Supporting our client's sales forecasting and site evaluation methodologies

Our client, a coffee house with around 200 locations, was interested in improving the speed and efficacy of site evaluations and sales forecasting. Their existing process was inconsistent, labor intensive, and oftentimes redundant without a clear, consistent methodological approach. The project scope included the development of a sales forecasting model with a secondary objective focused on the establishment of a streamlined analytical process.

The client’s question

How can our evaluation of real estate opportunities become more efficient and process-oriented? Not unlike operators throughout the restaurant industry at large, members of our client’s real estate team are tasked with wearing multiple hats. In addition to traditional real estate deal-making responsibilities, these individuals are also responsible for all new site evaluation efforts, including revenue forecasting, approval package preparation, and financial modeling for new locations.

Lacking a common, centralized methodology to inform decision-making, the workload associated with undertaking all of the aforementioned tasks was overwhelming. Despite our client’s best efforts to create worksheets in Excel and utilize Google Earth for mapping, final site evaluation documents varied from site to site.

This process was time-consuming and often relied heavily on subjective data, creating credibility concerns that resulted in challenging real estate committee meetings.

Our approach

We started by conducting an audit of the existing suite of tools that our client was leveraging — this included scoring worksheets, a financial model for real estate proforma buildout, and a homegrown method for estimating cannibalization impacts. The audit enabled us to highlight relevant areas where methodological improvements could be introduced to our client’s pre-existing approach. In addition, the audit also sparked ideas for how we could further optimize their decision-making processes once our solutions had been implemented for their ongoing use.

Central to our analytical effort on their behalf was development of a sales forecasting model. As with all other clients that we work with, we employed a consultative approach with our client throughout the model build. Having their collaborative involvement ensured that they understood the methodologies that we were employing and allowed both sides to ask questions of one another and test hypotheses along the way.

Our forecasting model allowed their real estate team to define trade areas, calculate competitive impacts, and account for site and situational characteristics in an automated, systematized fashion. We also constructed a customized master report that centralized all data and analytical insights relevant to their site review process — from inception to final approval package.

What were the results?

Through integration of the forecasting model within our location intelligence platform, the solution that we developed for our client now provides their real estate team with a site package report that streamlines their site evaluation and approval processes.

The sales forecast accounts for primary sales drivers, site characteristics, and other meaningful considerations to provide a holistic, objective view of any site that they are interested in exploring.

The site package report is delivered in an Excel workbook format that includes an executive summary, cannibalization report, detailed demographic comparison, comparative peer store assessment, and financial model validation.

The site package report is the tool now used when evaluating new proposed stores that are advanced to real estate committee. As their committee discusses 2-5 sites during each biweekly meeting, the efficiencies gained for their real estate team result in significant time savings relative to their prior approach. Additionally, the approval committee is benefitting from a more consistent review process — from the data and insights that each site’s report contains to the standardized format of the report itself.

Findings translate to action

As we move from Insights to Action, we were able to create “E-commerce Lift” and “E-commerce Recapture” tools for our client that were integrated within their location intelligence platform.

When their real estate team is evaluating the revenue forecast for a potential site, they can now assess the impacted households and apply either an e-commerce sales lift or cannibalization estimate to the forecast pending the site scenario.

Additionally, they can ensure that customers impacted by a potential store closure are adequately supported by the network and mitigate the risk of lost market share.

With the significant capital investment and challenging financial hurdles associated with physical locations, the “E-commerce Lift” tool appropriately credits potential sites for the incremental e-commerce sales they are likely to generate.

Innovations in real estate analytics

The challenge that our client experienced — a resource-constrained real estate team using disparate tools and inefficient processes to evaluate sites — is unfortunately all too common among multi-unit operators.

Our approach is focused on developing real estate solutions for clients that are tailored to their specific needs, meeting clients where they want and need to be met based on their existing mix of available resources, tools, and technologies. While these solutions vary in scale and in scope on a client-by-client basis, one constant is the emphasis that we place on delivering

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