What is Cannibalization?
When a new business location takes sales from the company's own existing locations rather than from competitors.
Definition
Cannibalization occurs when a brand opens a new location close enough to an existing location that it draws customers from the established store rather than capturing new market share. This is a critical concern in site selection, particularly for franchise and multi-unit operators. The extent of cannibalization depends on trade area overlap — if two locations' primary trade areas overlap significantly, the new location may simply redistribute existing sales rather than generate incremental revenue. Cannibalization analysis involves mapping the trade areas of both the proposed and existing locations, calculating the overlap, and estimating what percentage of the new location's sales will come from the existing location's customer base. Some cannibalization is acceptable if the net result is still positive growth, but excessive cannibalization destroys unit economics.
Example
A QSR franchise evaluating a new location 2 miles from an existing unit uses visitor origin data to determine that 40% of the potential customers already visit the existing location — indicating significant cannibalization risk.
Related Terms
Learn more about cannibalization in practice
Competitive Analysis Guide