, the areas of higher median income further from the cities, and sufficient population, west Hennepin County was selected as a general area for potential store locations. Not only is west Hennepin County appropriate in terms of income and ideal customers, but it is away from the market area that Trader Joe’s is already successfully penetrating. Specific locations for potential stores were selected within the general area of west Hennepin County based on closest possible proximity to the ideal store location as well as a sufficient distance away from current stores. The specific potential stores are then ranked compared to the ideal store. The southernmost location near Chanhassen is determined to be the potential store location with the best rank of the three potential stores.