Business Location
Why Location Matters
Where a business is based shapes its costs, its customers and its chances of survival. A Pret a Manger on Oxford Street lives or dies on foot traffic. A JCB factory near Uttoxeter needs space, steel suppliers and skilled engineers. Pick the wrong spot and no amount of marketing can rescue you — the shop with no passing trade, the factory miles from its suppliers, the office where nobody wants to work. That is why the location decision is one of the most important a business makes.
Factor 1: Proximity to Market
Proximity to the market — being close to customers — matters most for service businesses. A hairdresser, a takeaway and a Costa Coffee all need foot traffic to survive. The closer you are to a busy town centre, a train station or a large residential area, the more potential customers walk past. That is why high-street rents are eye-watering: the footfall justifies the cost. For online-only businesses such as ASOS, this factor falls away — customers can be anywhere in the country.
Factor 2: Availability of Raw Materials
Businesses that transform bulky raw materials want to be close to those materials to cut transport costs. A cheese maker in the Lake District sits near dairy farms. A stone quarry’s cutting shed sits next to the quarry. A fish and chip supplier locates near fishing ports. If transporting raw materials costs more than transporting the finished product, locate near the materials. If the finished product is the bulky one (bottled drinks, for example), locate near the market.
The five location factors on the specification are: proximity to the market, availability of raw materials, availability of labour, level of competition, and costs. Every location decision weighs these five against each other.
Factor 3: Availability of Labour
A business needs people with the right skills at an affordable wage. Availability of labour has two dimensions: whether there are enough workers, and whether they have the right skills. A tech firm sets up in Cambridge or Manchester because that’s where the software engineers cluster. A fulfilment centre locates in Rugby or Wakefield because those areas have plentiful lower-skilled labour near motorway links. Wage levels vary too: a call centre set up in Derby costs far less to staff than one in central London.
Factor 4: Level of Competition
Sometimes firms avoid rivals — a second corner shop across the road from an existing one will struggle. Other times, clustering together helps. Restaurants thrive on restaurant rows because diners come to the area to eat and then pick a venue. Car dealerships gather on trading estates because buyers want to compare. The right answer depends on the business. In general, a new entrant faces tougher competition where rivals are already established, unless it can clearly differentiate — faster service, lower prices, a niche menu.
Clustering works when customers benefit from choice in one place. Theatreland in London, Hatton Garden for jewellery, the Jewellery Quarter in Birmingham — all examples. It also works when skilled labour clusters in one area: software firms in Cambridge, oil and gas in Aberdeen, bioscience in Oxford. The advantage: quick access to trained workers, specialist suppliers and knowledge. The cost: rents are higher in clusters, and labour poaching between rivals is common.
Factor 5: Costs
Costs are the final test. Rent, business rates, wages, transport and utilities differ enormously between locations. A retail unit on London’s Oxford Street can cost thousands of pounds per square metre per year; a unit in Doncaster a fraction of that. Government grants can sway the decision — some UK regions offer tax breaks or grants to attract new investment. Nissan chose Sunderland in the 1980s partly because of government support, and the plant still employs thousands today.
A central London coffee shop wins on footfall but loses on rent. A business park unit in Hull wins on costs but loses on customer access. Most location decisions involve balancing two or three strong factors against one weaker one. The skill in exam answers is spotting which factor matters most for this business. A fine-dining restaurant lives on the quality of its customer experience — a prestigious address justifies the rent. A warehouse operator lives on unit cost per square metre — the cheap site wins.
Digital and online-only businesses weigh location factors differently — proximity to market matters less, but access to fast delivery networks, warehouse rent and the right tech workforce matters more. ASOS, Boohoo and Gousto all chose their locations around fulfilment, not footfall.
How Businesses Actually Decide
Real location decisions combine these five factors with commercial research: rival store density, customer demographics, planning permission and transport access. A chain like Greggs uses data analytics to pick sites where their typical customer walks past in the greatest numbers. A family business making handmade furniture often starts near home and stays there because moving would mean losing craftspeople who cannot commute further. Whichever approach, location is not a one-off choice — Tesco, Boots and John Lewis have all closed underperforming sites and opened new ones as consumer habits change.