Tire Factory signals shift in strategy

Feb. 23, 2015

Tire Factory Inc. added tire brands, introduced digital marketing technology, distributed its first-ever patronage dividends and signaled a change in strategic direction to members at its annual dealer meeting in Portland, Ore., Feb. 20-22, 2015.

New value brands

The new products are Goodyear Tire and Rubber Co.’s Kelly Edge A/S and Kelly Edge AT and Hankook Tire Co. Ltd.’s Laufenn brand. The A/S is available now and the LT will be available in the fall. Hankook introduced the Laufenn brand in November, and it will be available later this year.

Goodyear and Hankook are two of Tire Factory’s largest vendor partners, according to CEO John Kreidel.

“With what’s transpired in the market with antidumping and the tariffs, we think Hankook is showing some wisdom there and so is Goodyear. There’s going to be a slot here in the value segment that we think we can fill with both those lines. They’re both quality tires, and the members should embrace them.”

New and exclusive premium brand

In addition, Yokohama Tire Corp.'s Tornante, a premium all-season touring tire,  will be available exclusively to Tire Factory members in their marketing areas.

The Tornante is available in 32 sizes for passenger, CUV, minivan and SUV applications. The tire will have a free 30-day trial and a high mileage warranty. It will be part of Yokohama's spring consumer rebate program.

Digital marketing tool

Tire Factory also announced a partnership with the MechanicNet Group to offer a digital marketing program aimed at retaining existing customers through e-mail and text messages.

“We’re helping the stores market much more efficiently and embrace technology like texting,” says Kreidel. “MechanicNet is a great way for stores to stay in contact with their customers with very little labor.” The MechanicNet offering integrates with a store’s POS system.

“For an independent dealer, technology is a great equalizer. If done right it allows us to interact with a customer in a very favorable way,” says Kreidel.

New patronage dividend

“Patronage dividend” is a term for splitting up profits among members of a cooperative, according to Kreidel. The patronage dividend for 2014 totaled $1.5 million. 

“The more you buy from Tire Factory the bigger the pie you get of our net profit or patronage dividend,” Kreidel told members. A cooperative is required to pay out profits pro-rata to members’ purchases. Under Tire Factory's previous partnership structure, payouts were based on stock ownership rather than purchases. “One of the beautiful things about our organization is being a clear co-op now,” says Kreidel.

In addition, Tire Factory paid members volume bonuses of $2.3 million for 2014 along with the patronage dividend. Total payout to members was $3.8 million.

Tire Factory had a 4% increase in units of tires shipped in 2014 versus 2013. Dollar sales were flat year over year.

New strategy for staying relevant

The cooperative's aggregate sales totaled $300 million in 2014. Tire Factory added 11 stores to end the year at 198 stores in 15 states. Despite that growth, Kreidel hinted at the need for a change in long-term strategic direction.

The challenge for Tire Factory is to remain relevant to manufacturers in an industry that is consolidating on the wholesale and retail sides. Kreidel cited the growth of Monro Muffler Brake Inc. and American Tire Distributors Inc., which operate more stores and purchase more tires than Tire Factory members.

“Is the sky falling? Absolutely not. We’re profitable and we have a really strong balance sheet, but we need to be cognizant of what’s happening around us. The market’s moving much faster than we are in our growth, and we’ve got to remain relevant to the manufacturers,” Kreidel told members.

Tire Factory solicited ideas and opinions on a new strategy from members in small group sessions during the meeting but did not provide a timeline for decisions or plans.

For information on becoming a Tire Factory member, visit www.jointirefactory.com.