A fourth shop, but where?: Lena and Marco want a fourth shop. They look at two empty units: one on Station Road, one on Church Street, a quiet road behind the market.
They choose Station Road and spend $120,000 fitting it out. Once the ovens, counters and sign are in, the shop is not moving. That is why the choice of place gets so much thought.
Where a business makes its product, or serves its customers, is its location. The reasons for choosing one place over another are the business's reasons for a location.
A location is hard to undo. Moving costs money, loses customers for a while and unsettles staff. So a business weighs its reasons before it signs the lease, not after.
Where the customers are
- People on their way to the trains pass the Station Road door every morning
- Office workers nearby are the lunch trade: 150 lunches a day is the aim
- More people passing means more sales
What the place costs
- Rent, which is higher on a busy street
- Wages, which differ from town to town
- Transport: how far the vans must drive from Mill Lane
What the place allows
- Room to grow, or not
- Roads, parking and deliveries at 5 a.m.
- Workers with the right skills close by
Location, in one line: The right location helps sales, keeps costs down, or both. A business picks the place whose reasons matter most for what it makes and who buys it.
Free preview
This is the free notes preview
You're reading the free notes. Aimnova Pro unlocks the full study experience — and you can try it with your first topic free to keep:
- FlashcardsLock in vocabulary and key terms with spaced repetition.
- Practice questionsAnswer exam-style questions and get instant AI marking.
- Mock exams & past-paper vaultSit full mocks and see exactly how examiners award marks.
- Personalised study planA daily plan built around your exam date and weak areas.
Why not bake on the farm?: Valley Grain's farms are about 40 km out in the valley. The wheat grows there and is milled into flour there.
Yet Lena's bakehouse is in town, on Mill Lane, a short drive from every shop. The flour travels 40 km; the bread travels a few minutes.
Every business sits somewhere between its supplies and its customers. Which way it leans depends on what is harder to move: what goes in, or what comes out.
Flour keeps for months in sacks and stacks easily on a lorry. A loaf is bulky, crushes easily and is stale by the next day. So the bread is baked near the people who eat it.
Near the customers
- The product is bulkier than its inputs (bulk-increasing). Loaves take more room than the flour in them.
- The product spoils fast. Bread baked at 2 a.m. must be on the shelves by opening.
- It is a service. A shop, a café or a hairdresser must be where the customers can walk in.
- Customers want it quickly. The Station Road shop sells to people on their way to the trains.
Near the supplies
- The inputs are bulkier than the product (bulk-reducing). Tonnes of wheat become fewer tonnes of flour.
- The inputs spoil fast. Fruit for juice, or fish for freezing, must be processed within hours.
- The inputs are heavy and cheap. Carrying them far would cost more than they are worth.
- The inputs are found in one place. Wheat grows in the valley, not in the town.
Valley Grain leans one way, Lena's Bakery Ltd the other. The same flour sits at the start of one business and the middle of the other, and each is placed where its own awkward goods travel least.
Not every business is pulled either way: Some products are light, keep well and are sold online. A firm that writes software or packs vitamins can go almost anywhere.
For them, the pull of customers and supplies is weak, and other reasons decide: rent, wages, skills, or where the owner lives.
Memorize terms 3x faster
Smart flashcards show you cards right before you forget them. Perfect for definitions and key concepts.
Station Road or Church Street: Station Road costs $100 a day in rent; Church Street costs $60. On rent alone, Church Street wins.
But Marco expects Station Road to sell about 250 loaves a day, and Church Street about 150.
Some reasons for a location can be put into numbers: rent, wages, transport costs, a grant from the government, the sales a site is expected to make. These are quantitative factors.
Each loaf sells for $3 and holds about $0.90 of ingredients, so it leaves $3 − $0.90 = $2.10 towards the shop's other costs. Put the two sites side by side.
The two sites, one day each
Station Road: what the loaves leave
250 × $2.10 = $525 a day
Station Road: after the rent
$525 − $100 = $425 a day
Church Street: what the loaves leave
150 × $2.10 = $315 a day
Church Street: after the rent
$315 − $60 = $255 a day
The difference
$425 − $255 = $170 a day more at Station Road, even after $40 a day more rent. Both are before wages and other costs.
Other reasons cannot be counted, yet they still decide where a business goes. These are qualitative factors.
Station Road is well lit and busy early, so staff feel safe opening at 6 a.m. It is on the vans' way from Mill Lane. There is no other bakery between the station and the offices. And Lena likes it: a bright corner shop suits the name she has built.
| Reason | Can it be counted? | At Station Road |
|---|---|---|
| Rent | Yes | $100 a day, $40 more than Church Street |
| Expected sales | Yes, as an estimate | About 250 loaves a day |
| Transport | Yes | On the vans' way from Mill Lane, so little extra driving |
| Safety and image | No | Busy and well lit early; a bright corner shop |
| Rivals nearby | Partly | No other bakery between the station and the offices |
| The owner's choice | No | Lena prefers it |
Use both kinds: The numbers say what a site should earn and cost. The other reasons say whether it will work day to day.
An estimate of sales is only an estimate: if the trains are cut, Station Road's customers go with them.
Goldcrust chooses Seren: In 1.6.2 Goldcrust plc built a bakery factory in Seren, the second city of Marovia, a smaller country next door. It feeds Goldcrust's 30 shops in Marovia.
Goldcrust could have built anywhere. Seren gave it more reasons than anywhere else.
What drew Goldcrust to Seren
Close to the customers
The bread is for 30 shops in Marovia. Baked in Seren, it reaches them fresh each morning.
Workers ready to start
One adult in eight in Seren was out of work, so 250 factory jobs were easy to fill, at wages lower than in Goldcrust's home country.
A government that wanted it
Marovia offered a five-year tax holiday, no tax on the factory's profit, and $10 million for a road from the estate to the motorway.
Links to move the bread
The new road reaches the motorway, and the motorway reaches every shop.
A place in another country brings reasons a home location does not. Some push the choice towards a country; some are risks that could push it away.
Money reasons
- Wages and land that cost less
- Grants or a tax holiday from a government that wants the jobs
- Exchange rates: a change in the currency can raise or cut every cost
Rules and risks
- A stable government, so the rules do not change after the factory is built
- Trade barriers: making inside a country avoids a tax on goods brought in (a tariff)
- Laws on workers, safety and the environment
People and links
- A language managers can work in
- A culture of work the firm understands
- Roads, ports, power and internet that work
Reasons can change after the move: A tax holiday ends. Wages rise as other firms arrive. A new government can change the rules.
So a reason that looked strong on the day the site was chosen may be weak ten years later, which is exactly the footloose risk from 1.6.2.
Know your predicted grade
Take timed mock exams and get detailed feedback on every answer. See exactly where you're losing marks.
How this comes up: A short question tied to a case: explain one reason for a business making its product, or serving its customers, in a particular place, for two marks.
Longer questions, such as choosing between two sites or two countries, lean on the same reasons, weighed against each other with figures from the case.
The two-mark pattern
- Name the reason. Being close to its customers.
- Show it in the case. People walk past Station Road on the way to the trains and the offices, so the shop can expect about 250 loaves a day and a lunch trade.
The trap: a reason that would fit any shop: 'It is a good location with lots of customers' could be said of anywhere. It names a reason and shows nothing.
Say who the customers are and why they pass this door: commuters, office workers, 250 loaves. One reason, taken from the case, is the whole answer.
Explain one reason for Lena's Bakery Ltd opening its fourth shop on Station Road.
Model answer plan
See the mark-by-mark plan — for / against / judgement, with marking guidance — in study mode.