A private private brander: Del-Nat may be quiet, but it knows how to market private brand tires
"I like to fly under the radar," says Ed Fabrizio, president of Del-Nat Tire Corp. The same can probably be said of Del-Nat itself.
But quiet doesn't mean stagnant. Del-Nat -- which markets the Delta, National, Akuret and Chaparral private brands and Yokohama consumer brands -- had a solid year in 2006, achieving total sales of just under $208 million, $16 million more than during 2005. As part of that, Del-Nat moved 3.2% more units in 2006 versus 2005.
Fabrizio is proud of those numbers but also is pleased with Del-Nat's progress on other fronts.
For starters, the Memphis, Tenn.-based private brand marketer significantly reduced its freight expenses last year by convincing several of its Asian-based suppliers to ship full containers directly to the group's 75 dealer-members.
"At the end of the first quarter last year, our freight expense was over-spent by 50%. At the end of the year, our freight expense was only over-spent by 15%." Del-Nat also did a good job of communicating manufacturers' price increases to its members, says Fabrizio.
But there's always room for improvement, he readily concedes. Modern Tire Dealer recently talked with Fabrizio about challenges that remain from 2006, Del-Nat's plans for the rest of 2007 and how to grow your business in an arena that's constricting due to consolidation and production cutbacks.
MTD: Were there any goals in 2006 that Del-Nat wanted to achieve but did not?
Fabrizio: Inventory turns. We had a goal of 5.7 turns. We got very heavy in inventory the first part of the year. It naturally gets heavy that time of the year but not to that degree.
But we brought in a replenishment manager who's specifically focused on (inventory turns). We identified slow-moving items. We identified items that could turn faster if we just managed it. And we came very close to our turn goals.
MTD: What's your assessment of current market conditions for private brand companies like Del-Nat? Is the U.S. becoming more of a major brand market?
Fabrizio: That, plus overseas-sourced tires. But I'm not sure there's a real measure on what's coming in from China that's private brand. Fifty-six-percent of (our) product is sourced from overseas, yet we still have a very large domestic supplier in Cooper Tire & Rubber Co.
MTD: Are consumers as open to buying private brand tires as they once were?
Fabrizio: I believe they are. It's all dependent on the recommendation of the organization that's selling them. I don't see a resistance on the consumers' part. I still think this business is dealer-driven.
Here's the way I've seen it historically and it really hasn't changed. The big, recognizable brands that are OE happen to be Michelin, Goodyear and Bridgestone. We understand who's filling the bill there. Flag brands are recognizable to the consumer... but there's a sacrifice in margins (for the dealer). A consumer comes in with those tires on his car and it's easy for the dealer to say, 'Do you want to buy the same thing?' But everybody else is selling those, too. And that's where the price is squeezed. Everybody else has it, and now that dealer has to conform to that price structure.
Now there's some flag brand business out there; some of it's OE and some of it isn't. You have Yokohama, Toyo... Pirelli would fit into that. There's somewhat of a compromise but the dealer can probably make more money (than by selling a major OE brand). But the dealer doesn't call out his own price.
When you're dealing with the OE and flag brands, the people who win are the manufacturer and the consumer. The dealer doesn't get the fulfillment of profit that he really wants. Only with a private brand, where he has a marketplace that he calls his own and a price that is truly his own equation, everybody -- the marketer, the dealer and the consumer -- can win.
The last time I checked, this is still a people business and people are lazy. We don't hunt for our food anymore; we have it delivered to our house. Flag brands and OE brands appeal to (consumer) laziness. The decision to put on a particular tire is still in the hands of the salesperson who encounters the customer.
MTD: Del-Nat sources tires from a dozen or more suppliers. How do you juggle so many different manufacturers?
Fabrizio: Del-Nat sources tires from throughout the world in order to sell to its members at the lowest possible cost. We watch costs very closely. We're lean and mean. Being a cooperative, sure, I'd like to say, "I want to provide a dividend," but in order to fulfill the goals and obligations of the organization, we have to be competitive. So we ask our suppliers to be competitive. We ask them to provide multiple products at multiple price points.
< /> Do you plan to source more tires from Asia this year?
Fabrizio: Yes. We've found a couple of suppliers who are willing and are prepared to cover sizes that are diminishing and also the thriving sizes.
MTD: Is it more cost-effective to source tires from Asia than from a U.S.-based manufacturer?
Fabrizio: We can make it that way if we understand what the barriers and obstacles are. (Domestic tiremakers) have become very selective in what they will do with their manufacturing capabilities.
MTD: So you have more flexibility with offshore manufacturers?
Fabrizio: There's a tremendous amount of opportunity with a manufacturer - and they do exist - that's willing to provide sizes at multiple price points.
MTD: Let's say Del-Nat wants to add a new tire or a couple of sizes to an existing line. What's the process like when you're sourcing from an American supplier versus an Asian supplier?
Fabrizio: First off, we let each know what the opportunity is, face-to-face, so they can understand what we're trying to do. We give them projections about volume, we give them target pricing and we also target UTQGs that they need to represent. Hopefully they have the manufacturing platforms to conform to all of this.
MTD: It seems like you would have an advantage in dealing with U.S. manufacturers in that case because they would be familiar with UTQG (Uniform Tire Quality Grading) ratings and all the other parameters...
Fabrizio: Yes, we feel as though the overseas manufacturers' UTQGs, particularly in China, are very conservative. Here they're very liberal. UTQG states somewhat of a threshold value, so you have to ask (offshore) manufacturers if it's doable. And you have to catch them in a mold change. The domestics are already there.
MTD: So in other words, it's not always easier to source from an Asian manufacturer?
Fabrizio: No. There has to be a lot of dedicated, specific, drilled-down communication. There's no question about that.
MTD: Do you have your own people on the floor in Asia?
Fabrizio: No, we've done that all from Memphis. However, the idea exists to put a full-time Del-Nat employee in Asia.
MTD: Does a tire's point of origin matter to your dealer-members?
Fabrizio: No. Everybody wants the cheapest possible price. There's a value for the Chinese-produced product. Then above that there's a value for the Korean-produced product. Above that, there's a value for the Japanese-made product, and above that, a value for European-made product. And then there's a value for American-made product. There are different reasons in between each and every one (for the differences in value), so we see that and have to provide that.
For example, in medium truck tires, there are a couple of really good Chinese suppliers. But it's like water: It seeks its own level. However, there will be a point in time when a couple of the Chinese manufacturers are going to break out of their silos.
MTD: What will the market be like five years from now? Will there continue to be a healthy market for private brand tires?
Fabrizio: It will be healthy, but I think there will be a narrowing of the organizations (that) are doing it. We've seen the consolidation between TBC Corp. and Treadways Corp. last year. Our model is working. It's very successful, and I'm very encouraged by our first quarter results this year.
Fabrizio adds that Del-Nat is looking at opening a new distribution center on the West Coast to supplement its Memphis warehouse. Del-Nat's Asian-sourced tires are brought in through West Coast ports. "Trying to cut into our land-based freight cost will help us be more competitive."
Some things don't change, says Fabrizio: Brand and territory exclusivity still have major appeal
Del-Nat Tire Corp. has signed four new stockholders already this year for a running total of 75. And there are regions yet to be filled, says Del-Nat President Ed Fabrizio. But Del-Nat isn't taking on just anyone, he adds.
"We want our stockholders to have multiple locations, whether they be retail or wholesale. On the distribution side, we'd like them to have multiple warehouses. On the retail side, we'd like to see them have a central warehouse where they can land truckloads or containers."
Half of Del-Nat's stockholders are former customers of other private brand distributors, according to Fabrizio. The rest had never sold a private brand tire or worked with a private brand marketer. How does Del-Nat make believers out of the uninitiated? "The very first priority is by offering an exclusive brand in an exclusive territory. Those are the two bullet points. People hold them in high regard."
Del-Nat doesn't necessarily target dealers who carry a lot of flag or OE brands "but we see that as somewhat of a virtue. We believe we can provide better value with the same kind of coverage."