More Than Just Tires
Private Brand Execs Discuss SKUs, Marketing and Competition
Dealers agree that private brands provide the combination of product quality and profit margins they need to remain vital and competitive in today’s market.
But like the major brands, private branders face a number of key issues that cut to the core of their existence and threaten their viability. Some like market forces, consumer preferences and technology ®“ are totally outside of their control. Others, such as pricing, marketing support and territory exclusivity, remain in their hands.
In this second part of our exclusive interviews with the top executives of the major private brand tire companies, they discuss tire proliferation, marketing programs, brand reshuffling, and how they plan to use the Internet.
The first part of these interviews appeared in the March 2000 issue of Tire Review. The entire interview is available on our Web site at www.tirereview.com.
Participating in these interviews were: Dan Wire, president and CEO, Treadways Corp.; Dan Brown, vice president, Heafner Tire Group; Neil Ganz, managing director, Galaxy Tire & Wheel Inc.; Don Helker, vice president, Del-Nat Corp.; Craig Anderson, president, Hercules Tire & Rubber Co.; Larry Day, president and CEO, TBC Corp.; Jeff Zegans, vice president, Reynolds Tire & Rubber Co.; Joe Thomas, president, Spartan Tire/Private Brands Direct; and Len Lewin, president, American Car Care Centers Inc.
The tire market has enjoyed tremendous growth in the past five years. With that growth has come possibly the greatest proliferation of tire sizes and types in history. How has this growth impacted the private brand business? What will this proliferation of sizes/types mean to your business? And what can private branders do to remain competitive with all these sizes and types?
Wire/Treadways We have always looked at size proliferation as somewhat of a positive since we enjoy a lot of synergies between our companies, which give us the ability to add sizes much quicker, and allows us to continue to grow and prosper in the market. I also believe that the private brand business will continue to grow because we offer the independent dealer the opportunity to make long-term profits. However, there will have to be further consolidations within the private brand sector because of the continuing impact of additional SKUs.
Brown/Heafner Expect the proliferation of sizes and niche products to continue. Whether this trend is more of a challenge or more of an opportunity to private branders will depend on: 1) Whether the manufacturer has capacity and is willing to support entry into these new sizes and niche products, 2) If the private brander has sufficient capital for the hardware and inventory; and 3) If the private brander has sufficient scale. It is logical that private branders will have to become more niched with their product offering. As a distributor, we see the proliferation of tire sizes and types as a positive.
Ganz/Galaxy Galaxy, on the other hand, does not make tires in this market. I do believe, though, that private branders will remain very successful and very competitive as this market will continue to increase.
Helker/Del-Nat As consumers demand replacement tires with appearance and performance, private brands must keep pace or be left behind. It means private branders, such as us, must also maintain a broader menu. Keep in mind that while new sizes continue to roll out, a lot of the, so to speak, broadline and white letter performance appearance lines are dropping off. Much of our time is spent on not just what is popular, but what will be popular.
Anderson/Hercules Size and type proliferation is the advantage of both the private brander and the dealer. Actually, this does create entry barriers to retail outlets that are not committed to the tire business. However, this proliferation does create a need for capital to invest in molds, and may weed out weaker players. It also may become evident that a private brander cannot offer every single size, type or design, and they may need to work with a major brand or branded product. We’ve been successful in offering Dunlop as a step up from the Hercules brand, and also offer the independent dealers a leading edge in new sizes and technology.
Day/TBC We welcome expanded lineups, because it gives us a chance to differentiate ourselves. The efficiency of our delivery system and our fill rates become competitive advantages. We have the most extensive line-up of light truck sizes and applications in the private brand segment, which is why our market share in light truck tires is close to 11 percent.
Zegans/Reynolds The light truck/SUV market has expanded so quickly that private brands are having difficulty keeping up with the sizes and availability. Manufacturers put their emphasis on OE before private brands, and this creates a big problem getting production. We fight every day for new sizes to be added, and slowly but surely we’re getting those additions. Again, a big problem is competing with manufacturers with downstream specials.
Thomas/Spartan The proliferation of SKUs is not only overwhelming for the private branders, it is overwhelming for the people who dreamed up all these SKUs. That’s the reason all of them are in trouble with supply. These new SKUs are not for OPP or economy line tires, they are for very high priced tires. I don’t see it doing anything but helping us.
Lewin/ACCC The growth has forced us to plan better and add sizes on a more regular and concise timetable. In the past, we had more lead-time. Today, we need to stay abreast of the OE segment. We must also position our line against the major brand offerings in the product screen on an ongoing basis. The proliferation of sizes and types forces our distributors to carry a greater variety of tires and expanded levels of inventory. Dealers need align themselves with a distributor that not only stocks the expanded needs of the market, but can provide fast delivery on a regular basis. We need to better position our offerings to maximize profits, as well as integrate major brand tires into the mix. The combination of both major and private brand tires is a necessity to remain profitable and address the expanded needs in today’s market.
Private brands have traditionally existed with minimal marketing programs. Will the heavy competition and pressures you face today force you to begin providing more support to your dealers? How would your customers react to more aggressive marketing programs?
Wire/Treadways Tire dealers realize that nothing is free. The basis of a private brand program is that we give our customers a no frills price and let them determine how they want to market the product. I have always believed that a dealer knew more about his market than someone in Greenville, Nashville, or Akron. Another problem with support programs is that the dealer pays for them whether they use them or not. With a private brand, you are only responsible for your own activities, and somehow that seems a lot fairer.
Brown/Heafner The amount of the merchandising, advertising and support provided by private branders will not reach the level of the major brands. The number one advantage private brands provide a dealer is profitability. Dealers are not about to sacrifice this profitability advantage in order to gain national marketing support. This is not the role of the private brand. Since we are able to integrate our private brand offering with the multi-brand strategies of our manufacturers, we’re able to provide a higher level of support than may be available otherwise.
Ganz/Galaxy We have looked into new ways of advertising and supporting our dealer programs. We’re working with our master dealers to not only develop a merchandising program, but also help assist in advertising. The traditional way of merchandising of tires and wheels needs to change. We provide more technical and product support to help our dealers understand product features and benefits. And we’re supporting our dealers by putting our name in front of the end-user.
Helker/Del-Nat Recently, we formed a marketing committee, headed by four of our stockholders. With their guidance, we’re developing programs that meet dealer needs. However, our first objective is providing tires, not necessarily marketing programs. Marketing programs are very important, but we can’t get caught up in extremely time- and cost-consuming programs. We need to remain lean.
Anderson/Hercules With the introduction of marketing support comes cost. Private brands have historically been bought for price, and for the dealer to control the brand image in his territory. We do offer a full line of point-of-sale and identification materials to gain floor space in the dealer’s store. These are available on a co-op basis, and allow the dealer to develop and promote the brand in his market within his budget.
Day/TBC That’s a hard question. We know we don’t want to compete with major brands in the area of merchandising. That would undermine the private brand concept. On the other hand, we’re all fighting for shelf space in the dealer’s shop, and we need to help him foster a professional image. One development we have high hopes for is our authorized dealer program, where we provide promotional materials to our wholesale customers to use for gaining a better share of their dealers’ business. In general, our customers like more aggressive marketing, but they don’t want to pay for it. And we’re sensitive to that, as well.
Zegans/Reynolds Private brands have traditionally not had the funds to support aggressive marketing programs. Manufacturer support would certainly help, and we feel our customers would welcome more aggressive programs supported by the manufacturer. We think we’ll see a closer coordination between customer and the manufacturer to advertise and support private brands.
Thomas/Spartan Whatever you do in the form of extended warranties, lifetime warranties, any type of perceived giveaway or enhanced value has a cost to it. Some people are willing to pay for that, and some people aren’t. There are many people today who have a major brand sign outside their building, but that’s not necessarily what they sell inside. If all you had was one of the big boy’s signs, it could very well run business off. Consumers might think that’s the only tire you have to sell and they may not be able to afford it.
Lewin/ACCC This is not new to us. We’ve always offered our members a strong marketing support package. Our members embrace the support programs, and in many cases have developed their local marketing plans around the national programs.
Tire company consolidations have caused a reshuffling of tire brands. Brands that were once among the majors have now been repositioned as second or even third tier lines, and some have simply disappeared. How has this reshuffling affected the competitiveness of private brands?
Wire/Treadways Without question, there has been price compression over the past few years and it has resulted in major brands being positioned much closer to associated and private brands. For those private brands that relied only on price to sell their product, the result has been very serious and, in some cases, fatal. My feeling is that private brands are more competitive, from an overall program standpoint, than they have been in a long time. If a dealer handles a private brand only because the price is low, he’s missing a great opportunity.
Brown/Heafner This price compression will only bring more pressure on private brands. Private branders will have to become extremely efficient in their operations and distribution in order to achieve profitability for themselves and their dealers. To help ensure our competitiveness and that of our dealers, we’re looking globally for production opportunities. For example, we’ve obtained production in China for certain tire lines, and our proprietary branded wheel lines. While acquisition cost is very important, we also believe that equal attention must be focussed on the sale-out price, product mix, merchandising and promotion.
Ganz/Galaxy This kind of reshuffling will create significant competitiveness with the private brands in the passenger and light truck area. I have not seen this happen yet to the off-the-road market. Ultimately, the consumer will be the beneficiary as the prices will drop on some of these products to compete against the private brands. If customers have a choice between the private brand name and the name that they recognize, I believe they would probably take the recognized name.
Helker/Del-Nat Keep in mind that from the consumer’s standpoint, there are probably only six or eight recognized brands nationwide. We still feel that the consumer goes to the independent dealer because he or she wants attention, service, value and a feeling of confidence. The independent dealer can sell whatever he or she wishes to sell. Only the dealers themselves can allow this reshuffling to affect private brands.
Anderson/Hercules The success of brand reshuffling by the manufacturers is yet to be determined. But, if they are going to be put in the market based on pricing points, then the customer may become confused. The customer may buy the second and third tier brands because of lower pricing, and not be willing to step up to the flag brand which will carry the margins to sustain the total program. To sustain the marketshare, manufacturers may be forced to support the major brand through a reallocation of resources.
Day/TBC About half the replacement tire sales in the U.S. are private and associate brands. If some brands that were formerly major brands migrate to our half, it will simply make the private and associate brand segment larger. By staying focused on product value, quality of service and exclusivity, we can continue to grow our core business in the environment you describe.
Zegans/Reynolds This reshuffling has made it more difficult to sell private brands, and has put a downward pressure on pricing and profits. We have to go back to relationships and territory protection ®“ the most important reasons for the success of private brands.
Thomas/Spartan This has been slowly building for years. At one time the manufacturers tried to divorce themselves from using the same greens that the private brands were using. There have been times when the private brand tires had features the major brands didn’t, and vice versa. Today, in order to build tires efficiently, most of the tires are a common green regardless of whether it’s a private brand or a major brand. That’s the only way they can do it.
Lewin/ACCC It has certainly had its impact. Where there were once three distinct tiers, today there are only two. And the price differential is often negligible. Consumers generally lack tire knowledge and are drawn by name recognition. A major brand may not offer the same profit margin for the dealer. To remain competitive, dealers need to align themselves with a provider that carries a variety of brands, and develop a concise product screen where they can better position private brands in segments that enhance their profitability.
How is your company presently using Internet technology to enhance relationships with your dealers? Do you have plans to provide Internet-based transaction capabilities for your dealers? Are you planning any type of Internet-based training for dealers?
Wire/Treadways We’ve just completed a $2 million investment in a new computer system which will dramatically improve our ability to communicate electronically with both our dealers and our suppliers. We’re currently working with all of our major suppliers to improve our information flow from both an accuracy and timeliness standpoint. After the completion of our new warehouse in Southaven, Miss., we’ll be working with our entire dealer organization to provide them with complete online capabilities, including the ability to check inventory, order products, track shipments, and pay their invoices. In addition, we hope to be able to offer dealers price lists and product information, which they can customize for their own use.
Brown/Heafner At the ITE show last November we announced the formation of Heafner Interactive. We’re committing the resources necessary to support our company and our dealers in the areas of e-commerce and Internet technology. This group will be responsible for the on-going development and support of the company’s two proprietary software products, as well as Web site development for Heafner and our affiliated dealers.
Ganz/Galaxy The Internet will be very critical to the future of our business. We do plan on getting our name in front of our dealers for ordering, order tracking, and electronic funds transfer. We’re already receiving orders internationally through the Internet, which has increased communication and the effectiveness and delivery of our products in those countries. We suspect that this will become a more relevant issue in the next few years as our North American dealer base gets more involved. And we’ll be setting up training on our Web site for dealers who need more product knowledge.
Helker/Del-Nat Our reply is: All of the above. We have linked ourselves online with probably 60 percent of our members. All of the services you mention are now provided. Believe me, it’s the greatest thing that has happened in a while to streamline our program and adapt it to our members’ needs. Our goal is to get all members online very shortly.
Anderson/Hercules Our current Internet use consists mainly of supplying information on product, company history and dealer locator. We’re working to offer a number of inventory checking, ordering, and order tracking programs that will be an option to the dealer. However, people do business with people, and the Internet may not be all that we think it’s going to be. We’re finding many of the Internet systems to be time-consuming, and that a qualified customer service specialist can answer the questions faster and more accurately. We do not want to lose touch with dealers, so that we do not lose touch with what’s happening in the market.
Day/TBC We’ve provided online ordering capabilities to our dealers for the last eight years, using our proprietary electronic data interchange. And we added electronic adjustment capability for our customers. We’re very attuned to the advantages of technology, and we’re working to make the best use of the Internet.
Zegans/Reynolds We encourage our members to use the methods they find most convenient ®“ telephone, fax, electronic transmittal of orders, as well as invoicing. Right now, we have no plans for Internet-based training.
Thomas/Spartan I think the Internet is great. But it shouldn’t be used to sell tires. Once we lose contact with the customers, as we solicit their orders, we’ve lost the whole thing. I don’t ever want my customers to order over the Internet. I hope the Internet never tries to take over my job as the salesman that I perceive myself to be, that can interject my thoughts, and build that bond with that customer. You can’t do that over the Internet.
Lewin/ACCC Many of our members currently have programs that link the dealer to their sales centers via the Internet. The dealer has the ability to place orders directly with the warehouse, and if the distributor has live inventory access, they use the connection as a sales tool. When a dealer needs a tire, they can access the distributor’s inventory to check availability and price on product. This also gives them the ability to offer expanded SKUs and keep their inventory costs to a minimum. We recently developed a threaded discussion group which gives our members the opportunity to voice concerns and address business issues with other members across the country. We’ve also set up a link for our members so they can download items such as advertising material directly. We continue to explore which technology will best fit our members’ needs, and provide solutions that will need keep us ahead of the curve. Training will most certainly be an important success factor in whatever solution we chose.
Do you have any plans to use e-commerce technology to sell tires direct to consumers via the Internet?
Wire/Treadways You really have to be kidding! Treadways is 100 percent committed to the independent dealer, and our brands are exclusively committed to that channel. I believe that any company, or manufacturer, that does this is sending a clear message as to their commitment, or lack thereof, to the independent tire dealer.
Brown/Heafner Our plans are to direct consumers to our network of affiliated dealers. Once our product Web sites are complete, consumers will be able to find participating dealers from whom the product can be purchased. Heafner Interactive will be able to assist dealers in the development of their own Web sites, which can be linked to those of Heafner Tire Group. Once in place, consumers will have access to the extensive network of independent dealers affiliated with Heafner.
Ganz/Galaxy Galaxy does not have an interest in selling its tires directly to the consumer. All our products need to be handled and serviced by independent dealers, especially in the niche markets that we’re in. Tire dealers are critical to delivering our product to customers. We hope that we’ll be able to get our name out to the end-user through the Internet. But, our objective will be to drive the business back to our dealers who will help support those customers through their service.
Helker/Del-Nat Any plans for this type merchandising will be in conjunction with our members. Our Delta and National Web sites are bringing in calls daily that we’re referring to members.
Anderson/Hercules We have no plans to sell direct to the customer through e-commerce. Customers need the dealer’s expertise in meeting their particular needs. The "techy" tire buyer may wish to use the Internet for product information, and he may have the data to look for exotic sizes and types of tires. However, we find that the normal customer is confused even about the size, much less the tire he needs. With the proliferation of sizes, this will continue to build confusion with the customer, and he’ll have to look to his independent dealer to best serve his problems.
Day/TBC No. The secret to our success is to understand where we fit in the distribution sequence. We’re a marketer/distributor and trust our wholesale and retail customers to get our tires into the consumer market. So far, they’ve done a pretty good job. In that regard, we are screening Internet systems designed to drive consumers to retail outlets and we hope to offer those kinds of programs to our customers.
Zegans/Reynolds Our private brands division has no plans to go into competition with our members via e-commerce. We’re encouraging our members to look at this avenue for themselves and their customers. There will be many changes in the next five years and we want our members to be ready.
Thomas/Spartan We’re going to have it available, and do have it to some degree at the present time. And that appeals to a certain group of people. That is not how a bulk of the tires will be sold. The real essence of a tire is that it has to be retrofitted to a vehicle. America is graying, and that means the average age is getting higher. That means more services need to be provided and it needs to be a turnkey operation.
Lewin/ACCC We believe this is an area that will need to become a part of every tire dealers’ business. The Internet customer is, in many cases, a different customer than the one who visits our stores. Consequently, if we do not address this market segment we’ll miss the opportunity to grow our businesses. There are many complexities to proceeding with this type of project. A program needs to not only aggressively market to the Internet customer, but be cognizant of our dealers who will be mounting the tires for the customer. Pricing structures need to be competitive, but not without consideration for the dealer.