What’s underway is not just an evolution in the tire industry, but a revolution. We are living in a new era of creativity and risk. Leading companies in the tire industry are forcing adaptations by increasing the rate of consolidations, introducing new technologies and services and even encroaching on sectors beyond their expertise. The questions are how these forces impact the retail environment and where the industry is headed with distribution.
Part of the drive toward change has been the relatively flat demand for product over the last several years. Industry leaders and observers have no expectation of increases in demand in the foreseeable future.
Consumer behaviors are changing rapidly as millennials become the largest consumer base in America. Their buying patterns, preferences and affinity for brands are much different than prior generations, and they are forcing business to change and evolve.
Ridesharing is reshaping the future. Leasing, which has increased in popularity since the global financial crisis, may outstrip personal ownership. Some are contemplating a move to a model of on-demand usage versus ownership that is more representative of fleets.
There is a sizable investment in the car parc, so, while these changes may be on the horizon, we won’t see them in the next year. But they will come.
READ MORE: State of the Industry 2018 Report
Finding Value-Added Solutions
This future will place new partnerships of trust and capabilities between manufacturers, distributors and customers at a premium as we navigate the future. How product gets to market will be even more critical in this new environment, and how product is sold will change.
As this complexity enters the supply chain, I believe wholesale distribution will become an even larger part of the market. Today, we estimate the market is broken down as approximately 50% direct and 50% wholesale, and anticipate that to expand to 70% wholesale distribution over time. As that shift occurs, the professionals in this space will have to serve this changing demand environment, create efficiency and choice for the consumer and serve retailers and other tire outlets rapidly in an on-demand environment.
While getting a tire received, selected and delivered is no small task, it simply won’t be enough. Distributors that can offer their customers sophisticated tools to keep them on the cutting edge of competitiveness will be the preferred partners that dealers turn toward.
Moving tires from Point A to Point B reliably and efficiently won’t be sufficient. Distributors have to find innovative ways to help their customers become more profitable in a tough environment, and we’ve been having these conversations at American Tire Distributors (ATD) for the past several years. Distributor operations will have to be more digital and will need to support manufacturers and dealers through new technologies, sales and marketing strategies and assortment. This is how distributors will help increase store traffic, save customers money and serve the ever-increasing demands of consumers.
The best distributors do not and will not serve one or two masters. Rather, they look to connect partners in ways that help facilitate their ability to be successful. That’s why we have invested in technologies to help simplify the supply experience and find ways to bring traffic to customers.
For years, manufacturers have been consolidating, and, in my view, this has been a net positive for consumers. The gap between brands coming out of Europe, Asia and North America has narrowed.
These consolidations were driven by an increase in the quality of products available to consumers. To address this, manufacturers are working on continued product differentiation, which has expanded the SKU base, expanded tier offerings and added pressure to supply chains.
Of course, not all tires are created equal – there are differences in product, but the pressure to either expand product differentiation or compete in a commoditized sector by focusing on price or cost will be key to future-looking decisions. To either case, supply chain and distribution will not be a commodity but an essential part of success.
As a result, we’re seeing more manufacturers move into adjacent parts of the supply chain industry – direct to consumer, manufacturing-owned retail and wholesale distribution. It is our belief that those who are accretive to the value chain beyond traditional capabilities and delivering on unique ways to address customer and consumer preferences will, ultimately, be the winners.
As the wholesale environment evolves and expands, successful distributors need to be on the cutting edge of technology and innovation on behalf of customers. They need to have insights on consumer behavior and support for aligned manufacturers. That’s a major component of ATD’s strategy, and we are investing behind that purpose.
In this future of change, the question of who emerges as the winner has yet to be written. It will be driven by choices that customers make, how fast the consumer change happens and the adaptability of the retail environment to make changes as they occur.
Consolidation will continue, but in times of rapid change lie some of the biggest opportunities to achieve success. Keeping a focus on customers and helping them win regardless of where the marketplace goes will be the key to driving in this new world. TR