Now that your foundation for growth is established, it is time to craft a development strategy. You must determine when and where to direct your investment. To craft a development strategy, one needs a framework to synthesize the relevant statistics and prioritize the markets for development. This is the focus of this article.
I have seen many companies stumble and fall because they did not have a viable development strategy or failed to follow the plan they crafted. The fundamental problem was a failure to appreciate the value of market penetration, the key to success for retail brands. Fully penetrating the market maximizes cash flow, as all your resources are optimized. I will get back to you on this issue later.
Determine when and where to grow.
During my corporate career, I learned the value of a viable development strategy. My personal development goal was to learn how to create strategy to expand successfully into new markets. As a result, I learned how to.
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- Determine the maximum potential penetration within each market
- Prioritize markets for development
- Prioritize trade areas within the market for development
Solid analysis addressing the prior bullet points is mission-critical. My employers were focused on the statistics needed to craft a solid development strategy. However, most did not have a good framework to integrate the data into a coherent strategy. As Director of Planning and Analysis for the Retail Group of a Fortune 500 Conglomerate, I made a point to master this skill. I studied the concept of portfolio theory, employed by many conglomerates. Creating conglomerates was popular at the time. A fundamental tool used by these companies was the Market Growth/Industry Penetration Matrix developed by the Boston Consulting Group (BCG) in 1970. Generally known as the Boston Consulting Group Growth/Share Matrix, (BCG Matrix), this methodology was designed to help conglomerates analyze their business units. It helped prioritize resource allocation for brand marketing, product management, and strategic management. Later in my career, I used the BCG Matrix to craft a viable development strategy.
Conglomerates fell out of favor, in the 1980s, helped along by In Search of Excellence, authored by Thomas J. Peters and Robert H. Waterman, Jr., published in 1982. Although conglomerate portfolio strategy may have fallen out of favor, I believe the BCG Matrix was still useful. And it was!
The Value of Retail Store Penetration
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- Leverage and optimize resources
- Labor – Attract employees /efficient use of supervision
- Supply Chain/logistics efficiency
- Marketing and Advertising Effectiveness
Eventually, I was able to put the BCG Matrix into practice. As a Regional General Manager for three separate QSR Brands, I was responsible for developing my Regions. I worked to identify and prioritize under-served markets with enough penetration for a first-line supervisor. In other words, finding underserved markets, with significant upside potential. I used the BCG Matrix to plot the market growth rate for total QSR Industry sales against the total QSR penetration. My metric for QSR penetration was total QSR Sales as a percentage of all retail food sales in the market. The lower the ratio of QSR sales to total food sales the better. This metric identified markets that were underserved from a QSR perspective. I plotted other statistics against the market’s growth rate, but QSR market share was the most relevant statistic.
Competition is always a consideration but it is not a reason to avoid a market. The fundamental takeaway is to build toward saturation in high-growth markets. I used this tool to great effect. Determining how to develop that market is the next strategic decision required when you decide where to grow. I will address this topic in my next post.
Summary and Conclusion
When expanding your brand beyond your home market, you must have a strategy to achieve optimal penetration. The key is to build in growing markets, adjacent to an established market, where you have a beachhead. The key factor for success is to drive for maximum market penetration. As penetration approaches market saturation, maximum cash flow will be achieved. Following this model generates the best result. The BCG Matrix is a useful tool to help guide your plans.
Call to Action
If you want to expand beyond your home base or if your development plan is not working, I can help! Call or email to begin the discussion.
Thank you for visiting our blog.
Jim Weber – Managing Partner, ITB Partners
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