McHenry Market Pulse: Why did CVS decide to build a store directly across from Walgreens????

In my last post I spoke about trade/market area, market absorption and retail cannibalization and a question was asked about CVS constructing a store directly across the street from Walgreens and if this was considered retail cannibalization????

This is an excellent question and similar points have been raised in the past.

It is no coincidence that CVS is constructing a store at the northwest corner of Front Street and Elm Street directly across the street from Walgreens. Consider the following points:

· Retailers who offer similar services and products and are direct competitors, like CVS and Walgreens, often thrive from being in close proximity to one another.

· You can find this situation in other areas of the City: McDonalds and Burger King are located on Elm Street, along with other similar restaurants. For many years Burger King has maintained a store on north Richmond Road in close proximity to Wendy’s but there was no McDonalds. This changed when McDonalds opened a third store at McCullom Lake Road and Richmond Road.

· There is a distinct difference between retail cannibalization and market absorption. Consider this: McDonald’s has three locations in the City of McHenry, Subway has two, Burger King has two, Dunkin Donuts has two….Why????

· A retailer closely analyzes opening additional stores in the same market area because they do not want to split the consumer base between multiple stores (“retail cannibalization”) however retailers who are direct competitors consider other factors also: is there enough of a consumer base/demand for a particular product or service (market absorption rate)? “Psychographic” profiles are an additional level of consumer analysis.

· Psychographics refer to spending patterns and choices: does the consumer buy products only made in the United States? Do they prefer foods grown organically? Are environmentally-friendly products important to them? What brands do they prefer? The list goes on and on…

· McDonalds rebuilt and rebranded their store on Elm Street and built similar stores in two other locations; Burger King did renovations recently, as did Wendy’s and Dunkin Donuts...

· I mentioned the “retail experience”. It’s not only selling a product or brand but providing an experience. Keeping consumers within a store is crucial; there is a direct correlation between how long a customer is in a shopping center and the amount of money they spend…more to come in the future on the “retail experience”.

· Retailers want to know who their customers are: age, where they live, number of people in the household, their spending habits and patterns, where they choose to shop. It’s a more in-depth, additional layer of analysis.

· The City of McHenry had been working for several years to find an appropriate location for CVS and CVS has been working on the redevelopment of the northwest corner of Elm Street and Front Street for more than one year.

· Another tool retailers consider when choosing a location is surplus/leakage analysis or supply and demand. These analyses look at the dollar amount potential (demand) and what actually exists (supply) within any given trade area and it’s broken down by industry/business type.

· A surplus/leakage analysis done by ESRI for the City of McHenry shows an over $3,000,000 retail gap in the category of Health and Personal Care Services. Retail gap represents the difference between retail potential (demand) and retail sales (supply) within the City of McHenry….

· Another ESRI analysis: spending potential index for the City of McHenry shows the average household spends more than $600 on prescription and nonprescription drugs totaling over $6,000,000 annually….

· Other points to consider: Target recently closed and Wal-Mart relocated farther north on Richmond Road. Both stores sell prescription drugs. Additionally, the highest traffic count within the City exists between Front Street and Richmond Road.

· When a competitor moves in close proximity to an existing brand, both brands must continually evaluate their product and service, adapt to their consumer base and their needs/choices, perform in-depth analyses and psychographic profiles which are also dynamic…..

· Walgreens recently completed extensive interior and exterior renovations to their store…

So CVS locating across from Walgreens is a benefit to the City, residents, businesses and consumers (non-residents) who drive-by and stop at these locations and also to CVS and Walgreens, as they will need to consistently implement new ways to market their brand and meet their consumers’ needs!!!!!!!!!!!

Coming in future blog posts:

Does the City of McHenry offer incentives to attract a new business to the City?
Importance of economic diversification: Is retail king of all business? Why office, industrial and other primary employers are equally and in some instances more important to a community than retail?
How do brick and mortar businesses remain competitive with on-line businesses?
What are Class A, B and C spaces?
Franchising? What is it? What companies offer it and what challenges are associated with attracting a retailer which operates exclusively using franchising?
Future trends in economic development: “market segmentation” “showrooming”; “pop-up” stores; “placemaking/third places” and “creating an experience”….
Challenges associated with economic development…