The private brand tire market has had to fight through a lot in the past year.
First, there was the ongoing recession. Then a belief that private brands would get left behind in favor of major brands popped up. And there was one month when everything came to a standstill.
Then, of course, there was the controversial TREAD Act to figure out.
On the surface, about the only thing the private brand tire market seemed to have going for it were fill rates, with marketers like Hercules, SURE Tire, TBC and Treadways all claiming fill rates at or above 90%.
So what does the future hold for private branders? Well, the recent past reveals that everything was certainly not as bad as it seemed.
The down economy actually helped private branders maintain, if not increase, sales. It appears the private brands didn’t lose any ground to the majors, despite what some decried. And private branders now have at least an idea how the TREAD Act might impact them.
Yep, by many accounts, the private brand market is not only solid, but thriving.
For Better or Worse
To say the entire tire industry sagged in the fourth quarter last year is a touch of an understatement. However, while parts of the tire industry took a beating, the private brand market didn’t turn out too badly – September and October notwithstanding.
In fact, Steve Buck, Hercules’ vice president and general manager of the tire division, thinks private brand tires and dealers can thrive in a down market. "Typically, when the economy slows down, people gravitate to value, and private brands bring that value to consumers," he said. "In September and October, we were scrambling like everyone else, but, in my opinion, the private brands fared better."
"My feeling is that word of the death of the private market is premature," said Dan Wire, president and CEO of Treadways Corp. "As far as we’re concerned, private brand demand has been outstanding. Obviously, in September we certainly saw a drop off. That month was just bad, but the same thing occurred with every industry.
"Without September, we never really saw the economy as much of an issue. Our October came back incredibly strong, which is normal. October was the biggest month of last year and we’ve had extremely high growth since then."
So it appears the private brand market rolled with the punches and came out swinging. TBC Corp. posted $1 billion in sales for the first time last year. Hercules signed 20 new accounts last year and has already signed 12 this year. Treadways has, and is expected to continue to, post double-digit growth.
"As a private brand marketer, the overall effect of the economy has been minimal in 2002," said Pat McLaughlin, executive director of the Brandon, Fla.-based SURE Tire Co. "We market only private brand tires and tubes and our business is up for the first quarter, and the second quarter is tracking well. 2002 has seen a steady growth in our private brand business and we believe the worst (of any economic hit) is behind us."
But if the private brand segment came through a recession economy relatively unscathed, what does the remainder of the year hold? Was it smoke and mirrors, or will strong growth continue to be realized?
"My expectation of what remains of 2002 is that we will continue to see increasing private brand sales as the economy slowly recovers," said Phil Marrett, senior vice president, sales and marketing for American Tire Distributors. "I believe that we will grow market share as we focus on providing our dealers with an unbeatable combination of product, service and value."
"Our business has been excellent and we are projecting significant unit increases for 2002," said Jim Pascover, director of communications at TBC. "We see the positive trend continuing the remainder of the year and anticipate good third and fourth quarter performance."
Pascover isn’t alone. Private branders are singing the praises of a potentially very good second half. McLaughlin also sees continued growth, based on the strong first quarter his company had.
"The second half should shape up well," said Buck. "The first half for Hercules was the best first half we’ve had in our 50 years. As we look to the second six months, we look at winter tire orders and our winter tires will ship more. That looks strong. We’re seeing significant increases in medium radial truck tire business, and that tells us the economy is picking up a little bit. Overall, I think most of the Hercules members are optimistic."
While Wire doesn’t see the same level of growth continuing for Treadways, he does expect high levels to continue. "The second half will be strong, but I don’t know that our growth will continue at the extremely high levels we’ve seen," he said. "The growth we enjoyed has not been artificial growth. It hasn’t been sustained by special deals and promotions. It’s because of improved service levels and an increased dealer base."
Much was made in the early part of this year about a coming "flight to quality," a purported move by consumers to embrace flag brands. The idea stemmed from the Ford/Firestone recalls and supposed consumers would seek quality in tires they knew by name.
That flight never originated the way some believed.
"I don’t know if you’d call it a flight to quality. It’s more like a train ride to quality," said Wire. "We certainly haven’t seen the move to major brands. We may agree there has been a flight to quality, but not necessarily to major brands.
"There does appear to be a subtle movement to higher quality products – but that’s completely different than a flight to major brands."
If there was a flight to quality, it was a flight to quality service and dealers, not to different tire brands. Consumers began looking for dealers they could trust to make decisions about which tire should go on their vehicle.
"Now there’s definitely a greater consumer awareness of tires and quality," said Buck. "But customers are looking for quality outlets and quality service and quality people who can communicate clearer to the customer. If there’s a flight to quality, that’s where the flight went."
Said TBC’s Pascover: "We were very dubious about the Ôflight to quality.’ It seemed to us more wishful thinking than accurate observation. The logic that Firestone’s troubles would end up motivating consumers to choose name brands was hard to swallow.
"Now, we did perceive a flight to quality. But that flight was to the personalized service offered by the independent tire dealer. That’s where the flight to quality ended up, and that’s where private brands contribute significantly to the dealer’s reputation for providing high value at affordable prices."
Tire Review research indicates that tire dealers affect 87% of all tire purchases – either by simply selecting the tire for the customer or by making brand and model recommendations. No matter which takes place, it says that dealers are still the ones selling tires, not the tires themselves. A quality dealer will sell a quality tire.
"I think nothing indicates that more than, despite all the verbiage, dealers continue to sell products that make them money and that’s why private brands have grown," said Wire.
"In the immediate wake of the recalls, we experienced a moderate and temporary shift from our Regul and Winston brands toward flag brands," said Marrett. "During the last 12 months, however, this shift seems to have reverted back toward the more traditional mix of 50% private/associate brands and 50% flag brands.
"Dealers are loyal to brands that are profitable for them. The loyalty that dealers have to our private brands is solely a function of the brands’ profitability."
One area of the recall and perceived flight to quality was that private brands were left out of the national press. When the recalls went down, consumers would hear nothing but how Goodyears or Michelins or Continentals would be used as replacement tires. There wasn’t mention of a Delta or an Eldorado or a Cordovan.
"The Ford/Firestone fiasco placed an unrealistic shroud over all brands, including Goodyear and Michelin," said McLaughlin. "Our members, many of whom also market major brands, tell us that there is a higher percentage of sales on major brands versus a year ago. The press was bad, however. Private brand tires were not shown in news photographs as were Firestone, Michelin and Goodyear, as viewed with rolled over Ford Explorers.
"The numbers for major brands has stayed fairly constant over the years, and it is SURE Tire’s conviction that people buy from people and the independent tire dealer is still viewed as the local tire expert in our industry, regardless of brands. Dealers know quality and rely on the profit dollar margins made by quality, safe, private brand products. Their reputation rides on it."
When the Transportation Recall Enhancement Accountability and Documentation Act was passed by Congress on Nov 1, 2000, it was meant to advance safety measures in the auto industry – with special emphasis on tires. Twenty months later, those in the tire industry are still trying to figure out exactly what the TREAD Act means – and how it will apply.
The problem with that piece of legislation seems to be two-fold. First, it’s still an ever-evolving law. NHTSA is struggling to develop and implement required regulations.
The second dilemma stems from the fact that many in the tire industry still can’t make heads or tales of it – largely because of its changing nature. And those who do understand it, those tucked away in the small corners of larger tiremakers, can’t explain it in non-governmental-ese.
Like every other market, the private branders are waiting to see how the TREAD Act will shake out.
"The TREAD Act is going to have a major impact on this industry and put a lot of pressure on private branders," said Wire. "The pressure is going to be on the testing and recording standards that are part of this act.
"At a minimum, these will create financial pressures that will cause upper-pricing pressure on all manufacturers."
No one knows yet what the new testing standards will be, or how they will impact production costs – and subsequent sale prices. And, from the private brand side, anticipated reporting and recordkeeping standards could also be a strain.
"We are concerned about registering off-shore product," said Hercules’ Buck. "I’ve got no qualms about the product itself but I’m worried about registering and complying with the standards.
"I don’t pretend to fully comprehend everything about the TREAD Act, but it’s going to change things," Buck said. "The entry-level tire is where the private branders live, and the entry level tire as we know it today could be eliminated. Now that could mean that today’s second-tier tire becomes entry level, but that’s still a change."
Added Wire: "We’re all (the tire companies) treated the same when it comes to reporting, and there will be added pressure to make sure we’re following the guidelines. It’s going to move pretty quickly whether we like it or not."
Yes, there still is a lot weighing on the private brand market. But this is a market that’s currently doing very well for itself. Regardless how economic and regulatory factors shake out, dealers will still control the final brand destination of their customers.