

Why do competitors open their stores next to one another? [4min video] - johnx123-up
http://ed.ted.com/lessons/why-do-competitors-open-their-stores-next-to-one-another-jac-de-haan

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patio11
This is interesting in a fake world with flat demand. In the world we actually
live in, the world is _very_ lumpy, and information about the disposition of
lumps is not exactly trivially available, but information about the
disposition of competitors is.

There are boring real-estate specific reasons why having two coffee shops on
the same intersection is very unlike having one very big coffee shop at the
same intersection, by the way, chiefly with regards to traffic flow. Traffic
flow is a key consideration for "non-destination" commercial stores, like
Starbucks. You don't get in your car to go to Starbucks, you get in your car
to go to work, home, or your "third place" for the day -- perhaps that swanky
restaurant you're visiting with the missus. (You will note that
work/home/third place are statistically unlikely to be on corners, principally
because there is a price premium for corners, given that they are commercially
much more valuable for non-destination commerce than mid-street.)

Any Starbucks which catches your fancy while you're in your car can catch your
business, but they're overwhelmingly more likely to be a) directly on your
path between A and B and b) require a minimum of complicated driving to
deviate from your path to their cut to the street (i.e. you statistically
prefer a right turn straight into a store on your right versus doing a U-turn
onto the other direction of a busy street, etc).

Given that you want simple turns into your place of business, it's trivially
obvious why one would prefer having two streets for ingress/egress versus one
street, which is only available on a corner. (Fun driving game: try to find
any retail establishment on a corner which _is_ a location that the average
customer would specifically get into their car to go there. Fun variant:
attempt to convince them to sell their property to you, because you're already
50% of the way to flipping it to a bank/fast food restaurant/WalGreens
profitably.)

There's another wrinkle: all corners are more valuable than non-corners, but
all corners are _very much_ not equally valuable. How valuable a given corner
is for a particular business is a _very hard problem_ to solve for. Some firms
and individuals are very good at solving for it. A _very effective_ way to
piggyback off of their expertise is to simply grab the corner opposite of
them: while the lumpy world of geographically distributed demand for coffee is
very non-trivial to access, the simple rule "If you see a Starbucks, to a
first approximation, siting our next coffee shop across the street from it
_will_ be profitable" generally works.

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euroclydon
Where I went to college there was a Starbucks on the most prominent corner of
the most prominent street that runs directly north of and within spitting
distance of the main campus.

An independent coffee shop opened up on the opposite corner (actually one unit
down from the corner). Within a year, the Starbucks had lost so much business
that it was closed down.

