The impact of cannibalization analysis to optimize retail networks represents your business stability in the long term. Have you ever wondered if your service stations cannibalize each other? Do you know which ones are about overperforming and underperforming? In this article, we show you how we do the analysis of cannibalization, the aspects we take into account, and its impact on the optimization process of the retail network.
Cannibalization occurs when the sales of a new store or product come at the expense of existing stores or products within the same network. This can happen when the new store or product offers similar or identical offerings to existing stores or products, and customers choose to purchase from the new store or product instead of the existing ones. This is why cannibalization can have a significant impact on the profitability of the retail network, as sales are shifted from one store or product to another, potentially decreasing overall revenue and profits.
As you can see, this is a powerful factor to optimize the retail network and expand operations by opening new locations. As you can infer at this point, the process involves evaluating the impact of adding new stores or products to an existing network, particularly on the sales of existing stores or products. This is why we have developed an AI/ML Omnichannel Networks Planning Optimization Tool for Retailers, capable of guaranteeing a 15-20% increase in sales and arriving at a very precise cannibalization analysis.
This analysis takes factors such as distance, accessibility, and customer preferences into account to determine the likelihood of cannibalization. Now you have an approximation of what to do before opening new stores and optimizing their product offerings to maximize profits.
Retailers can use a variety of data sources, such as sales data, customer demographics, and location data, to evaluate the potential impact of new stores or products on existing ones. This analysis can be conducted using a variety of techniques, such as regression analysis or spatial analysis, to identify potential cannibalization effects.
One important aspect of cannibalization analysis is understanding the trade-offs between opening new locations and maintaining existing ones. While opening new locations can expand a retailer’s customer base and increase revenue, it can also result in a decrease in sales at existing locations, as we mentioned. So, you have to be careful about where to open new stations and how many to open.
By performing a correct cannibalization analysis, you will know where to open new locations without negatively impacting existing ones. For example, if a retailer is considering opening a new location in an area where they already have several existing locations, they may find that opening a new location in a nearby area with less competition could be more profitable.
Overall, cannibalization analysis is a vital tool for fuel retailers looking to expand their operations while minimizing the risk of lost sales at existing locations. By conducting this thorough analysis of potential cannibalization through our AI/ML Omnichannel Networks Planning Optimization Tool for Retailers, you are anticipating and avoiding the risks. This results in increased revenue, a more loyal customer base, and a stronger position in this highly competitive industry.