A very important step in predicted future demand for a
business, product, or service is estimating market size – or the population of
people you will serve or provide for. In developing our Business Plan for Meet
& Spuds, my business plan group followed a basic formula for estimating the
market size: (1) Determine demand; (2) Identify the Addressable Market; (3)
Segregate Realistic Opportunities vs. Competition; and (4) Target a Selection
of “Winnable” Market Opportunities. The theory is illustrated with the graphic
below.
Before analyzing the market sizing, the group had to
determine the optimal startup location for our pilot restaurant. We utilized an
adapted Data Envelopment Analysis (DEA) Model for this approach. The steps for
this approach were:
1. Business partners arbitrarily selected eleven
main criteria for the optimal location and rated these from most to least
important. Based on the priority, each parameter was assigned a weight.
2. Business partners arbitrarily selected seven
cities around USA as potential location sites.
The seven cities selected were: (1)
Boston, MA, (2) NYC, NY, (3) Chicago, IL, (4) Seattle, WA, (5) Washington,
D.C., (6) Dallas, TX, and (7) Providence, RI.
3. Collected data was populated into an adapted
DEA model to help determine the optimal location. Information was collected
from various sources: U.S. 2010 Census, City-Data.com, and more.
4. Each parameter value was ranked and given a
score of 1-7 based on highest = 7 and lowest = 1. These scores were multiplied
by its assigned parameter weight to determine the overall ranking. The highest
ranking was the first startup location preference.
The model resulted
with a pilot location of Boston, MA. The next step was to determine Boston
demand. NRA (National Restaurant Association) released a 2012 Restaurant
Forecast that projected $631.8 billion industry for 2012. Furthermore, Projected
Sales are expected to increase as follows: 2.9 % Full-service; 5.6% Social
Caterers; 3.1% Eating & Drinking Places.
We targeted the Boylston St. neighborhood of Boston, MA, as
our addressable market based on its central location and proximity to
surrounding public transportation options, businesses, and area schools.
The group decided that our target market would be comprised
of Single, Professional Males
ages 21 – 35. Since males account for 47.9% of Boston Population and the majority of Back Bay residents are ages 20 – 50 yrs, we would be able to address this market in our location. The group also learned the following information from the 2010 Census.
ages 21 – 35. Since males account for 47.9% of Boston Population and the majority of Back Bay residents are ages 20 – 50 yrs, we would be able to address this market in our location. The group also learned the following information from the 2010 Census.
FACTS ABOUT BOSTON
· 200,000 MALE (18 – 65 yrs)
· 33% Married Residents
· 54.1% of Workers = Residents
· Boston saw 21.2 mi Tourist Visitors in 2011 (3.9%+)
· We would suggest that there are at least 140,000 are single men.
The
group then needed to segregate our realistic opportunities from competition. The
location is populated with many other restaurants: Back Bay
Restaurants (click this link to learn more). However, the niche function
positions Meet & Spuds to have limited competition in terms of atmosphere
and menu. We have yet to identify any social steak restaurant despite some
competitiors calling themselves either Social Restaurants or Steak
Restaurants. We can win over
realistic opportunities through marketing and sales by creating
parallels between our services & those of comparable, ‘cheaper’ restaurants
to draw in initial customers.
· Our
meal is $20 with 14 oz. steak and 7 oz. potatoes.
· Their
meal is $22 with 8 oz. steak, 3 oz. potatoes, 2 oz vegetable, & salad.
Finally we can drill down to our target market size. Based on the
calculations before, we estimate our target market to be 150,000 people. This figure
accounts for the estimate of single men in Boston plus added fringe for
tourists.
Very in-depth analysis of your market! I'm especially interested in your parameter analysis in your third and fourth points here. What a quantitative way to really assess your markets! It seemed like, from the numbers, NYC was also a viable option. Was Boston more familiar and convenient for the group members? I know, as a resident of NY, property in NYC is very expensive and competition will be intense, so I tend to agree with your decision. I'm not sure how it compares to the Boston market though. Based on your research, it seems like you would be successful if Meet N Spuds was launched on Boylston St in Boston.
ReplyDeleteAmanda, that was a very thorough analysis – and it was impressive to see how you used statistical tools to pick a location. To Stephanie’s point, it does appear like statistically Boylston St., in Boston MA will be the best place to open your first joint, but how about economically and logistically? How economically viable is it to maintain a restaurant in that area and how easy is it to get access to real estate in the selected areas? Shouldn’t these constraints apply to a market selection?
ReplyDeleteNice analysis Amanda. Especially impressive was the use of DEA method. I guess the other parameters I would be interested in is the cost of real estate and intensity of competition. That might potentially alter selection especially if start-ups have limited funds.
ReplyDeleteThen there is the emotional factor and other considerations, would business owners be willing to relocate our would they like to start a business in their hometown.