Modern Tire Dealer 100 for 2013: Where’s the profit?
If there’s a surprise in this year’s Modern Tire Dealer 100, it’s not who landed where in the rankings. The surprise is the number of dealers who say they are seeing better margins in auto repair services versus tire sales.
But first, the numbers. Discount Tire Co. Inc., TBC Corp. and Les Schwab Tire Centers hold the top three spots with 870, 845 and 445 stores, respectively. Top-ranked Discount Tire added 46 stores, enough to knock TBC from the number one spot. Les Schwab is in third place, unchanged from last year, with 445 stores, 11 more than in 2012.
Monro Muffler Brake Inc. holds on to its fourth place rank with 403 stores, an increase of 97 outlets over the previous year. Acquisitions over the last year include 12 of the 13 outlets operated by Enger Auto & Tire in Mentor, Ohio; Tire King, a nine-store chain in Durham, N.C.; Ken Towery’s AutoCare Super Centers, a 27-store chain in Louisville, Ky., and Tire Barn Warehouse, a 32-store chain headquartered in Anderson, Ind.
Other dealers who expanded include Somerset Tire Service Inc. (also known as STS Tire & Auto Centers) of Bridgewater, N.J., which added 25 stores to move from sixth to fifth with 145 retail outlets. The company acquired 19 Strauss Discount Auto outlets, purchased some local independent dealers and built new stores in select markets, according to Pat Shulte, vice president of sales and marketing. STS Tire plans to open 10 more stores. “If a business opportunity comes our way, we try to leverage our brand and scale to maximize it.”
Thirty-two dealers told MTD they plan to open new locations in the coming months. Most are adding one to three stores. The dealer in the seventh spot with 89 stores, Rent-A-Wheel/Rent-A-Tire Inc. based in Los Angeles, Calif., is planning 10 more stores. Discount Tire plans 40 new stores in 2013.
Where are the margins?
About a third of the MTD 100 dealers who shared information on profitability reported margins between 17% and 22% on sales of passenger tires.
“There was a time you could earn a good profit on tires,” says Chris Mitsos, vice president of Mountain View Tire & Service Inc. in Rancho Cucamonga, Calif. Mountain View is tied for 36 with 30 outlets.
The market is “oversaturated” for Joe Flynn of Flynn’s Tire & Auto Service in Mercer, Pa. “It is a very competitive market, and it is very difficult to make a good margin.” Flynn’s is tied for 51 with 22 locations.
More wholesalers are contributing to margin pressures, according to Nick Philippi, general manager of Nebraskaland/Kansasland Tire Group. “More large wholesalers continue to drive down margins. Consumers continue to shop harder, which is also pushing margins. ” The Lexington, Neb.-based company is 26 on the MTD 100 with 41 locations.
Lewis Wexler Jr., president of Service Tire Co. Inc. in Johnson City, Tenn., says the issue for all dealers continues to be balancing people, inventory levels and pricing in the marketplace. Customers are much more price-sensitive, says Wexler, whose operations are tied for 82 with 13 stores. “Significant fluctuations in manufacturer pricing do not reward maintaining large volumes of stock inventory. Additionally, manufacturers are looking to increase margins in the midst of pricing pressure at the point of sale, which ultimately squeezes the tire dealer.”
Finding a healthier mix
Mitsos and other dealers are willing to cut under-performing services and products and reinvest in stronger ones. “As tire sales decrease, we continually are increasing our auto repair revenue. This is much more profitable for us. We have come to terms with the fact that the majority of our future growth is not in tires, but in repair.”
Of the dealers who shared sales information, 14% say their business is split evenly between tire sales and automotive service. Eighteen percent report a ratio of 60% tire sales to 40% auto service. Another 14% say 45% of their revenue comes from tire sales and 55% from auto service. One dealer says his ratio is 19% tire sales to 81% auto repairs. Another reports 86% tire sales to 14% auto repair.
At Mountain View Tire, 40% of revenue is generated from tires and tire-related sales and 60% from auto repairs. “I don’t think we’ve hit the ceiling for revenue from repairs,” says Mitsos. In addition to emphasizing auto repair, Mitsos plans to open a store in Palm Desert, Calif., later this year, his second in that market.
Like Mitsos, Charley Gowland, manager/owner of Chabill’s Tire Service LLC, is addressing marketplace challenges through expansion and auto repairs. The Morgan City, La.-based company is tied for 75 with 14 stores. Chabill’s opened a store in Baton Rouge, La., in May.
“We continue to add new stores in order to spread the corporate cost burdens we incur and to provide more reach to the money we spend advertising. We are spending a lot on new equipment and a lot on the maintenance of the older stuff. But since the service side of our business provides 50% of our sales and nearly 70% of the gross profit dollars, it’s extremely important that we stay on top of the repair and maintenance,” he says.
At Certified Tire & Service Centers, which is tied for 24 with 42 stores, 70% of business is devoted to auto repair. President Jeff Darrow says the past year “was a buy year with acquisitions” for the Riverside, Calif.-based company. Purchases in 2012 included 10 stores from a Goodyear dealer. Darrow plans to add two more stores before the end of 2013.
Royal Tire of St. Cloud, Minn., tied for 44, has 10 retail and 16 commercial locations. Both sides of the company are increasing service levels, according to Mick Pickens, president. “We believe a 70% to 75% parts and labor to tire mix is a healthier mix for people in our business.”
Too many channels?
As tire companies try to reach customers through multiple distribution channels, the availability of tires at more points of sale threatens a dealer’s sales, customers and margins. Many dealers are responding by finding more profitable products and services. But if more independent tire dealers increase their focus on auto repairs, could tire manufacturers lose a primary source of retail-level support for their products?
Says Gowland, “There’s going to come a time when the tire manufacturers will realize there’s a finite number of tires that can be sold in this country. That’s when the geniuses in marketing will stop looking for new channels that only serve to shrink the margins on their products with folks like us.”
Mitsos echoes that assessment. “I think the way the tire manufacturers go to market with multiple distribution points is hurting the independent tire dealers. We understand their sole purpose is to sell tires. They made a decision on how to distribute tires that’s best for their shareholders. But what’s in our interest does not always align with what is in a tire supplier’s best interest.” ■
Market challenges: How MTD 100 dealers are responding
How do MTD 100 dealers keep a competitive edge in a tough operating environment? MTD asked dealers how marketplace challenges are affecting them and what they are doing to adapt.
Advanced Auto Service & Tire Center, tied for 82 with 13 stores, Robert Wiersema, marketing coordinator: “Adjusting locations depending on sales and local demographics. Expanding lines to include cost-competitive tire and parts lines. Monitor competitive activity more closely. Encourage and sponsor ASE certification.”
Black’s Tire & Auto Service, tied for 33 with 33 stores, Rick Benton, president: “Margins are really getting tight. Government changes and healthcare are big concerns. We are trying to invest in the future by updating and renovating locations, adding equipment and expanding inventory.”
Free Service Tire Co. Inc., tied for 82 with 13 stores, Louis Wexler Jr., president: “In the last few years, we have spent a significant amount of money on upgrading our store locations, store fronts, and computer systems to elevate the customer experience. Tariffs as well as new regulations and new laws that will go into effect in the near term will have a significant impact on our business.”
Lamb’s Tire & Automotive Center, tied for 75 with 14 stores, Jim Ramsey, president: “The central Texas market is a great place to do business but is also a very crowded market. There are a number of warehouse tire stores as well as dealerships. So we have been repainting and refreshing our stores. We have teamed up with our local community college to build our bench strength of employees. We have also instituted new training programs for all managers and sales people.”
Robertson Tire Co. Inc., tied for 95 with 11 stores, Shane Robertson, marketing director: “We are being more competitive on price now that Discount Tire has opened locations here. We are putting more emphasis on service, training, mystery shopping, etc.”
Royal Tire Inc., tied for 44 with 26 stores, Mick Pickens, president: “Demand is down, supply is up, margins are down. We are adapting by focusing on service.”
Service Tire Truck Centers, tied for 27 with 40 stores, Ronald Bennett, CEO/president: “We’re getting into mechanical service business in many of our locations. Pricing on new truck tires is very competitive, so we must grow our business with more service offerings. Road service is a key to our growth, so 30 trucks will be purchased.”
Sullivan Tire Co. Inc., number 11 with 81 stores, John Donovan, vice president: “The manufacturers’ decision to go with nationwide distribution (American Tire Distributors Inc., Dealer Tire LLC etc.) is not helpful to us as an independent dealer. However, we will adapt and be successful.”
Ted Wiens Tire & Auto Centers, tied for 75 with 14 stores, Chris Publow, general manager: “The terrible market in Las Vegas with very modest construction activity has many of the workers with reduced household income. We worked to trim expenses and overhead, which has helped.”
Tireman Auto Service Centers, tied for 63 with 17 stores, Randy Jones, president: “The very competitive market results in lower margins. A website tire selector has been very positive for volume.”
T.O. Haas Tire Co. Inc., tied for 40 with 27 stores, Fred Knight, marketing manager: “Light truck manufacturers are making vehicles larger requiring rack upgrades, particularly alignment racks. Customers expect upgraded facilities, even in the more rural areas. Ag tire sales are strong due to strong farm economy.”
Valley Tire Co. Inc., tied for 46 with 25 stores, Jim Stankiewicz, president: “We have been adding and promoting heavy-duty truck mechanical repairs.”
To see the MTD 100 chart, click here.