How demographics can help business plan strategies

Bernard Salt
AUGUST 28, 2014
THE AUSTRALIAN
I AM often asked how demographic information and demographic techniques are used in business. Larger property investors, developers and tenants are familiar with demographic reports. But smaller players and especially those on the fringes of the property industry might be less familiar. Here is how demographics can help your business.
The first step is to map the catchment areas of stores or business locations. The best way to do this is to capture customer postcode information. That’s why retailer check-out operators ask for that information. There is an art to defining a catchment area that should represent about 80 per cent of the customer base. A random 20 per cent will conduct a transaction from a position well outside their local area.
Most supermarkets, for example, draw customers from within a 5km radius although the catchment is in fact shaped by road and access configuration and the placement of competitive stores. Once the catchment is defined then tally up the population and households. Trawl the census to ascertain the local community profile and benchmark that against the Australian average.
How else are you going to know whether a community is rich or poor, is dominated by singles or families, and is comprised of people of an Anglo as opposed to, say, an Arabic or an Asian heritage? Supermarket operators calibrate stock to reflect the demographic orientation of the catchment area.
Once the catchment area is defined then plot the location of competitors. I always found the offices of property managers for fast-food chains fascinating. They are invariably surrounded by wall maps of every major city with their and their competitors’ stores plotted in different colours. It looks like a war room.
Which brings me to another point with regard to catchment areas and developers. Good developers know every suburb within the catchment area of their development site. They will also know by name and they will have a working relationship with council officers, with councillors and most likely with the local media.
A demographic report tells developers nothing they don’t already know; it’s commissioned to validate the site to others. Theoretically, store or site sales are directly proportionate to population and household growth. So a 5km catchment area around a supermarket might contain 10,000 residents in 4000 households, but what will these numbers be within five years? If the catchment population was to double this might provide scope for a competitor. Better to expand and in some cases take a strategic view and develop another store to lock out a competitor.
In an ideal world management would have a demographic snapshot or audit of every site showing current and future prospects for growth. Intelligence should be fed into this audit to include possible future developments. I think such audits should be updated every two years.Then comes the fun part of business demographics. Let’s say you have 20 stores/sites/offices across three states and you and the board want to take this to say 50 within five years. Where are the next 30 best sites across Australia? Can prospective sites be sorted and quantified? This would provide the property manager with a road map for site acquisition.
Build catchment areas across all major cities and regions, plot the location of competitors, and measure current and projected population and household numbers. There are techniques to determine whether communities are over-  or under-supplied with any particular product or service. Simple ratios showing levels of supply relative to population by postcode can be effective.
I am also a big fan of a little-known table published annually by the ABS. It shows the current population and recent growth rate for each of the 101 largest towns in Australia ranging from Parkes with 10,000 residents up to Sydney with 4.6 million.
In my corporate speaking presentations to retail franchisees I will often show client store numbers for each city. At some point on the spectrum between Sydney and Parkes there are gaps and it gets the chief executive and the property manager all excited. “Why aren’t we in Geraldton?” “Or in Albany?” “Or in Gladstone?”
The value of a demographic audit is that it imposes a logic and a system of metrics in order to determine strategic direction. The alternative is to allow real estate site availability to determine the expansion strategy. Property managers need a road map or, in modern parlance, a demographic GPS.
Really sophisticated demographic consultancies will also project retail spending (or household formation) by catchment area and calculate market share on a store-by-store or on a site-by-site basis.
Mapping out the options for an expansion strategy is exciting. I worked on the demographic feasibility for Brisbane’s Logan Hyperdome 25 years ago. It was one of the best new shopping centres sites in Australia at the time largely because of the scale of its catchment area and the broader scope for further growth. A site with a good demographic provenance and strategic positioning will remain a good development site for decades. This logic also applied to sites like Melbourne’s Fountain Gate and to Sydney’s Castle Hill.
Over the past decade Australia has added about three million residents through natural population growth and immigration. Over the coming decade Australia will add another four million residents. There is a prima facie case to say there are other Logan Hyperdomes, Fountain Gates and Castle Hills out there but it’s not clear which of the available development sites they are.
This is where business needs a methodical analysis of which of today’s development sites have the capacity to grow best over the coming decade and beyond.
One problem with such analyses is that they invariably rely on state-based population projections which, in my experience, are almost always overly optimistic when it comes to future population levels.
Senior management teams and boards need to assemble the demographic road map, but the pathway beyond a few years out needs to be interpreted with caution. The medium term and the longer term can be a fluid and political world where projects and planning can change priorities and direction.
Who knew early last decade that Melbourne’s growth boundary would be moved? Several times. Who knew that Melbourne would turn out to be a bigger growth market than Sydney? When will the Gold Coast awaken from its long hibernation? What are the prospects for Brisbane over the coming decade?
These are fundamental demographic questions that are central to property success but which in reality can only be answered by management and by boards.
Demographics can help inform decision making but ultimately even the most rigorous numbers need to be distilled into an action plan.
KPMG partner Bernard Salt heads KPMG Demographics; he is also an adjunct professor at Curtin University Business School; bsalt@kpmg.com.au