NEW ORLEANS, July 10, 2016—More than 500 collision industry professionals converged in New Orleans last week for the annual CARSTAR conference, the national franchise network's first such event since its acquisition by Driven Brands in 2015.
The last 12 months have been a whirlwind of change for CARSTAR, and its leadership team—Jose Costa, paint and collision group president at Driven Brands; Michael Macaluso, president of CARSTAR North America; CARSTAR COO Dean Fisher; and CARSTAR's VP of insurance Arlo Johnson—sat down for an exclusive interview with FenderBender to discuss the company's future.
Jose, this is many CARSTAR shop owners’ first dose of you. What message and vibe were you trying to give off when you spoke to everyone today?
Costa: It was about embracing growth, embracing change. Things are going to keep changing and changing fast, both in the marketplace and within Driven Brands. It's at the core of what we do, and I think Dean and Michael have been great at embracing a fast pace of change.
Coming from the outside, I think it was really hard during those first 90 days of change. CARSTAR is going through growing pains. They were doing great things by themselves, but now they belong to a bigger group that does things just a little bit differently. So I think a big part of today was showing the franchisees we're trying to understand CARSTAR’s roots. Once we got through those first 90 days, we started to move faster. Now we're doing better, and we'll get even better. Franchise owners have to embrace that because it's not going to go away. And then we're going to keep bringing investors from outside the industry to own big territories, and that's going to change the game for CARSTAR.
With the big theme of the conference being “Power of One,” which speaks to the integration between U.S. and Canada, what are some of the goals and benchmarks you guys have set to make that integration successful?
Macaluso: So really it's been a great process over the past few months, and right now we're putting our game plan together to try and capitalize on the opportunities of both countries unifying as one entity, and then ensuring our American group is run by an American team and the Canadian group run by a Canadian team. We have an objective of 1,000 locations, and $1.5 billion in sales. Those are the overall goals of the next three to five years. So we're building off individual strategies that will roll into that ultimate objective.
And what are those individual strategies?
Macaluso: So we have different approaches based on if we have locations in an area or not, but each approach is moving in tandem with each other.
So first, we're looking at market expansion in the U.S. Today we only serve about 30 states. So there's one approach in markets we don't serve in bringing in new franchises. We've augmented our development team and incorporated the Driven Brands system. Dean is heavily involved on the development side.
And the second, and probably primary focus, is enabling our existing franchises—providing different programs, opportunities, resources for existing franchises to acquire locations and grow their footprint.
How do you approach oversight and managing performance with the U.S and Canada markets?
Macaluso: It all comes down the Edge platform, which is in place in both countries, augmenting the Canadian version with a lot of the Edge principles from the U.S. It's a very robust program. Probably the best I've ever seen in the world. That's the baseline for consistency.
Fisher: In Canada, they had a certification process there; we had an Edge certification process here. So in an effort to create the merger between the operations divisions, the Edge performance platform will be the driving vehicle in that model. ... So first, we have that foundation/integration piece. We're beginning to build that out and work through that process.
Our Tier 2 structure has been built around creating synergies around a culture of change, and our Tier 3 element is where we get into lean processing and four key areas that we focus on significantly: scheduling, mapping, DFR (disassembly for repair) and the parts procurement process. And there are a lot of ancillaries that go on underneath those four.
And then on top of that we have a Tier 4 structure, which we don't talk about as much, but it's Edge Advance. We start to utilize that lean processing model to build fast track single-day processing, express three-day-process modeling, and then standardized repair processing. And that also includes, often times, segmented labor models that you can build, and also induces express/satellite locations.
And that's the whole process. We're looking to build that into a common model for North America. So we're looking at the best of what they have and they're looking at the best of what we have, and we we're building the model as we speak.
This morning you spoke about splitting the U.S. stores into three different zones. Can you touch on that a bit? Will that help with the oversight duties?
Macaluso: We're trying to drive strategies for growth and operational excellence. What we had previously was more generalist rather than specialist. So now we're focusing in on three zones: west, central and east. In each zone there are marketing specialists that report to Hannah [Ross, director of marketing for CARSTAR], insurance specialists that report to Arlo, and the operations specialists that report to Dean. So in each area there's a team. So our franchisees have an area director of operations, but then there's a support team that's solely focused on that zone, understanding the nuances in that marketplace, providing effective support and helping us grow faster and better.
Johnson: And part of that is about the ownership mentality. Now you have a group of folks that are responsible for the gross growth and operational capacity of a region. So everybody is pitching in, the team works together to move that region in the same direction.
Can we get into some of those key differences and what the U.S. and Canada are learning from each other?
Macaluso: Let's start with CARSTAR Express. It's firmly in place in Canada, branded as CARSTAR Express. That's a concept that we're going to bring down here, and has been reaffirmed at the conference.
One that's coming from the U.S. up to Canada is the Edge platform. That's something that's not as deeply built in Canada. We had our CQS, the CARSTAR Quality System, but Edge Advance is ... more advanced, for lack of a better term. And that's being brought up to Canada as we speak.
In terms of marketing, the advantage of the Canadian marketplace is there's really only 10 to 12 large markets. Because of that concentration, you can do a lot of different things. So learning some of the things that we've put in place in branding in Canada are being brought down here. Likewise, with some of the business activity in the States, which is all about locally driven practices and organization, that's a learning curve there that can come up to Canada.
Fisher: In the U.S., we build business groups around our cluster markets, where Canada doesn't have that model, because of the way Canada operates and how their insurance is built. They're building almost a flat plane across the bottom of the country. It's really interesting when you look at them because their insurance doesn't drive the level of KPIs that we drive down here. So it's interesting, as we watch our KPI standards down here and up there. The reason our Edge platform has to be so robust is to drive that KPI standard. As we drive that between the two of us and learn those synergies, I think that'll make us really strong in the marketplace with those insurance companies.
Johnson: Seeing what my counterpart in Canada has done with the insurance partners up there and the interesting nuances to deal structure that they've introduced and had success with, that allows me to look into that and borrow some of that. Not that every carrier in the U.S. is willing and open to have those conversations yet, but to know where that's heading, that gives us a leg up in understanding how to position ourselves to move in that direction.
Are any of your strategies influenced by the consolidation of insurance companies that has taken place in Canada? Do you see something similar happening soon in the U.S.?
Macaluso: I think there's roughly 260 carriers in the States, and I think we can all agree that will go down. There's about 83 including the three public insurers in Canada. That will certainly go down. At what pace is yet to be seen. The pace of change will increase. So if it took 10 years to move two percentage points, now it’s probably only going to take three years. The top 10 own 70 percent of the market in the U.S. That will get in the 80s very, very soon.
Johnson: It's interesting to watch consolidation happening on both fronts. We see it happening with the stores in the U.S., and it's happening on the insurance side in Canada. You can clearly see, when you match up all the carriers, there’s a lot of them, year over year, that are losing market share and losing premiums. And then there's some on top that are growing robustly. It's a zero-sum game.
Fisher: We embrace it because it helps our facilities perform in a more consistent pattern. When you have 30 different rule sets in your facility, three different management systems and estimating platforms, there's more room for error there and it's tougher to drive that. As we consolidate on our side, we embrace that consolidation on their side.
How does Maaco fit into CARSTAR merging with Drive Brands—if at all?
Costa: It doesn't. It's managed completely separate. So everyone you see around the table here, there's the same team on the other side. The main focus is retail. The average ticket is about $900, versus almost $2,200 for collision. In the U.S, our footprint if much bigger. Just in the U.S. Maaco has about 500 locations. It's a very different model.
