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Changes & Challenges: The Role of Wholesalers/ Distributors

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Politics notwithstanding, change is the mantra these days. It is preached throughout the tire industry, and prominent on the platform is the vital link in the distribution chain: the distributor/wholesaler.

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In the late 1960s and 1970s, brands and brand loyalty were kings. Most successful tire businesses in the U.S. were neatly aligned with the North American tire giants Goodyear, Firestone, Uniroyal, BFGoodrich and General. Furthermore, no distributor or wholesaler with all of his brain cells intact would dare challenge that status quo. For the most part, it was a grand, symbiotic and monogamous relationship. Most importantly, it worked – and worked well.

Ironically, while tire dealers, and most other retailers during the boom period of the 1960s and 1970s, were having a “love-in” with their suppliers, socio-economic and cultural changes were occurring at a rapid pace.

The term stagflation – an economic condition of both continuing and simultaneous inflation and stagnant business activity – became a popular, oft-used phrase. To add to the era’s quandary, toward the end of those decades, the U.S. began to lose its competitive edge with the rest of the world and America’s trade deficit swelled. Low-priced and frequently high-quality imports of everything from automobiles to steel to semiconductors flooded the country.

In the tire industry, those decades also witnessed grand entrÉes of “foreign companies” such as Michelin, Continental and Bridgestone into the North American market. The subsequent ripple effect initiated many of the changes that are evident today in the tire commerce spectrum.

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It was during those change-filled times that tire dealers received a great deal of their tires direct from the manufacturers. Today, according to a recent Tire Review survey, that source has changed dramatically. Almost 57% of the dealers’ supply comes from warehouse distributors, and less than 19% comes directly from manufacturers.

Indeed, the role of the wholesaler/distributor is different today. Those major changes include five key elements: inventories (including ever-growing SKUs and turn-around times), an increase in program offerings from the manufacturers, credit offerings, the Internet and a resultant better-informed end-user – the customer.

Changing Landscape
Dom Lamantea can attest to the changes that have permeated the industry, especially in the distribution end of the business. After spending 22-plus years with Michelin, in 2001 Lamantea joined Lyndhurst, N.J.-based Englewood Tire Wholesale as director of program distribution. Founded in 1946 by WWII U.S. Air Force veteran Captain Jerry Boyle, Englewood is a wholesaler that also operates retail Discount Tire Centers in the northeast U.S.

“Back in the 1960s,” says Lamantea, “everyone could make money. The manufacturer, wholesaler and dealer just had to sell tires. There was no confusion. It just worked. But it’s very different today.”

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The first major difference today is in inventory management, and Lamantea believes that the changing roles of a wholesaler/distributor began as early as the 1970s. “That was the last era of the one-brand distributors,” he says. “Among other things, in those early days, a one-million-square-foot warehouse was significant. Today, that size of warehouse is nothing.

“Another thing is the proliferation of tire sizes,” says Lamantea. “There are no ‘typical’ tires any more. Today’s dealer can’t keep all the sizes on the shelf, and for the distributor, it’s impractical to support every dealer.”

Ron Sinclair, senior vice president of marketing at Charlotte, N.C.-based American Tire Distributors, offers a similar view to Lamantea’s.

“In the past, a distributor and dealer handled a small number of SKUs,” says Sinclair. “However, brand proliferation – and the subsequent inventory issues – are a real challenge today. A dealer can’t handle carrying four tires in each size, but we can, and we add value to a dealer’s business when he can access them from us. The dealer can position it like it’s his own inventory.”

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Sinclair’s ATD is one of the nation’s largest independent suppliers of tires to the replacement market. It operates some 80 distribution centers in 36 states, and employs more than 2,100 across its nationwide network, including 200 people in its Charlotte-area field support center, distribution center and regional hub.

The other issue that the distribution chain confronts on a daily basis is immediacy – turn-around times – which goes hand-in-hand with SKU-driven inventory issues.

“Today, we’re trying to make it easier for the dealer to order online and in real time,” said Sinclair. “It’s more efficient from a customer standpoint.”

Lamantea agrees. “There was a time when a dealer could say to a customer: ‘Can you wait a day or two?’ That has significantly changed today. We now deal in real-time situations that demand almost instantaneous turn-around of products and services. Trucks are loading and unloading goods every day – almost continuously – to keep up with the demand.”

What also has changed is the relationship of the manufacturers/suppliers to the distributors and wholesalers and what is offered in addition to the products. “The manufacturers need the distributors more than ever now,” says Lamantea. “They provide a very important service to them and both have worked harder to accomplish their mutual goals. The role of the distributor today is significantly different than some years ago. He really is almost a parental liaison to the manufacturer and represents the brand to the dealer and the consumer.”

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Sinclair adds, “This change has been in progress for some time. Some of the major manufacturers used to have large field sales forces in the past. Today, the distributor is taking on many of the roles previously handled by those sales forces. We are partnering directly with dealers and it’s important to realize that those dealers need a distribution partner. Among several things, we provide them with an unbiased forum that helps them define markets. One dealer told me it’s so important that if you’re not partnering with someone you’re in for a tough road.”

One industry observer said that the relationship between dealers and wholesalers or distributors is like going to college and choosing whether or not to join a fraternity. The association can help, but it’s not free, and the alternative is to be totally independent without help.

Another dealer was more to the point: “I went into business for myself, but not to be by myself.”

Dealer Support
Manufacturers generally agree on the changing role of a wholesaler/distributor, and Bridgestone America’s director of consumer wholesale sales Rudy Beach inventories his own 26-plus year knowledge of the industry. “There has been an evolution. We certainly recognize and appreciate the role that a distributor plays in the marketplace. They are the front line to many retailers.”

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Beach also agrees that inventory maintenance is a factor impacting the delicate alliance between the suppliers, distributors and retailers.

“Dealers can’t keep inventory like they used to due to space consideration,” he says. Beach adds that dealers previously could handle most popular sizes – the “A-movers” – with a much smaller inventory than is needed for today’s massive range of vehicles and tires – an SKU landscape of roughly 2,400.

“There is such a large volume of tire SKUs that it is hard to have a large number of these ‘A-mover’ tires in stock, even at high volume retail locations; therefore a distributor is key to this process.

“It’s an SKU proliferation,” Beach says. “Dealers can’t keep everything in stock any more. They are relying on delivery TODAY just to keep those popular sizes in stock. As a result, these retailers are relying on an alternative supply point through their distributor to handle those conditions.”

Another change in the wholesaler/distributor arena is in the increased usage of support program offerings. Ross Kogel Jr., president of Tire Wholesalers Company Inc., actually uses this standard when he differentiates between a wholesaler and a distributor. “Every single dealer is different,” he says, “and a wholesaler can deliver one or two tires at a time, but a distributor is one that sells a program, too.”

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Support programs come in all shapes and sizes and include a variety of elements including marketing, co-op advertising, public relations, point-of-sale materials, signage, incentives, rebates and training.

One such program for distributors was initiated by American Car Care Centers in 1996. Randy Groh, vice president of product marketing for U.S. Auto Force, a Combined Locks, Wis.-based wholesaler and ACCC member distributor, says, “It’s a good program that enables us to help dealers. These days we have to offer something beyond price. You are never going to make enough money unless you differentiate yourself from the competition.”

Groh said another notable program is Goodyear’s G3Xpress. “It provides counsel and communication. It’s obviously a brand-specific program, but in the end, though, it comes down to distribution and execution and whoever makes use of all the tools. The ones that do will be successful.”

Goodyear’s Phillip Kane, director of wholesale distribution, says his company began transforming its dealer distribution model in earnest in 2001. Recognizing the changing role of the tire wholesalers and distributors at that time, Goodyear initiated the G3Xpress program that uses a network of authorized warehouse distributors, WDs, to provide product deliveries to the company’s G3X dealers. This is another new role initiated by manufacturers or other associations and implemented by distributors – program offerings.

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“It wasn’t sufficient to simply kick a tire off the back of a truck,” says Kane. “We wanted to create a complete program with real value to the retailer and our participating WDs.”

For dealers, Goodyear says the advantages of this program distribution model are the ability to reduce on-site inventory, improved cash flow, and higher service levels with more frequent, on-time deliveries. Kane adds that for WDs, they have a large, consistent customer base as they service Goodyear customers, and they have the ability to take the entire dealer value proposition to the marketplace.

Is it working? “As evidence, we have added more than 300 new G3X customers to the program this year,” says Kane.

Other manufacturers’ dealer-supporting programs mentioned include Michelin’s Alliance program (launched in 1995) and Alliance Associate Dealer program (revised in 2008). Launched in January, the AAD program is now 100% online, says Michelin, with program statements updated daily to allow dealers to track purchases, goals and earnings. In addition, dollars earned from the program are automatically deposited in the dealer’s bank account, giving dealers quicker access to earned funds.

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“It was our goal to simplify processes, improve cash flow and allow dealers to be more competitive while handling a complex product mix. We are proud to say that we’ve attained those goals and are contributing to continued growth and profitability for this very important channel,” says Emmanuel Ladent, Michelin vice president of sales. “Results of the 2008 Alliance Associate Dealer program are tremendous and we will continue to improve based on collective feedback from AADs.”

A few years ago, Continental launched its Gold Dealer Program, a four-tier program that allows for wide-ranging dealer participation and customer growth with an emphasis on marketing support. Bridgestone Americas’ TireStarz and Affiliated Dealer Programs deliver similar comprehensive support for a wide range of independents. And a number of larger wholesalers have their own product and marketing support programs.

With so many options out there, many independents participate in multiple such programs, whether offered by the manufacturer or through regional WDs.

An Added Dimension
Another changing area deals with financing assistance.

“Distributors are getting more involved with their dealers’ business,” says TWI’s Kogel. “Besides offering them programs and inventory, service is a key, and that includes financial support.”

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Englewood’s Lamantea agrees. “All distributors in the country are probably very good at pricing…they are all smart. They have to read a balance sheet, but be street smart, as well. Tire dealers will go to their distributors for help in this area. We have to extend credit lines to (the dealers) today. Distributors are carrying the credit because all the other resources cost a lot of money. You want to hook up all your customers to your system – help them get computers – and this is an expense that many can’t handle.”

The last pieces that are evidence of the changing role of the wholesaler/distributor are concerned with technology and its usage – the Internet and more-informed, better-educated customers.

“The independent dealer is our core customer,” says ATD’s Sinclair. “But as the market continues to evolve, we must help that customer grow with it. Critical to that are Internet sales. The consumer is a lot more informed today. He or she can go online, do their research on tires, define exactly what tire they want and make a better-educated decision on purchasing. The Internet has driven a lot of that.”

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At the same time, Sinclair adds, the Internet could be used to provide invaluable market data. “There is a lot of good, valuable information on the Internet, and that is becoming increasingly important. We need to recognize that.”

ATD just launched a consumer-oriented online tire-buying effort – tirebuyer.com – that allows consumers to buy tires online, but drives the actual transaction to the retail dealer – with the dealer earning full gross profit, add-on sales and credit for the purchases on his or her supplier programs

Not coincidentally, online ordering and use of the Internet were topics Sinclair mentioned as holding the key to future success for wholesalers/distributors and dealers alike.

“Certainly the Internet is important,” says Sinclair, “but, in general, we need to help the dealers market their business better and provide them the tools to do it. We need to raise the bar and increase the real value that we add.”

Englewood’s Lamantea sums it up best: “Present day distributors will have to become servicing distributors vs. purely product distributors. They have to change the definition. There are brands out there that are looking to move up in popularity, and they rely on us to help that happen.

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“We must treat every brand fairly. That’s our obligation and responsibility, especially now when we are representing multiple brands. Then, and only then, can we show the value we add as distributors.”

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