Ask a planner where a store's customers come from and you will often get a circle. Three kilometres around the front door, maybe five. It is quick and easy to explain. It is also usually wrong, in ways that cost money.
This guide is for Canadian retail, restaurant and franchise marketers, and for the real estate and network planners who work beside them. It covers how trade areas are traditionally drawn, where each method breaks down, and what changes when you can see where visitors actually live.
What a trade area is for
A trade area is the geography a location draws most of its customers from. It is not an academic exercise. It decides where you spend media, which postal codes get flyers, whether a new site will steal from an existing one, and how you judge a store's performance against its market.
If the shape is wrong, every one of those decisions inherits the error.
The four traditional methods
Radius rings
A ring is a circle drawn at a set distance around a site, often at two or three distances. Esri, whose Business Analyst software is widely used for this work, calls simple rings the simplest and most common form of market area analysis and positions them for preliminary studies 1.
Rings are consistent: every store gets the same shape. That is also the problem.
Drive-time polygons
A drive-time area covers everywhere you can reach within a set number of minutes on the road network. Esri's documentation makes the point that straight-line distance ignores how people travel: the same two-kilometre trip can take very different times on different road networks 1. Drive-time tools follow one-way streets, avoid illegal turns and can use traffic speeds by time of day 2.
Drive times are a real improvement. They still assume people start from home and drive to you, and they say nothing about competitors.
Gravity models (the Huff model)
Gravity models estimate the probability that a shopper in a given area will choose a given store. The best known is the Huff model, which Esri says was refined and made operational by David Huff of the University of Texas 3. His paper "Defining and Estimating a Trading Area" appeared in the Journal of Marketing in 1964 9. In Esri's description, the probability depends on how attractive the store is, how far away it is, and how attractive and far away the competing stores are 3. Attractiveness is often stood in for by floor space. A distance exponent controls how quickly the pull fades; it usually falls between 1.5 and 2, and it differs by category, since people travel further for furniture than for groceries 3.
The catch is calibration. Esri notes that the default settings are arbitrary and may not fit your market, and that calibrating the model needs real store, customer and sales data 3. A gravity model is only as good as the observed behaviour you tune it against. Researchers have shown that mobile location data can do that tuning, in place of slow and costly surveys 4.
Customer spotting
Customer spotting means plotting where actual customers live, traditionally from loyalty cards, delivery addresses, cheque or credit records, or in-store surveys. Esri builds "customer derived" trade areas this way, drawing a boundary around the closest share of customers: for example, the nearest 30, 50 and 70 percent as primary, secondary and tertiary areas 1.
This is the right idea. The limits are coverage and bias. Loyalty members are not all customers. Surveys reach whoever agreed to answer. And you can only spot your own customers, never your competitor's.
Why radius rings mislead
A circle assumes people are spread evenly and move freely in every direction. Real Canadian geography does not work that way.
Barriers
Rivers, rail corridors, escarpments and controlled-access highways cut catchments in half. A ring drawn around a store next to a river valley, a rail corridor or a highway will include neighbourhoods that are close on the map but a long, awkward trip in practice. Esri's own drive-time documentation notes that natural barriers can leave holes in a travel area 2. A ring has no way to show them.
Competitors
People do not go to the nearest store in a category; they go to the one that suits them, and a strong competitor can take most of the households inside your circle. The Huff model exists precisely because competition reshapes trade areas 3. A ring ignores it.
Uneven population
A five-kilometre ring in a dense neighbourhood and one at the edge of a suburb can hold very different numbers of households. Some of the ring may be parkland, industrial land or water. Treating every square kilometre as equal overstates some sites and understates others.
Where people actually start
Not every visit starts at home. Downtown lunch traffic, a store near a hospital or campus, or a location on a commuter route will draw people who live far away and pass by on their way to or from work. A ring around the store cannot see them. Neither can a drive time measured from home.
Destinations draw from far away
Some locations, like big-box stores, venues and events, pull from well beyond any sensible radius. In one community event we measured, 62% of the event's visitors came from beyond 15 km. That is an event audience, not a store's trade area, but the lesson carries over: a tight ring around that site would have missed most of the people who came.
How observed visit data changes the picture
Mobile location data, gathered with consent and reported in aggregate, lets you see the home areas of people who actually visited a location. At Measured Reporting, each visit maps back to an estimated home area at the six-digit postal code level, never a street address, and results are reported as shares and indexes 5.
That gives you three things the traditional methods struggle to provide.
A trade area built from real visitors
Rank postal codes by their share of visitors, then add them up from the top. The postal codes that together account for, say, the first half or two-thirds of visitors form your primary trade area. The next band forms your secondary area. This is the same logic as customer spotting, but it is not limited to loyalty members or survey respondents. The shape that comes out follows barriers, roads and habits on its own, because it reflects where people actually came from.
Your competitor's trade area too
Because the data covers places, not just your customers, you can draw the same shares for a competing location. That lets you see where the two trade areas overlap and how much of your visitor base also visits the other store. This is cross-shop analysis, and it is impossible with your own customer file.
A way to calibrate everything else
If your team relies on gravity models or drive-time standards, observed visitor origins are the check. Compare the drive time you assumed with the area your visitors really come from. Where they disagree, trust the observation and adjust the model.
What to do with a real trade area
Set media geography
Point geo-targeted digital, out-of-home and local media at the postal codes that make up your primary and secondary areas, not at a circle. Measured Reporting can deliver postal code lists for direct mail, out-of-home and geo-targeting 6.
Plan direct mail by postal code
Canada Post's unaddressed mail tools are built around geography: its Precision Targeter lets you build a campaign from a list of geographic areas and look up the delivery route for a postal code 7. A ranked list of postal codes from your real trade area is a direct input. Mail the codes that send you visitors, not every door in a radius.
Screen new sites
Before signing a lease, look at the trade areas of comparable existing stores, not a generic radius. Then look at where the candidate site's surrounding traffic comes from today, and which competitors those people already visit.
Check for cannibalization
When a new location's likely trade area overlaps heavily with an existing store's primary area, the new store may take more from you than from competitors. Overlap between observed trade areas is a direct way to see that risk before you open.
The honest limits
- It is a sample. Mobile location data reflects a large sample of devices, never every customer. It tells you shares and patterns, not headcounts.
- Shares, not counts. A trade area built this way says that a postal code supplies a given share of visitors. It does not say how many people shopped, or what they spent. The data shows visits, not purchases 5.
- Small locations are harder to read. A small store or a short time window yields fewer observed visits, so postal code shares are noisier. Longer periods or grouping postal codes into larger areas helps.
- Home is an estimate. Each device's home area is estimated at postal code level, never an exact address. Treat it as a strong pattern, not a fact about any one person.
- Postal codes are not census areas. Statistics Canada cautions that postal codes do not necessarily follow standard geographic boundaries 8. If you join trade areas to census data, expect some mismatch.
FAQ
What is the difference between a primary and secondary trade area?
A primary trade area is the core geography that supplies the largest share of a location's visitors. The secondary area supplies the next band. Thresholds vary by business; Esri's example uses the closest 30, 50 and 70 percent of customers 1. Pick a threshold and keep it consistent across stores.
Are drive-time trade areas good enough?
They are better than rings because they follow roads and barriers. They still assume trips start at home and ignore competitors, so check them against where visitors actually come from.
Can I see a competitor's trade area?
Yes, with observed visit data. Because it covers locations rather than just your own customers, you can map where a competitor's visitors live and where that overlaps with yours.
Is this privacy compliant?
Measured Reporting uses aggregated, anonymized data with no personal information, at postal code level, following PIPEDA and provincial privacy rules 5. Your own legal team should advise on your specific use.
How long a time period do I need?
Longer windows give steadier shares, especially for smaller locations. For insight work we can look back up to 24 months, which also lets you compare seasons. Whether that yields enough visits for a very small location depends on the site, so ask us.
Next step
See your real trade area, and how it overlaps with a competitor's, on one location you choose. Learn more about audience insight and trade area maps and how retailers use them, or request a complimentary Sample Insight. It takes about a week.
See how this works in practice on our trade area analysis page.