The Keys to Successful Growth
Expansion is a natural goal for most collision repair shops. When success reaches a certain level, owners start thinking about new ways to grow and that often leads to the possibility of a second location.
In this shrinking industry, where the big continue to get bigger, growth is becoming increasingly important to many shop owners trying to stay competitive. While some shops prefer to stay small (see “Small and Proud”), the message in the industry is loud and clear: bigger is better.
“You’ve got to get bigger to survive, because the smaller shops are going to close up,” says Matt Dewalt, co-owner of Scott’s Collision Centers in Stroudsburg, Pa., his family’s second repair center.
FenderBender recently talked with Dewalt and two other multi-shop operators (MSOs), Larry Seida of Illinois-based Riverdale Body Shop and Phil Tripp of Tripp’s Auto Shop & Collision Centers in Michigan, to get their insight on adding another facility.
Expanding the Kingdom
Since opening in 1988, Tripp’s Auto Shop & Collision Center in Jackson, Mich. has grown into “the king of a very little area,” says owner Phil Tripp.
The 19,000-square-foot shop earns $4.7 million in revenue each year and averages 240 cars a month. Not bad in a market widely thought to be downtrodden and broke. Tripp decided to build on that success last year by opening a second shop in nearby Lansing; it’s one of several new additions he has planned.
“MSOs are going to be the ones that are going to survive and our intention is to have another five shops over the next four years,” Tripp says.
The Lansing facility, which generated $850,000 in revenue during its first six months, was built in a former gymnasium purchased with cash flow from the original shop and a small business loan.
“I was shocked that I got [the loan] because banks are not lending money,” Tripp says, noting that shops should not be afraid to pursue financing options, even in this murky economic climate.
Lansing was chosen as the location for the new shop because it’s within range of Tripp’s aggressive TV marketing campaign. He spends 7 percent of his budget each year on marketing, and most of that goes toward commercials. Even though he hasn’t had a shop in Lansing until now, the population there has seen his TV spots for years.
“The residual advertising was huge and I made a bet that if we opened a location there, people would respond and they did,” Tripp says.
Tripp’s advice for becoming an MSO:
"The biggest thing is copy smart. You don’t need to reinvent the wheel. Visit and copy, and just make sure that what you copy works."
Before opening, Tripp made multiple visits to other shops, some out of the state, to get a good feel for what MSO strategies worked and what didn’t. He copied the best practices, such as the implementation of lean principles, and made them his own.
He says things have gone smoothly so far, but he did have to go through a lengthy inspection and licensing process before he could open, and he had to do a little research to meet safety codes without spending a fortune. For example, he avoided installing a new $70,000 sprinkler system by spending $7,000 on a firewall and fire doors.
Communication between shops was also problematic at first, so Tripp upgraded to a Rome Technologies management system, which he says has made a huge improvement.
Matt Dewalt, 39, says he’s been immersed in the collision repair industry since birth. He was a regular in his dad’s shop, Scott’s Auto Service, since before he could walk, and he started working there as a teenager.
Dewalt left briefly to earn a business degree, but returned as parts manager and eventually became general manager. As he climbed the ladder, he became eager to open his own branch of the family business, which had steady customer traffic of about 160 vehicles a month, largely because of its seven strong DRP relationships.
“I couldn’t force my dad to retire, but I wanted to do my own thing,” Dewalt says. “We were getting a lot of customers from another market, so we decided to open a second location.”
Dewalt originally looked at building a brand new facility on a plot of land about a half-hour away, but decided that at around $2 million after construction and equipment costs, it was too expensive. Instead, he made a deal to purchase a fully equipped shop for $1.2 million, using business cash flow to make the purchase. It was on a rural back road with low traffic, but after a quick walk through, it seemed like a steal.
“In hindsight, I would have been way better off buying the land,” Dewalt says.
His shop, named Scott's Collision Center, was initially successful, bringing in $800,000 during its first year in 2007 and $1.6 million in 2008, but the recession hit it hard. As the economy tumbled, Dewalt quickly realized that the family’s good reputation, name recognition and strong insurance relationships weren’t enough to keep traffic up forever.
The shop’s biggest insurance partner, which accounted for 15 percent of sales, told him the location didn’t generate enough volume and pulled the plug, Dewalt says. Sales sank from roughly $160,000 a month to $80,000.
To make matters worse, Dewalt had to invest about $100,000 into the shop to replace faulty equipment and fix structural damage he hadn't noticed previously.
“A lot of it was a lack of performing due diligence,” Dewalt says. “I trusted the previous manager, who said they did $2 million in sales. I didn’t review financial documents; I didn’t bank on the rural location being a driving factor.”
Dewalt’s advice for becoming an MSO:
"Do your homework and don’t rush into it. If I had the money, I’d do it all over."
But, after working with industry consultant Mike Anderson, Dewalt drafted a marketing strategy, which included hiring a fulltime marketing employee. He also retooled hiring practices through online personality testing and started load leveling with his family’s other shop, which was too busy to handle every customer.
So far, those strategies are gradually bringing the second facility back online. Last year, revenue was about $1 million.
Riverdale Body Shop, which runs eight shops in south Chicago and nearby Indiana, opened its first facility in 1970 and stayed a one-store operation until 1994. That’s when the business’s two decades of growth started to generate more customer volume than a single location could handle.
Larry Seida, who owns the company with his brother and father, says the family decided to branch out to nearby markets to better serve the increased traffic. They researched competition, looked for locations in growing communities, and within three years, opened three new shops: two in existing facilities and one a ground-up build.
“Then it got a little hairy and we held off for another four years,” Seida says.
The issue wasn’t that the shops weren’t performing. It was that each was performing in its own way. There were no standard operating procedures (SOPs), Seida says.
“We got ahead of ourselves,” he says. “The quality was always there, but the paperwork wasn’t. We didn’t realize the financial reporting and metrics we’d have to watch.”
Each shop was arranged and run differently, depending on the individual manager at the store, he says. That created communication problems between shops and required employees to reacquaint themselves with each facility, wasting time. Hiring practices were also inconsistent. In short, Seida says, there was no “Riverdale way” of doing business.
Seida’s advice for becoming an MSO:
"Get your processes documented and make sure they work without you being there."
Seida said the company resolved those early headaches by developing and implementing SOPs and consistent shop layouts, placing one manager in charge of the hiring process for all shops and installing a computer-based, multi-shop-capable management system.
Riverdale has since added four more locations and is working on its ninth facility.