Beating Goliath: How Can Small Independent Tire Shop Compete - Tire Review Magazine

Beating Goliath: How Can Small Independent Tire Shop Compete

They have economies of scale, which gives them enormous buying power. They can afford national ad campaigns and expensive PR programs. They have ready access to the latest technologies to run their supply chains and streamline their operations. Relatively speaking, their overall costs are low.

They are the national retailers, the mass merchants, the big-box discounters – and they’re in the tire business. How can a small, independent tire shop with 15 or fewer employees compete on that scale?

The sad truth is that it can’t. But hope is not lost. Affinity groups and marketing programs are working hard to make it a bit easier for the “little guy” to survive. Through these groups, the greatest challenges facing the independent tire dealership – costs of operations and economies of scale, among others – can potentially be offset by its greatest attributes – qualified, educated employees and superior service. The key to a successful affinity/marketing partnership is reducing those challenges and strengthening those attributes. This is the case today more than ever as national – and multinational – retailers continue to find new ways to leverage their size and scope.

Strength in Numbers

As the marketplace changes and becomes more global, economies of scale are becoming even more important. That’s part of the reason why Michelin Alliance, Michelin’s affinity program, decided to consolidate its programs in Canada, the U.S., and Mexico into one – the North American Michelin Alliance.

“We put together the North American program knowing it would strengthen our numbers,” says Herb Johnson, general business director of the program. The Alliance program offers dealers "added-value services," (AVS) including a tire equipment purchasing agreement with Hunter Engineering, a bulk oil program through Shell Oil, and a buying agreement with uniform supplier Cintas, to name a few.

But access to greater buying power is only one reason dealers join these groups. These strategic relationships are about much more than getting good tire prices from suppliers. They are about leveling the playing field, both in terms of cost of operations and promotional strategies.

“In addition to our AVS, we also offer national promotions to dealers,” says Johnson. In February 2005, at Michelin Alliance’s first-ever North American Alliance conference, it plans to make a big announcement – a new PR campaign directed at Alliance dealers. "It will be a grassroots program that dealers will be able to take to their markets," Johnson says. There are plans to pilot the program before the end of the year.

The Independent Tire Dealers Group (ITDG), unlike Michelin Alliance, is a marketing program run by dealers for dealers. Alpio Barbara, owner of General Tire Pros in Redwood City, Calif., serves as chairman of the board for ITDG. He started the group about nine years ago.

“We offer better pricing for automotive parts and equipment through a direct-to-manufacturer relationship,” says Barbara. ITDG also recently joined TIA to give its dealers access to educational materials and training.

American Car Care Centers (ACCC), the country’s largest marketing program, offers four basic “pillar programs” to its dealers: nationwide tire marketing, national service marketing, a credit card program and an exclusive line of radial tires, according to David Crawford, director of marketing for the group.

But ACCC also offers other programs, such as oil, battery and equipment purchasing programs and a tire protection warranty package. The hope is that having access to these resources will strengthen an independent dealer’s competitive position.

Rising Operations Costs

It’s no secret that the costs of running a business – especially a small one – are skyrocketing. Increasing costs of health and property insurance, workers’ comp and business insurance are making life difficult for independent tire dealers.

Michelin Alliance, ITDG, ACCC and Bridgestone/Firestone’s TireStarz programs all plan on introducing insurance and employee benefits programs to their member dealers in the near term. “We’re putting together a benefits program that we’re hoping to announce in the beginning of 2005,” says Johnson of Michelin Alliance.

Barbara says that ITDG is in the planning stages of creating a workers’ comp program for dealers. Currently, the marketing group serves dealers in California, New Mexico, Hawaii, Colorado and Arizona but is looking to expand eastward.

Crawford says ACCC is working diligently on an insurance program for its dealers, and, Bill Pace, manager of TireStarz USA, says he expects TireStarz retailers to have access to a health insurance program later this year.

The T3 Certified Tire Center Program, run by the Michelin subsidiary Tire Centers Inc. (TCI), takes a different approach to reducing business costs. T3 focuses strongly on technology for reducing operational costs and improving service. “Our most significant offering to dealers has been our EDI (electronic data interchange) ordering technology,” says David Snyder, vice president of small tire marketing and sales for TCI. "Dealers needed a more effective point-of-sale system to help them run their businesses more cost effectively and reduce their inventory."

Through the software company MaddenCo, T3 dealers have visibility into the distribution chain so they can more effectively satisfy customer needs through efficient ordering. “Their computer systems are tied with ours, and we can automatically replenish their retail stores based on sales,” says Snyder. For those dealers, that takes a lot of the guesswork – and cost – out of purchasing.

Snyder says TCI is planning a major improvement in its technology that it will announce later this year. Also by the end of the year, the T3 Web site will be enhanced so that consumers can more easily locate T3 dealers, according to Snyder.

Right Products, Right Service

As stated earlier, competing with the big retailers is about more than access to buying power. “We don’t have the buying power of the guy next door,” Barbara acknowledges. "That is one of my toughest challenges. However, once a customer comes into my store, he realizes that I’m very competitive when it comes to knowledge and service. Once you compare apples to apples – tires to tires – we’re just as competitive as the big-box stores."

Strength in Knowledge

Barbara makes an interesting point: The strength of the independent tire dealer is his expertise and ability to provide superior service. The big retailers – with their high employee turnover and general lack of expertise – can’t compete with that. So, affinity groups and marketing programs are leveraging this strength by offering comprehensive training and educational opportunities for their member dealers.

“Last fall, our dealers told us they needed training for their tire techs,” says Crawford of ACCC. "So, we joined TIA for access to tire training."

For TireStarz dealers, a team of education specialists travels around the country to provide training. And TireStarz distributors offer early-year kickoff meetings to prep dealers for the challenges and trends of the upcoming year. “We introduce new products coming out and get dealers educated and ready for the coming year,” says Pace.

“Dealers are not going to beat the big discounters on price, so it has to be on service and systems,” notes Snyder. "The only way a tire dealer can compete with the big discounters is through customer service." To this end, T3 dealers have access to regular training on customer service, retail point-of-sale systems and business management.

In addition, “dealer development managers” work with T3 dealers as business consultants, says Snyder, helping them manage their inventory, get more vehicles through the bays, reduce costs and improve efficiencies.

Another advantage for independent tire dealers who join these groups is exclusivity. Many affinity groups and marketing programs offer their dealers specific lines of tires not available to the big retailers. Johnson says his affinity group is planning on introducing new products that will be available only to North American Michelin Alliance dealers. TireStarz also offers exclusive products to its dealers.

But not every dealer gets access to these rich educational and service-enhancing offerings. “We’re looking for the cream of the crop,” says Barbara. To join ITDG, a dealer must be approved by the group’s board of directors. Why the stringent requirements? Because ITDG dealers are ultimately involved in a partnership relationship, in which they share vital information and strategies for increasing profitability.

“Dealers must be assets to their communities,” says Barbara. "They can’t just try to be the lowest-cost dealer. They need to know their product, make sure their people at the counter care about the product they sell, and develop customer trust." The dealers rely on each other, through annual conventions and regular interaction, for tips on the best ways to satisfy customers. They also handle each other’s customer overflow when necessary.

Without these strict requirements, these groups are really nothing more than buying cooperatives. “Pride of ownership is what the national retailers don’t have,” says Crawford. "It’s another leveler for the independent tire dealer."

“Dealers are acutely aware that they have to have some kind of partnership with a manufacturer or affinity program to exist long term,” adds Johnson. "It’s not just about buying power; it’s about access to the right products and increasing profitability."

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