Profitable margins, not marginal profits: Private brands know how to hold their own, especially during tough economic times
Independent tire dealers continue to sell private brands for many of the same reasons they always have, including favorable profit margins and territorial exclusivity in regions already saturated with major label products. In some cases, disillusionment with the distribution practices of major brand manufacturers also has been a deciding factor in bringing private brands on board.
It doesn't hurt that consumer acceptance of private brand tires appears to be increasing, despite what some tire manufacturers are saying. Forty-two-percent of dealers who responded to Modern Tire Dealer's 2002 Private Brand Survey report that their private brand sales have grown. While 49% of respondents said their retail customers still perceive major label tires as being "somewhat better" than private brand tires, 26% reported that buyers consider both to be "about the same" in terms of quality.
"We try to position private brands first," says Brent Elkins (in photo), regional store supervisor for Toledo, Ill.-based Ben Tire Distributors Ltd. Ben Tire sells TBC Corp.'s Sigma brand through its Neal Tire retail shops. "We've always sold major brands, but we've never been huge in that segment. In fact, we've taken private brands and have made them (like) major brands in our markets."
Private yet first
Ben Tire has been so successful in its promotion of Sigma at the retail level that many of its customers automatically ask for the private brand instead of major brands, according to Elkins, who oversees six Neal Tire outlets in Indiana and three in Illinois. (Ben Tire also wholesales TBC's Multi-Mile brand.)
Most Neal Tire outlets are located in rural areas. "In some markets, we're maybe the only player in town, so we can basically market what we want." And in more populated areas, "I can take a mid-level private brand product and compare it to a major label product -- same mileage, same warranty, etc."
In the stores that Elkins supervises, salesmen promote Sigma as a Neal Tire label, not a TBC-owned label. "We market it as our own brand. Once you get the brand recognized in the community, customers will come in and ask for it.
"We're thriving on private labels. We like to have major brands as an offering, but the majority of our (inventory) levels are private brand."
Elkins admits it's hard to sell either major or private label tires without first establishing customer loyalty. "In this business, you pretty much sell yourself. If they trust you, they'll trust the product you sell."
Tony Vetter, president of Northwest Tire, a 13-store chain based in Bismarck, N.D., sells both Delta and National brand passenger, performance, light truck and medium truck tires. "We're in such a remote area, (label owners Del-Nat Tire Corp.) gave us both," he says.
Vetter began carrying private brand tires in 1990, when Firestone, Michelin and BFGoodrich made up his brand selection. "I had worked for Firestone Tire & Rubber Co. for 17 years," he says. "When I became independent, I realized we were missing a big chunk of the market by being major brand only." Other dealers in his market were doing well selling private brand tires, which, at the time, "were just starting to come in. I thought, 'What the heck? If you can't beat them, join them!'"
During the early 1990s, North Dakota was still a major brand market, according to Vetter. "We had six or seven Goodyear company-owned stores and a few more Firestone stores in a state of about 650,000 people."
Vetter examined other options to boost his profitability before taking on private label tires. "I looked at every avenue of income and thought we could do the private brand thing, run with it and be profitable. It's a big piece of our business today."
In terms of units, Northwest Tire sells "way more" private brand tires than major brand products. In fact, Firestone, Michelin and BFGoodrich -- which comprised 100% of the company's sales some 15 years ago -- now only make up 3% of its total sales.
Northwest Tire mixes private brands with the aforementioned names, plus other brands like Toyo and Yokohama. "Depending on (the tire's) quality level, that's where we'll put it. When we have a premium private brand tire, we sell it as a premium product. Naturally, the private brands aren't household names. But we as a company represent them."
Most of the dealership's customers don't ask for specific brands by name, says Vetter. "They don't ask for price, either, They just want a good, solid tire.
"Our business is a lot of repeat-repeat-repeat, so we know our customers well. I haven't worked the retail floor in years and people still call me and ask what they should buy!"
Vetter does not tell buyers which companies manufacture Delta and National products. "First, the people who build the tires for us don't want us to do that and secondly, that's not important. What's important is (tire quality)."
Vetter says the disparity in profit margins between major and private brand tires is shrinking because flag brand prices "are pushing down." Manufacturers "have been reducing prices for the last five years."
However, Del-Nat allows Northwest Tire to set its own prices in its protected territories, which include all of North Dakota, South Dakota, and Minnesota, plus parts of Montana and Wisconsin. "We own the territories, so we can do whatever we want. It's the only way."
Private brand profit margins "are steady, if not decreasing somewhat," says Kelly Burgess, president of Superior Tire, a four-outlet dealership based in Bullhead City, Ariz. Superior Tire sells Delta brand passenger, light truck and medium truck tires at both the retail and wholesale levels. "In this industry, everybody is selling everything for less than they were yesterday," and that includes major brand tires.
Despite downward pricing pressure, Burgess has maintained 10% to 50% margins on his private brand products. "In most cases, private brand margins are bigger" than major label margins, he says. "If you're looking at the lowest-quality tire, they're about the same. But margins go up (with better-quality products)."
It all boils down to how you position a private brand and the products within its line, according to the dealer. "We market (Delta) according to tire quality," he says. "If we sell a private brand for $2, then the customer is going to see it as a lower-quality tire. If we can price it just a few points less" than a major label tire, "and make up the difference in profit, customers will perceive it as a quality product.
"The only thing they can compare (a private brand tire) against is the dollar cost of going with something else."
The biggest advantage provided by private brands is their "cost-effectiveness," says Monte Everhart, owner of Hot Springs, Ark.-based American Tire & Wheel Inc., which sells the Regul and Winston brands, both marketed by American Tire Distributors. "Regul is my mainstay; it supplies a niche for the person who can't afford (a top-tier product). And to a lot of people, name brand isn't everything."
That includes Everhart's customers who live in Hot Springs Village, a retirement community 15 miles from his store. "Many people's portfolios have been blasted by the stock market," he says. "They're not buying nationally advertised tires." Everhart prices his private brand tires accordingly. At press time, he was selling a P215/70R15 Regul Pacesetter for $54.26 while selling a same-size Michelin Harmony for $104.95.
Private brand tires comprise the majority of the units that Troy, Ala.-based wholesaler Harris Tire Co. distributes. In fact, the company hasn't sold a major label tire since the mid-1970s. "It's hard to get a tight territory with a major brand," says Harris Tire General Manager Ace Coley. "You might have three (wholesalers) in one state who sell Michelins, for example. Customers just call back and forth on price; it's hard to make money." Harris Tire sells Summit, National and Remington brand products to nearly 1,200 retailers in Alabama, Mississippi, Louisiana, Georgia, North Carolina, South Carolina, Florida and Georgia.
"Basically, all of the above lines have a low-end up to a premium tire, but they're priced at the mid-level range," says Coley. Many of the Harris Tire's clients operate in small, rural towns, "where people are more price-conscious."
Tri-State Tire Inc., another wholesaler, derives most of its $13 million-a-year sales from private brands, says Mike Patrick, who owns the Atlanta, Ga.-based company. Tri-State Tire has sold Cordovan brand products for the last 30 years and began carrying Hercules brand tires last month. "When we got into wholesaling in the early 1970s, Atlanta was not nearly as competitive as it is now."
These days, the Atlanta market is ultra-competitive, according to Patrick, who credits private labels with helping his company keep old customers and win new ones. "We try to use private labels as a price point and a territory protector, and it's worked."
Tri-State Tire's private label profit margins have stayed consistent in a market in which, "as a whole, margins have gone down." Patrick is constantly looking for ways to "buy better," including taking advantage of buying bonuses and purchasing container shipments. His main focus now is building the single-warehouse operation's Hercules program. "We're using it in territories outside of our Cordovan area. Cordovan has a complete line, but I'm limited in territory. Hercules is helping us fill in."
Patrick also has developed a marketing program for his clients that includes point-of-sale materials. "We'll go in and completely set up a showroom for them, if need be." Many of his time-strapped customers have used the service.
Selling private brands will continue to be profitable "as long as we demand a good product (from manufacturers) that's competitive with house brands," says Northwest Tire's Vetter.
Private brand tires "will continue to thrive, especially in this economy," says American Tire & Wheel's Everhart. His dealership is selling more private label tires than it can stock. "If you can offer a quality product with a good warranty, it's a natural."