Over the last year or so, you may have heard a mention here or there about the Whole Foods Effect and the Starbucks Effect. In essence, both “effects” refer to the positive financial impact on home values as a result of living within a relatively reasonable distance from a Whole Foods® and/or a Starbucks® (respectively).
On the surface, the benefit of having a Whole Foods® or a Starbucks® nearby, is easy accessibility to high quality food, and with respect to Starbucks, great coffee. But there’s more to the story than meets the eye.
A Starbucks® or a Whole Foods® that is relatively
close to a residential area is a STAKE.
A STAKE, in the conventional sense, is either a marker and/or a peg that holds something down – such as a tent peg. From the public’s perspective, with respect to value brands (i.e. Starbucks®, Costco®, Whole Foods®, Cheesecake Factory®, etc.) and their presence near residential areas, the benefit extends beyond convenience.
Yes, it’s a nice perk (pun intended) to have a Starbucks® right around the corner. But the REAL VALUE of having a Starbucks® nearby is that it’s a value stake, specifically in that it makes a statement about the status of the neighborhood.
To that point, and not to be overly judgmental, but it’s unlikely that you’ll see a Starbucks® in a town with a population of 450, with all of the residents living in trailers.
Additionally – for some, a Starbucks® represents civility…normalcy…sort of how a U.S. tourist would feel eye-balling a McDonald’s® in Beijing after having spent weeks in rural China. It’s a sense of “home.”
On a slightly different note, for many individuals, having a Whole Foods® around the corner doesn’t necessarily correlate to the neighboring residents regularly shopping there. More often than not, like Starbucks®, having a Whole Foods® nearby makes a LARGE statement about the value of the neighborhood’s residents – a much larger statement than any pretty marketing materials generated by upscale real estate brokers and agents.
For example, I have heard more than one real estate agent tell a prospective buyer, “There are good schools AND there’s a Whole Foods just down the street!”
HOW This Relates To Business
The reason I’m exploring this topic is because I often hear folks who are about to open a new business tell me how they scored a location right next to a Whole Foods®. At first glance, it would seem like a great idea, right? Well….
First…you should understand that companies like Whole Foods® and Starbucks® select their locations based on a whole lot more than simply the makeup of adjacent neighborhoods.
Second…paying high rent to be “on top of” a Whole Foods® or Starbucks® may not be the smartest move. Common sense demands an in-depth evaluation before pulling the trigger on such a sizable investment. Not too far from where I live are a couple of Whole Foods® locations. As you would expect, adjacent to these locations are other businesses. In conversing with some of the owners of these businesses, their expectation was that being next to a _________ (WF, Starbucks®, etc.) would lead to an uptick in business due to the volume of traffic. Unfortunately, in MANY cases – such was not the case. Why?
As my clients will tell you, data always surpasses assumption. In other words, you should be putting far more weight into the evaluation of the consumer in that area than what appears to be a “good idea” because it just “felt right.”
The question I asked these business owners was, “What led you to believe that someone visiting a __________ (Starbucks®, Whole Foods®, etc.) would necessarily look to sidetrack their morning or afternoon, and make a slight detour to YOUR business?” Again, as you would expect, most of the answers sounded something like “It felt like a no-brainer!” and “It just felt right in my gut!”
The TAKEAWAY is this: Having a value-brand within close proximity of your neighborhood does, in fact, boost the value of your home, but not necessarily because of the implied convenience. More appropriately, these value brands make a loud statement about the “status” of the neighborhood. Of equal importance to business owners (or soon-to-be-business owners) is the directive to use data to make a location decision, and not just one’s gut. Remember, it’s better to KNOW than to “feel.”
Have A GREAT Day!
…Dr. Marc – The Dark Lord