Executive Summary
In the recent past, business organizations have grown as a result of having expanded their economic bases by attraction or nurture of new businesses as well as expansion of existing ones (Love & Crompton, 1999). The question facing most firms is where to open, expand or relocate. Another issue of great concern to the business owners is which competitors to acquire (Clarke, Bennison & Pal, 1997). Location decisions carry a high risk due to the amount of investments involved. Several factors have to be put into consideration to safeguard the firm’s investment and promote its growth (Hernandez, & Biasiotto, 2001). The impacts of these decisions on the firm’s activities are long-term; therefore, a strategy is necessary to ensure a viable location is selected.
A firm’s attraction to a certain location can be attributed to accessibility to the local market size, availability of skilled labor, well-developed infrastructure, low rents, appropriate laws and regulations (Trofimenko, 2010). Availability of government services is also a crucial factor since new business ventures require approval from the authorities. It is important that the firm contributes to meeting the economic, political and social goals of the government in the proposed new location. To fullfill these requirements is of great importance as the firm understands their significance. The process involved in location decision making is rather complex, and therefore, firms ought to employ all the available resources in ensuring a successful process.
The four proposed locations for expansion of Boba Rolls’ eateries, West Des Moines, Des Moines, Ames, and Ankeny, are located in the State of Iowa which economic recovery had been stable as 2011 drew to a close. State revenues increased by 4.7% for fiscal year 2011 (Wahlert, Wallace, Koonce & Igbokwe, 2012). Personal income also increased in the stated period. This growth in economy makes the State attractive for Boba Rolls to expand into. The City of Des Moines would make an ideal location for Boba Rolls to locate a new franchise. The primary deciding factors in Boba Rolls’ new location are the cities’ population, demographics, assistance from local authorities, local competition, cost of living, lease prices, and security. The main objective is to select a location which has more advantages than disadvantages. The firm’s approach to location selection is matching the firm’s needs with community characteristics (Murray, Dowell, & Mayes, 1999).
Des Moines has a higher population than the other proposed cities. According to the United States Bureau of Census, in 2011, its population was estimated to be 206,599. The population growth of 1.6% recorded in 2010-2011 provides an opportunity for attracting new customers. Therefore, the demand for the food and beverages is likely to be higher than in case with the less populated cities. According to Des Moines’ data, the median age is 33.5 years which is mainly the working class. This class of people is a good target market since most of them prefer light lunch during working days; therefore, a fast food restaurant is attractive to such a group. The customers would also enjoy free Wi-Fi so one can do his/her work while relaxing at the restaurant. Late hours would allow people to spend the most ample time for them to meet with their friends or colleagues, after office hours. Hiring in Des Moines would be relatively easy as there is a high quality workforce whom Boba Rolls can recruit, and wages are lower there than the national average is.
The Cost of Living Index in Des Moines is relatively low as compared to the other cities under consideration. This means the people of Des Moines have a higher purchasing power than the residents of West Des Moines, Ames and Ankeny do. Local competition is also low in the city. Out of 48 fast-food restaurants and chain businesses in Des Moines, only 2 are located on Army Post Rd. which is the proposed site for a new franchise. It would be easy to tap into the local market.
The lease prices for the premises are fairly reasonable. $9 per square foot per year is cheaper as compared to $22 in West Des Moines or $14 in Ames. The cheaper lease prices contribute to lower operating expenses of the company. Security is also good in Des Moines as the crime rate is low there.
Options for relocation
West Des Moines is a rapid growing city with a population estimate of 57,909 as for 2011, according to the United States Census Bureau. About 85% of the population is whites alone, 5.2% Hispanic, 4.8% Asian, 3.2% Black, the remaining percent accounts for other races. The city offers a wide variety of employment opportunities ranging from retail to industrial ones. The primary purpose of the Department of Community and Economic Development is to stimulate the economy, expand employment opportunities and encourage establishment and growth of commerce and industry in the city. The Department has been and still is very instrumental in attracting new businesses. It works closely with them to find suitable locations compatible to the zoning requirements. One of the highest priorities of this region is retention and growth of business. The local authorities try to achieve this by offering problem-solving assistance which may include business incentives and competitive grant programs.
Some of the commercial activities that make up the economy of Des Moines City are manufacturing, financial services, agriculture and insurance. The city’s employment that can be attributed to manufacturing is small. However, the significance of the manufacturing industry to the economy cannot be underestimated. Insurance business is huge in Des Moines with a number of insurance firms having their headquarters in the city. The health sector employs approximately 25% of the workforce. There are incentive programs for new and existing businesses. The Greater Des Moines partnership offers financial assistance programs to firms interested in economic development. There is also assistance to companies that wish to expand or relocate to Des Moines. The business assistance offered includes identification of land, financing, project management, referrals for licenses, job recruitment and training. Through the assistance of the City’s local authorities, businesses can take advantage of the various tax policies in place.
Des Moines Airport and four major railroads serve the city of Des Moines. Most businesses in Des Moines expand due to the high quality of workforce and low crime rates. Commute time is short in metro Des Moines. Housing is affordable and the cost of living is low. The city’s population comprises about 70.5% whites, 12% Hispanic, 10% Black, 4.4% Asian, and the rest is for the other races.
The city of Ames is located in the middle of the State of Iowa, and its population estimate was 59,909 in 2011. Approximately, 82.5% of this population is white alone; Asian 8.8%, Hispanic 3.4%, Black 3.3% and the rest is other races. The median household income was 37,124 and the per capita income was $21,857 in 2009. There is one airport within 30 miles from Ames. There is no train station within the same radius. The average one way commute time is 17 minutes which is lower than Iowa’s average of 20 minutes.
The city of Ankeny’s main industries are wind energy, biosciences, Information Technology, business services and logistics. In 2011, the population stood at 46,302. More than 90% of the population was white while the rest were Hispanic, Asian, Black, American Indian, Native Hawaiian and other races. The city of Ankeny offers financial incentives to encourage job creation and capital investment. The estimated median household income was $69,712 and the per capita was $31,446 in 2009.
Points of Comparison
Population
Population is a key determinant of demand for a commodity. Markets are presumed to be functionally related to population. Although West Des Moines had the highest population growth rate of 2.3% in 2010-2011, Des Moines still had the highest population of the four Cities. According to the United States Census Bureau, 2010-2011 population estimates were as follows:
The market for the “Asian finger foods” will be higher in Des Moines than in Ames, Ankeny or West Des Moines.
Availability of cheap labor is determined by the population characteristics. The employees in Des Moines’ businesses are drawn from a five-area county of more than half a million residents. This gives the firm a large pool from which to recruit. The workforce in Des Moines is trained and has a necessary skills due to the levels of education and availability of vocational and skills training programs.
Local Competition
When selecting a location for a business, it is important to consider the business climate which is defined by the presence of similar businesses or businesses in the same industry. In the four cities, there are fast-food restaurants and chain businesses. However, in some of the cities, the number of competitors is too much on the proposed street which means the customers have several restaurants to choose from which may be a challenge for a new Boba Rolls Eatery. In Ames, the proposed site is Campus town neighborhood 2510 Lincoln way. The city has 19 fast-food restaurants, 10 of which are on Lincoln way. The proposed site in Ankeny is Ankeny Center on Ankeny Boulevard. Ankeny has 10 restaurants, 2 of which are located on Ankeny Boulevard. West Des Moines has 17 restaurants, 3 of which are on the proposed street, Jordan Creek. Des Moines has 48 restaurants, 2 of which are on the proposed street, Army Post Rd. Taking into account the population rates, out of the four, Des Moines faces less local competition than other three cities.
Cost of Living Index
The cost of living index (COLI) is an indicator that measures changes in the cost of products and services including food, housing, utilities, transportation and health. The United States COLI is 100.
Des Moines has the lowest COLI. The cost of living is lower in that city. A low COLI implies a higher purchasing power for the consumer.
Demographics
Demographics are important in understanding trends and markets in relation to natural increase in population, migration of people and distribution in the population characteristics (Loreto, 2010). The level of income is a key determinant of demand for a commodity. An increase in income causes demand for normal goods to rise, and a decrease in income leads to a decline in demand. The four cities experienced an increase in estimated median household incomes between the years 2000 and 2009. Ankeny had the highest growth of 14,550 in median household income while Ames had the least, 1,082. Despite the increase in income in West Des Moines, Ankeny and Ames, the purchasing power of the consumers has still remained lower than that in Des Moines, due to the high cost of living in the three cities.
According to City-Data, the median resident age of the population is 23.8 years in Ames, 31.9 years in Ankeny while it is 33.5 years in West Des Moines and Des Moines. The age group in Ankeny, West Des Moines and Des Moines is mainly working class to whom fast-food restaurants appeal since most of these people prefer light lunch, and Boba Rolls Asian “finger foods” would come in handy. The late hours would also be ideal for most of them as they could meet with their friends or colleagues after working hours.
Lease prices
Lower rents and lease prices are an important consideration in determining the location of a business. Availability of affordable premises is significant in lowering Boba Rolls’ yearly expenses. Lease prices are highest in West Des Moines with its $22 per square foot per year followed by Ames with its $14. Des Moines comes next with $9, and the cheapest is Ankeny with $6. If this were the only factor under consideration Ankeny would be the ideal place. When we take into account the population and local competition, we have to rule out Ankeny and remain with Des Moines.
Assistance from local authorities
Businesses in Des Moines seem to enjoy more assistance from the local authorities than in the other proposed cities. Des Moines’ local authorities have put in place elaborate programs to retain existing and attract new businesses in the city. The assistance offered by the Office of Economic Development enables businesses to make good decisions, regarding location, resources and management opportunities. The tax policies are friendly, and businesses can enjoy tax credits and exemptions. Various job training programs are available from Des Moines Area Community College. Businesses located in the Iowa Enterprise Zones with a capital investment of $500,000, while meeting certain requirements, can qualify for tax credits and exemptions. Infrastructure is better developed in Des Moines as compared to that in Ames, Ankeny, Des Moines and West Des Moines.
Security
Security is a major concern for any business in any given location. Criminals pose a threat to the day-to-day activities of the business and the safety of the customers. A location with the lowest crime rate is desirable. Des Moines enjoys a lower crime rate than Ames, West Des Moines and Ankeny.
Conclusions and recommendation
Having closely examined all the four cities, Des Moines is recommended. The city’s high population would provide a large market for Boba Rolls Asian “finger foods” and beverages. The growth in population will provide for a new market for the products. The industries in the area are diversified bringing a large number of workers into the city. These employees create a market for the foods. The workforce in Des Moines is highly qualified, meaning that Boba Rolls may employ the best workers. The wage in the city is lower than the national average which implies the firm will spend less on wages there as compared to the other cities. The reduction in wages will contribute to the firm’s profitability.
The proposed site is Stefon Plaza on Army Post Rd. On this street, there are two fast food restaurants, out of the forty-eight found in the city. 2 out of 48 located in the city of 206,599 people is not a great competition. Boba Rolls will be able easily to tap into the local market. The lower cost of living is the higher purchasing power of the consumers is. Most of the inputs used by most firms in the city are produced locally; this means cheaper source of inputs and reduction in transport costs, thereby minimizing operating costs. Low operating cost translates to more profits.
The median age comprises mainly of people who are working. As a rule, most people in this category do not have lunch at home, as they prefer to choose fast foods due to the light foods offered. The restaurant opening late hours will provide a place for these people to meet with their friends, while free Wi-Fi allows them to continue working on their projects even after office hours. The city is well served by an airport and four major railroads. A well-developed infrastructure allows for accessibility and lower transportation costs. Although transportation costs account for a small portion of the total costs, improvements in infrastructure are likely to yield small gains (McQuaid, Greig, Smyth, & Cooper, 2004) Thus, the impact of transport in business cannot be overlooked.
The assistance to businesses by the local authorities and the state is an incentive to businesses wishing to expand to Des Moines. Boba Rolls can take advantage of them to reduce the relocation cost and benefit from the helpful tax policies. The low crime rate allows businesses to expand without fear of losses or threat to life which results from criminal activities.
Though Des Moines is recommended, the other three cities have their advantages as well. Some of the advantages are as follows. Lease prices are lowest in Ankeny which also has the highest household income for the period of 2000-2009. Ames has the highest Asian population of about 8.8 % which would provide a ready market for the Asian foods. Moreover, West Des Moines’ Department of Community and Economic Development has put in place programs to stimulate economic growth and attract new businesses into the area. Having put into account all the advantages and disadvantages of each city, Des Moines emerged as the ideal location for a new Boba Rolls franchise.
References
Clarke, I., Bennison, D. & Pal, J. (1997). Towards a Contemporary Perspective of Retail Location. International Journal of Retail and Distribution Management , 25(2), 59-69.
Hernandez, T. & Biasiotto, M. (2001). Retail Location Decision-Making and Store Portfolio Management. Canadian Journal of Regional Science/Revue canadienne des sciences régionales, XXIV(3), 399-418. Web.
Loreto, R. (2010). Applying Demographics to Business Strategy: The Impacts of Demographic Trends on Your Business. Web.
Love, L. L., & Crompton, J. L. (1999). The Role of Quality of life in Business (Re) Location Decisions , Journal of Business Research 44, 211–222. Web.
McQuaid, R. W., Greig, M., Smyth, A., & Cooper, J. (2004). The Importance of Transport in Business Location Decisions. Web.
Murray, M. N., Dowell, P., & Mayes, D. T. (1999). The Location decision of Automotive Suppliers in Tennessee and the Southeast. Web.
Trofimenko, N. (2010). Factors Affecting Location Decisions of the Economic Headliners – Exporters and Foreign-Owned Firms – in China. Kiel Working Paper No. 1645. Web.
Wahlert, T., Wallace, E., Koonce, K. & Igbokwe, J. (2012). Iowa’s Workforce and the Economy 2012. Web.