Presidential power: President Tire builds its Canadian franchise and company store networks one location at a time
Distribution groups know that convincing tire dealers to abandon their allegiances and switch systems can be a complicated and often exasperating process. But if any group makes the procedure look easy, it's President Tire Canada.
The Laval, Quebec-based company has added 170 franchise stores in less than eight years for a total of 212 -- and is now taking its organization nationwide.
"Maybe we should have 300?" asks President Tire General Manager Denis Monette. President's penchant for thinking big has transformed it into one of Canada's most profitable distribution groups.
Meanwhile, the company is taking steps to strengthen its retail presence by building on its acquisition of 17 Sears Canada stores in 2004.
This dual approach is expected to result in overall sales of $95 million this year. (President Tire's sales totaled $62 million in 2004.)
"We are very mature in our business right now," says Monette. "But there's always room for improvement. That's what we're doing."
Tearing down walls
Monette -- who works under company founder and President Antoine Picard and his son, Vice President Daniel Picard -- has played an instrumental role in President Tire's growth.
He started with the firm in mid-1997 after working as general manager of Pirelli Tire North America Inc.'s Canadian operation. "When I joined President, we had 42 franchise stores. I sat down and said, 'By July of next year we have to reach 100.'"
The Picards didn't think it could be done, he says.
"Then we got the 100 signed and I said, 'Okay, how about 150?' And they said, 'Sure, 150.' And then I said, 'No, 200!' And they said, 'You're a lunatic!'"
Monette's "madness" paid off. President Tire has been incredibly successful in Quebec and the Maritimes.
Now it's time for the company to push west, he says -- into both Ontario and more remote provinces like British Columbia.
President Tire already has 17 franchisees in Ontario but wants many more. "Ontario is the biggest market in Canada. It's also the most difficult market in Canada."
Ontario dealers are fiercely independent, he says. "Dealers don't feel that they have to join groups as much -- that they are able to do it by themselves.
"All of the big Canadian (distribution) groups have had problems settling down in Ontario. They've all made their way in to a certain degree but not a successful degree."
Dennis Marshall, President Tire's director of sales and franchising, western Canada, says Ontario was the toughest province to crack when he worked for rival distribution group, O.K. Tire Stores Inc.
"If you tried to go into (the metropolitan markets), you'd get chewed up. So the plan I took was to go outside the metro markets into other parts of Ontario, and then tackle the Toronto area. But it was a real hornet's nest. People didn't trust each other."
"You can't get four or five guys together and say, 'Why don't you talk to each other?' because they won't," says Monette. "They'll have a beer together but they won't share the peanuts. They want to be very, very independent."
Western Canada is just the opposite, he says. President Tire currently has six locations in the region, all of them in British Columbia. "Everybody is attached to a group. Everybody is part of something. If you want to grow, you either have to acquire somebody or (convince them) to switch.
"And all the groups are good. So how much better are you? Why should they switch? Because they like your face? Today in business you need more than that."
"If you can supply everything they want, then you can make the disconnect," says Marshall. "If you can't supply that, then they won't make that move."
Give and take
In a franchise deal, the supplier has to benefit as well, says Monette. "Franchisees sign a legal agreement with us that stipulates the basic rules of what we do together. We put on paper what we expect from them each year."
After paying an undisclosed enrollment fee, franchisees are required to give President Tire 85% of their business "and they have to follow through with using our signage. They have to go along with our publicity. If we want to run a special, we ask them to follow that special. We also ask them to comply with warranties." However, franchisees get to keep their names.
President Tire's franchise program dates back to 1985, when it was created by Antoine Picard. Picard had just established his own private label, President, which at the time was made by the BFGoodrich Tire Group (President passenger and light truck tires are now built by Cooper Tire & Rubber Co.) "It was a way to secure distribution," says Monette.
Many of President Tire's franchise stores -- like Pneus Ethier ("Ethier's Tires") in Ste-Therese, Quebec -- start as humble service stations.
Pneus Ethier owner Pascal Ethier signed with President eight years ago. In 2004, he purchased $1 million in merchandise from the company. Like other President Tire franchisees, Ethier sets his own prices. "We recommend pricing but we don't dictate pricing," says Monette.
However, some President Tire franchisees use the rates at the distribution group's company-owned retail outlets as guidelines. "It creates a push effect at one end and a pull at the other end. That's why we want to go further into retail."
Monette says many franchisees do an incredible amount of volume. Pneus Theo Gosselin Inc., a franchise store 50 yards away from President Tire's main warehouse in Laval, sells more than 60,000 tires a year, all retail.
The store has seven service bays that are staffed by three employees each. Average tire change-over time is 12 to 15 minutes per set.
It isn't unusual for Pneus Theo Gosselin to process 300 cars the day after the first major snowfall in Laval, says Monette. The store opens daily at 6:30 a.m. and usually closes some 12 hours later.
It's easy to get tires from President Tire's Laval warehouse to the dealership since the facilities are only a small parking lot apart. As far as shipping to other franchise locations, "we're working on improving the delivery of our product."
President Tire runs nearly 100 delivery trucks out of its 14 distribution centers throughout Canada. It also uses common carriers, which Monette says is less expensive. "Operating a truck in Canada costs 90 cents (Canadian) per kilometer (due to) cost of vehicle, cost of driver, cost of fuel, etc. If you're driving 160 kilometers to drop off 60 tires and back, that's 320 kilometers at 90 cents each. It doesn't make sense to go the distance with your own vehicle."
Switching to a common carrier-only system will let President Tire focus more on other, more profitable aspects of its business. "Everyone has similar pricing, but service is the answer. We're trying to improve how we service the customer."
President Tire has its origins as a retail operation. The company was founded in 1970 by Antoine Picard as A. Picard & Fils Inc. ("A. Picard & Son Inc."). A. Picard & Fils is still the firm's corporate name.
"Antoine was with his brother, Gilles, prior to that," says Monette. Gilles had a chain of tire stores along the St. Lawrence Seaway some 60 miles east of Quebec City.
Gilles Picard died unexpectedly in 1972. "Antoine kept going with his own store with his son, Daniel."
The Picards were strictly retailers until 1982, when they ventured into wholesaling. After creating the President label three years later, they exited retail. Twenty years later, President Tire is pushing into retail again.
The company acquired 17 tire and automotive service outlets from Sears Canada last year when the mass merchandiser decided to exit that segment. (Competitors Kal Tire and Active Green & Ross also picked up a number of Sears tire and service shops.)
President operates its retail division, President Auto Centers, and its distribution arm as two separate entities. "We're using the auto centers to show our franchisees what we can do in the marketplace," says Monette. "It's our test lab." (President already had five, "very small" company-owned stores prior to gaining the Sears locations.)
President Tire capitalized quickly on the Sears opportunity. "It happened at the right time for us because we were (already) planning to get into retail."
President Tire spent the better part of 2004 converting the outlets to its own format. The transition wasn't easy. Many of the Sears outlets weren't making money.
"It was rough at some points. The toughest part was changing the Sears mentality," which Monette describes as "slow-paced" and not geared toward turning a profit.
One of the first decisions President Tire made was changing how the outlets' employees are paid. "We pay them based on the profitability of each store. We want to make them 'intra-entrepreneurs.' They have to feel (a sense of ownership). They have to think like garage owners."
Another step that needed to be taken was eliminating loopholes in the system some customers were using to their advantage. While customer satisfaction is paramount, "we don't want to be abused," says Monette.
One particularly unscrupulous customer had been haggling for a new set of tires from a Sears outlet every year since 1992. "He'd show up and say, 'I don't like this tire. Can I have a new one?' And they'd give the new tires to him!" says a still-incredulous Monette.
"Sears ran everything like a department store," says Marshall. "They carried it all the way down through their tire shops."
Under Sears, the stores' tire sales were weaker than they should have been. In response, President Tire ramped up the outlets' selection of flag brands and its own President label, which makes up 55% of the company's total tire sales.
The company began pushing individual lines within the President brand, including Rapido, VIP II and Selecta passenger products. In addition, President Tire owns the rights to Winter Extreme, a private line that was built by Michelin up to 2003. "We still have the name," says Monette.
President also featured accessories like batteries, oil, wipers and emergency kits more prominently in the stores' showrooms. Behind the scenes, President dramatically lowered parts inventories by turning to NAPA for rapid delivery. "We turn parts inventory 10 to 12 times a year per location."
Tire inventory was slashed as well. "Sears had to carry lots of tires because they didn't have their own warehouses." The decision freed up plenty of space, part of which President uses to store customers' summer tires during the wintertime and vice versa at $7.50 per unit. (Sixty percent of drivers in Quebec and the Maritimes use winter tires, according to Monette. President Tire sold more than 400,000 winter tires this past season.)
Equipment was another area that Monette and the Picards found lacking. President Tire spent hundreds of thousands of dollars to upgrade Sears' old mounting and balancing machines. "Sears had the misconception that they didn't need new machinery. They weren't geared toward (growing) markets (like ultra-high performance tires)."
President Tire officials are pleased with how the conversions have progressed but readily admit there's more work to be done. "We have stores where it's still rough," says Monette. "We might have to carry one store that isn't as profitable (as others). But we have to look at it as part of a whole."
At least the outlets are finally breaking even, "which Sears never did. We've sold more units than Sears was doing. Already we have achieved something."
Optimists yet realists
The Canadian market is different than its American counterpart. For starters, it's substantially smaller. An estimated 20.4 million replacement tires were shipped in Canada during 2004, according to Modern Tire Dealer's 2005 Facts Issue. Passenger tires accounted for 16.5 million of that total, with light truck tires (2.5 million units) and truck, bus, farm and OTR tires (1.4 million units) making up the rest.
President Tire focuses mainly on passenger, performance and light truck tires -- though it does stock and distribute other types, including medium truck.
"Competition in Canada is fierce," says Monette. But the market itself "is healthy. Growth has been steady over the past several years."
President Tire's proprietary President label garnered 3.5% of the nation's replacement passenger tire market last year, up from 3% in 2003, according to MTD statistics. It also enjoys 3.5% of the Canadian replacement light truck tire market.
"Manufacturers tend to say that private labels are fading away, but I think demand for the product is quite high. There's a price advantage with private labels."
Monette describes President Tire's financial position as "very strong."
Officials plan to expand the company at a steady, controlled pace. "I don't think there's a fear of getting too big," says Marshall. "When you get bigger, you get stronger. And of course, as you grow, there are some people who don't carry their weight." That's when, he says, you have to make decisions like cutting loose those customers who don't uphold their end of the deal.
"We've always walked before we've run," says Monette. "We did it with the Sears stores. Rather than taking six or seven projects on at a time, we want to accomplish one before we move to the next one."