Can You Get There Alone?: The Pros and Cons of Programs, Groups & Franchises - Tire Review Magazine

Can You Get There Alone?: The Pros and Cons of Programs, Groups & Franchises

Can You Get There Alone?

The Pros and Cons of Programs, Groups & Franchises

Tire One. Auto Edge. American Car Care Centers. Best One. Tire Factory. Mr. Tire. Tirecraft. Kal Tire. Tire Shop. Excel Tire. Tire Pros. President Tire. T3. King Bear. OK Tire. Big O.

Michelin’s Alliance Program. Bridgestone/Firestone’s Affiliated Dealer and Tire Starz Programs.

They come in various shapes and denominations – independent and quasi-independent, national and regional, tire company-operated and franchised.

They are the marketing groups, "affinity" programs and franchise opportunities that have taken control of a huge part of the North American passenger and light truck/SUV tire distribution system.

Over the last decade, Tire Review estimates, these programs and groups have grown to now control around 5,740 retail locations across the U.S. Similar programs in Canada control over 1,100 retail locations.

And, even with those large numbers, some feel their growth in the retail tire market has only just begun.

Some are complete soup-to-nuts programs, with extensive advertising, credit card, signage, training and other elements. Others are geared strictly as a tire distribution system for smaller independents. Many require strict adherence to performance and purchase level criteria, while others give the dealer leeway to pick and choose their level of participation.

But all, in one form or another, have a single bottom line focus – stabilize the width and breadth of tire marketer consumer product distribution.

Feeling Part of Something
Just based on shear numbers, it’s safe to say most participating dealers love their programs, and feel confident that they will help them survive and thrive. Some simply like being part of a group, while others emjoy the benefits but participate at a low level. Some make extensive use of every tool offered. Others are more selective, taking advantage of elements they can’t provide for themselves.

And despite the rapid growth of these programs, many dealers remain fervently on the outside, not willing to trade one iota of "independence" for any perceived advantage.

Marketing groups, affinity and franchise programs are not for everybody, according to the heads of these programs. But in the face of today’s competitive challenges, any small dealer – with one to about five locations – should seriously consider the benefits of strength in numbers, they say.

"The large retail chains are getting bigger and bigger every day," said Dave Snyder, vice president of small tire marketing and sales for TCI Inc., the Michelin North America subsidiary that runs the two-year-old T3 Certified Tire Center program. "For smaller independent tire dealers to be able to compete with large chains, they need to align themselves with a program.

"One of the comments we hear from our dealers is that these programs allow them to compete with the big guys. It gives them a marketing program, a look program, an advertising program and promotional activities. Without something like this, it gets really difficult for small tire dealers to be successful."

"There is a tremendous amount of competition and pressure in the marketplace," according to Dave Crawford, marketing director for American Car Care Centers (ACCC), which has 1,050 dealers and was one of the first true marketing groups. "I think there is a growing desire among dealers to feel a part of something larger, to have a louder voice with their suppliers, as well as to have a group of peers they can associate with and consult with about their business."

Bill Pace, manager of Bridgestone/-Firestone’s 610-dealer TireStarz program, agrees. "People feel like they need to be part of something, especially people in rural areas and small towns. They want to be able to offer their customers what big city dealers can and do."

"Dealers participate in marketing groups to gain increased viability and a differentiating feature or consumer benefit they can offer in their local market," said Phil Marrett, senior vice president of sales and marketing for American Tire Distributors (ATD), formerly Heafner Tire Group, which has over 200 dealers signed on to its AutoEdge program.

"Many dealers have difficulty competing with sophisticated retail marketing programs offered by the large regional retailers and chains. Marketing groups and affinity programs help to level the playing field and provide the dealer with a dependable partner," he said.

Program Offerings Broad
The field-leveling elements and services available in these programs are indeed as sophisticated as any you’ll find from large competitors: retail and commercial credit cards, local and national advertising, POP materials and in-store displays, Internet systems and Web sites, uniform programs, technical and business operation training, online ordering and communications, sales promotions, signage and/or store design, employee benefit packages, payroll systems, business software, exclusive private brand tire lines, tire and service warranty programs, and equipment buying programs.

Oh, and let’s not forget about more-than-competitive pricing on major national tire brands.

But product pricing, according to those Tire Review spoke with, can be a real trap for dealers.

"Dealers who are out looking at different programs need to look at the total package," said Nick Hodel, president and CEO of Northwest Tire Factory, whose Tire Factory program encompasses 160 dealer locations in 10 western states. "If a dealer is only looking at price and nothing else he will most likely still fail. I think the buying price advantage, plus the marketing and advertising elements together make it all work for a dealer."

Jerry Cash, national director of business development for Bridgestone/-Firestone, agrees. "These are not price programs. These are about retail support, about education, about the things that help a dealer do things that he can’t do on his own. If the whole conversation with a dealer revolves around pricing, then there is an issue."

Changes Drive Change
Over the last four decades, tire retailing has changed dramatically. We have gone from a time when tire dealers and major brands were virtually joined at the hip to a period of intense antagonism between maker and seller to today’s seemingly peaceful co-existence.

Marketshare grabs (by manufacturers and dealers alike), changing cost/benefit structures, distribution expansion and protection, price-based competition, import brands, tiremaker dissolution and consolidation, cost-cutting, radialization, the growth of mega-dealers, import cars and OE SKU increases – not to mention the growth of suburban shopping centers and regional/national chains – all contributed to the ebb and flow of the dealer-maker relationship.

But volume-based pricing structures, which have existed since the first replacement tire popped out of a curing press, became a major hot button as mass merchants, warehouse clubs, company stores, national chains and mega-dealers became more prominent in the tire retailing universe.

Smaller dealers, long loyal to the tire brands that helped them grow, were put into a David vs. Goliath position relative to these high-mass competitors. And while they could complain about "pricing disparity" until the cows came home – some still do – there was nothing they could do but fight fire with fire.

In order to level the playing field, dealers needed volume. And they got it from themselves.

At the same time, consumer attitudes changed. Value, service and convenience became the consumer mantra, and mass merchants and national chains racked up customers by providing those consistently and effectively. Those retailers who couldn’t keep up – big or small – went by the boards.

Buying groups had been around for decades, with small pockets of non-competing dealers joining together to increase their tire buying volume, thereby earning lower per-unit costs. As competition intensified in the late 1970s and early 1980s, these regional groups grew increasingly sophisticated. One of the more notable examples, the Detroit-based Metro 25 Tire cooperative, went a few steps further, combining group purchasing power with a private brand line, group advertising and aggressive marketing programs.

Seeing the opportunity, more and more dealers sought out multi-faceted programs. But they also wanted more than just group pricing and group advertising.

Enter the "marketing group" concept we know today. Independent national groups like ACCC were formed, and regional distributors stepped up with tailored programs for their customers. Even tiremakers, looking to protect their distribution turf, created direct purchase affinity programs and marketing programs.

Helping small dealers build and maintain a strong relationship with their local customer base is the primary focus of these programs today. "Consumers like to deal with large, nationwide companies, but also like the hometown relationships an independent dealer provides," said ACCC’s Crawford.

"They know that the dealer they have a relationship with will be there tomorrow if a problem arises, and they won’t have to deal with a new manager or salesperson at a chain store. When you combine the marketing elements of a nationwide group with the dealer’s local reputation, it offers an enhanced package for the consumer."

"When we designed our program, we realized that one of the most important elements in the process would be to create a good buying experience for the consumer," said Snyder of T3. "When you look at the kind of dealers that we targeted for our program, a lot of them had showrooms that hadn’t been upgraded in 20 years. So, we needed to give our dealers very attractive showrooms and informative displays so consumers could be comfortable and understand things easier."

"The overall reaction from consumers seems to be that the larger you are, the easier it is for them to have confidence in your name," Tire Factory’s Hodel said. "This is hard to do if you’re a single outlet. Most of these programs make the dealers clean up their acts in sales, service, cleanliness and appearance. Some of the old timers think their way is the only way. Change is a hard thing to do, but it is for the betterment of that dealer."

A franchise system like Big O includes complete store design – whether a greenfield or renovated facility – as part of the program. According to Tom Staker, Big O’s senior vice president of franchise development and training, the consistency of Big O’s 520 locations and system are a major reason why the chain "consistently rates in the top two in the J.D. Power & Associates consumer satisfaction studies."

Are You Program-Worthy?
So, who would be the perfect candidate for a marketing group, affinity program or franchise opportunity?

"Our program is designed for the small independent retail tire dealer who really doesn’t have the size or the wherewithal to have their own advertising or marketing staff, or to have the ability to design their own showrooms and execute other elements of the program, said TCI’s Snyder.

ACCC’s ideal dealer candidates are "progressive-thinking dealers who want to grow their business," said Crawford. "The dealer should be a solid businessman, financially solid and willing to commit to the program."

"Any independent tire dealer who would like to become part of a larger organization that can provide larger image and buying power as well as merchandising, POS materials, training, market information, more advertising clout, and so forth," Staker said of Big O’s ideal franchisee. Conversely, a franchise program would not work for "a dealer who has difficulty belonging to and working with a group and operating under guidelines and standards."

"Some independent tire retailers are hesitant to invest in the short-term for long-term growth," said Eric Olsen, vice president sales for Michelin Americas Small Tires (MAST) and head of its Alliance Program. "We’re looking for dealers who offer consumers a high-value proposition. The retailer’s market strategy should be to utilize high equity national brands to create a differentiated market position and support its branding at a quality point of sale."

Time and time again, those we spoke with used words like "commitment" and "implementation" to describe a dealer’s stake in these programs.

"Programs are great but they still have to be implemented. We try to make it easy for the dealer to participate, but it is still up to the dealer," said BFS’s Cash. "If they really want to have a program impact their business, they have to meet us at least halfway."

The wrong candidate for a marketing, affinity or franchise program, said Cash, "is the kind of guy who thinks if they join a program everything will be great."

"Or they just joined because of the credit card program or some other element. That doesn’t do it," Pace added.

"In a over-simplified sense, the wrong dealer is someone who doesn’t want to improve," Pace said. "Someone who doesn’t want to change, who doesn’t care if his place looks any better, who doesn’t care if he has more traffic or not, who doesn’t care whether his people are educated or not."

For these programs to work, Pace continued, "a dealer needs to understand that they need help. If they treat it as just a price deal, then it’s of no real benefit to them, and what we do doesn’t matter to them."

The less-than-ideal prospects are also the one’s who see these programs as cure-alls. The wrong candidates, said ACCC’s Crawford, "are weaker dealers who are having a tough time surviving. They lack the financial wherewithal to invest in the business and facility, and the addition of a program will only mask existing operating problems."

From a size standpoint, most everyone agree that the larger the dealer, the less the potential benefit. In general, dealers with eight or more locations, who plan and run their own marketing and promotions and have ready access to many of the other elements common to these programs, are not considered candidates.

Independent or "Independent"?
Dealers still control their own fate, at least up to the time they sign on to a program. But considering every aspect of the various available programs, comparing benefits to cost and mulling over each one’s potential bottom-line impact, takes a spread sheet and a lot of time.

Some of the programs require a monthly fee and provide program elements at no charge or at a sharply reduced rate. Others are fee-free but charge nominal amounts for some or all program elements.

Then there is the buying level requirement. Some are fairly inflexible, and others are less rigid. Some are tied directly or indirectly to a manufacturer’s brands and lines. Most of the manufacturer-based and national marketing group programs allow dealers to offer other non-program brands. Regional distributor-based programs like Tire Factory or AutoEdge are tied to the distributor’s brand offering. Every one, for the most part, has some buying commitment attached.

It is, after all, all about selling tires.

But how do these "commitments" impact a dealer’s "independence?" Will programs designed to help dealers remain competitive cause this industry lose its lone independent distribution channel? Can an independent tire dealer remain truly independent while being a member of a marketing group or affinity program? The answers are as varied as the offerings.

"We try very hard to let them be as independent as possible, but we do have dealer agreements that everyone signs that say they must do certain things such as painting and signing their buildings, offer warranties, and perform certain services," said Hodel. "So, maybe they’re still 80% independent."

"One thing all the marketing and affinity programs do is allow the dealer to remain independent, and I think guys like that. I would like that," said BFS’s Pace. "He can still have his own look, and he can still adopt his own merchandising plan even though we require a share of his business.

"There are extremes," Pace continued. "Some of our dealers are fiercely independent and want to stay that way. And some of them want us to hold their hands every step of the way. That’s just personalities. For the most part, they want to be independent, but they want to be part of a group."

"Our program is owned by independents and run by independents for independents," said ACC’s Crawford. "The dealer needs to embrace the elements of the program and integrate them into their business to be successful."

"In my opinion, the answer is yes, dealers can remain independent. But, it’s difficult. It really requires some concentrated efforts and programs to do that," Snyder said. "We designed our program so that the ‘brand’ is still the independent tire dealer. The program ties everything together, but, in our advertising and promotional activity, we still feel that the brand equity is in the dealer’s name and not the program.

"Now, I can’t say that at some point in time in some markets where we have a very large population of T3 dealers that the brand identity could become ‘T3’. But we don’t want that to happen. If a program is designed properly, total brand equity stays in the tire dealer’s name. They are the ones that have been there for all these years. They are the ones that built the business. And, they are the ones who are known. Not T3."

"If you consider that "independent’ means the dealer is not "dependant’ on spending his time doing things other than paying attention to his business, then a program or system makes you very independent," said Big O’s Staker. "Many dealers spend their time doing things like placing advertising and working a vendor for that extra $1 per unit, while customers gather in the store and aren’t getting taken care of.

"Our philosophy is that you can’t buy your way to a profit as well as you can sell your way to a profit. And to do that, you need a systematic, logical and consistent sales program."

Michelin’s Olsen said dealers remain integral to future tire retailing, "because the core benefit to a manufacturer in developing and supporting a marketing program is the long-term independence of quality tire retailers."

What Does the Future Hold?
So where is all this headed? Are marketing groups, affinity programs and franchises an evolutionary step or are they a final retail destination?

"I don’t think (these programs) will mean the end of independent dealers," said Hodel. "I do think dealers need to be there to compete with the big box stores and the other large retailers. But look at the other industries and what most of them have already done in their consolidations. Why would tire retailers be any different?"

"I can’t speak for the other programs, but our program offers dealers tools they can use to grow stronger and be more competitive in a market that is becoming increasingly saturated with large retail chains," said ATD’s Marrett. "Our focus is on strengthening those dealers without increasing their competition."

"Our industry is probably the last to actually embrace franchises," said Cash, "but I think that will be the next step. It will evolve to that some day. Maybe not franchises in the traditional sense, but an evolution of franchises. There is going to be a type of dealer who is willing to do it all by the book. There is some security with franchises."

"There will always be in America that entrepreneurial spirit and desire of people to own a business," said Staker. "Franchising is a good future bet."

"It’s difficult to say with so many changes in the industry," said Crawford. "The focus and strength of our program is the independent dealer. The ties to the manufacturer will remain, but to draw them any closer could strip the dealer of his independence."

"The future of these marketing programs lie in the fact that manufacturers are addressing their programs to larger and more significant dealers, and the smaller dealers are going to be served by distributors like us," said TCI’s Snyder. "It’s an economic issue. The manufacturers are not going to invest the funds and have the resources to drill down and service all the small dealers.

"I think distributor programs will get stronger over the years. And, at some point, I think you’re going to see most dealers affiliated with something. But, there will always be independent dealers strong enough to stand on their own without partnering with a group."

In evaluating the various groups, programs and franchises available today, there are several key questions dealers need to ask, according to Phil Marrett, senior vice president of sales and marketing for American Tire Distributors:

  • Is my single-most important objective for joining a program to reduce my expenses or increase my consumer traffic?
  • Is the program focused on adding members or influencing consumers to come to my dealership?
  • Are the costs of membership (fees, service charges, etc.) covering program benefit costs or are they a revenue source for the provider?
  • Am I paying for benefits I don’t use or don’t need?
  • Can the program elements offered enhance my ability to compete?
  • Can the program enhance my profitability?
  • Will I be partnered with a supplier who can take care of my long-term needs?

In 1991, the company launched the Superior Tire Auto Fitness Franchise program. Feeding on the entrepreneurial energy of independent business owners allowed the Superior Tire concept to expand into more communities while the parent company earned sustained, diversified growth.

Today, there are six total Superior Tire stores, including one in Barrie, Ontario, and five in the greater Toronto area, with plans for more. Paul’s son, Jason, who was changing tires part-time when he was 15, now owns one of the franchised Superior Tire stores in Toronto.

The Superior Tire concept and its franchised expansion has worked. In 1994, the company received the Business Excellence Award from the Scarborough/Metro East Chamber of Commerce.

And in 2002, the Consumers’ Choice Institute, which polls consumers in major Canadian cities every year, presented Superior Tire with its Consumers’ Choice Award.

Even with the accolades, Hyatt remains committed to both Superior and to the people who helped the company grow – the customer. "It always comes back to the same challenge: How can we serve our customers better?"

Got a Winning Retail Formula?
Start Your Own Franchise

That’s exactly what Paul Hyatt, owner president of Superior Tire Corp., based in Scarborough, Ontario, did.

And, thus, far, it’s been a success for the 60-year-old second generation Canadian independent dealer.

Founded in 1942 by Hyatt’s then future father-in-law, Walter Chudy, the first Superior Tire store was located behind a dairy on Toronto’s East End. Within 10 years, Superior had to find bigger quarters, and Chudy built a new store in the city.

"It may sound kind of corny, but we’ve always counted on a combination of superior service and innovation to set us apart," said Hyatt, who joined the business as a 17-year-old apprentice in 1955. "You can’t survive this long without having a really clear idea of what you stand for and what you’re willing to do for your customers.

"But you also have to know when to adapt to changes around you. I think we’ve done both pretty well."

Under Hyatt’s leadership, Superior added two other stores in the 1970s, including its present Scarborough headquarters.

According to Hyatt, a past president of the Tire Dealers Association of Canada and current Tire Industry Association secretary, it has been the company’s "hand-made" quality and heritage of a family-owned business that has kept Superior at the forefront, even as it modernized and expanded.

Through the 1980s, Superior Tire did all the "innovative" things necessary to stay ahead of the curve. It installed state-of-the-art computer systems for inventory management, billing and job tracking, and it instituted rigorous technical training to ensure that employees could provide expert service and advice to customers.

To this day, Superior Tire uses innovative promotions and stays on the forefront of technology to provide the best possible service to its customers. For Hyatt and his staff, it’s an attitude of "going beyond our customers’ expectations."

Even with a customer-first attitude and technical advantages, by the 1990s even Superior had to defend itself against car dealerships, specialty shops, and the large retailers that were increasing their tire and service operations.

Expansion was the obvious answer, but Hyatt thought the best way to "expand" the tire dealership without placing the core business at risk: franchise the Superior Tire concept.

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