In 1956, Hugh Landrum signed an agreement in Macon, Ga. to open the first shop of a newly formed muffler installation franchise. In 1976, Bill Childs started a garage dedicated to tune-up work in Beaumont, Texas. In 1979, Jim Lunsford opened a quick oil change center in Alabama with the goal of taking the business statewide.
Three completely unrelated events? Hardly. From these humble beginnings, franchise giants Midas, Express Oil and Precision Tune shops, respectively, grew. Along with them, numerous other franchises like AAMCO, Cottman Transmission, Grease Monkey and Meineke Car Care Centers sprouted to help form a multi-billion dollar service industry that now dots virtually every part of suburbia. What’s more, these franchises continue to form and expand.
That fact should catch the attention of auto part distributors and jobbers. Unfortunately, many either ignore these shops or see them as off limits, mistakenly believing franchises contract only with the largest national distributors for a limited amount of vendor business. The fact is, though, significant business opportunities do exist for automotive parts and product distributors. The first step to cultivating them is understanding how these shops operate.
Franchise facts and futures
Why franchise? Franchising allows a business owner (the franchisor) to expand a business without setting up an expensive and expansive management system. A franchisor essentially sells a marketing idea to other entrepreneurs. In turn, the purchaser (the franchisee) has the opportunity to open a business with a proven track record and a name and reputation already familiar to the public.
Guiding a franchise are the rules set by the franchisor. For example, the franchisor determines where a franchise is located and sets other business policies — such as the products and services that may be offered — which the franchisee must adhere to. The franchisor then collects a franchising fee and royalties off the franchisee’s revenues. Within a franchise, the franchisor typically offers a variety of programs to help the franchisee. These programs can involve training, financing and advertising.
To date, the most successful and profitable franchises are, of course, fast food businesses such as McDonalds, Burger King and Kentucky Fried Chicken. Their rapid growth in the 1960s and ’70s helped drive the franchise business model that proved enormously popular with consumers. Namely, they offered an affordable menu of products in a convenient timeframe. These factors appealed to a thriving middle-class culture growing in affluence and searching for time-saving products and services.
These same factors spurred the development and growth of auto service franchises. By concentrating on one or several specific services, these businesses could provide oil changes, muffler installations, brake jobs and other repairs — all in a fraction of the time consumers previously expected. With them, consumers no longer had to make appointments or surrender their vehicles for an entire day to a neighborhood shop for an oil change scheduled somewhere between engine overhauls and more detailed diagnostic work. On their lunch breaks or immediately after work, in less than 20 minutes, consumers could be in and out of a quick lube shop. If consumers wanted additional services such as a radiator flush and fill or air conditioning charges, they could also purchase them and still be home in time for dinner or to pick the kids up from school.
Affordability also attracted customers. Through nationwide purchasing programs, franchises could buy parts in bulk at lower prices and turn those savings over to consumers. In many cases, they could offer muffler and transmission work cheaper than conventional garages, and they could provide warranties good at a network of franchises nationwide.
Franchises continue to find new ways to attract customers, often by offering more services or with innovative business models that concentrate on unique service combinations or new types of services — for example, diagnostic centers and paint and dent removal shops. As they grow, franchises play an increasingly larger role in an auto service industry now pushing the $200 billion mark in annual sales. Current trends show them gathering even greater economic power.
The American Market Research Council has released reports predicting the number of cars on American roadways to rise to 200 million in the next three years. Those same reports show Americans keeping their vehicles longer — on average, up to nine years. This means a growing market for auto filters, fluids, brakes and a variety of other parts as consumers, many of whom are abandoning performing their own maintenance work, turn to franchises.
Finding a place in the franchise picture
The national buying power of franchises naturally invites the largest parts distributors to bid for their business since they typically can offer the lowest prices and largest distribution networks. These factors can intimidate smaller distributors who don’t believe they can compete when, actually, most franchises try to work with a variety of distributors.
The national franchisor selects the parts distributors to be used by the franchise. In most cases, franchisees are restricted to a set list of distributors. Some franchisors further break this list into sets of primary and secondary distributors and demand that their franchisees work first with their primary distributors. On occasions, for example, where they run short of inventory and a primary distributor can’t deliver, the franchisee may then turn to other approved distributors. Jeff Davis, vice president of marketing for Tuffy, explains, “We have national programs with companies like Raybestos. When necessary, Tuffy shops also can deal with filler suppliers like NAPA and AutoZone.”
Other franchises use program structures that give their franchisees more leeway in selecting suppliers. Grease Monkey and Express Oil simply have one list of approved distributors. Franchisees can select whomever they want from this list.
When it comes to selecting distributors, franchisors usually contract for business on a quarterly or annual basis. However, they continually seek new distribution options in order to get the best possible deals for their franchises. When deciding whether to contract with a distributor, they look at two primary factors: cost and quality.
“New distributors are more than welcome to our program,” says Beth Benson, associate development manager for Grease Monkey. “They just have to be approved. We research the parts, and they have to pass our quality standards. Not every distributor passes.”
Kent Feazell, senior vice president of development for Express Oil Change, notes his company operates similarly. “We negotiate the best prices we can, but we invite business from all distributors. We try to filter everything down to the store level. We’re looking for the best deal for each individual store. We simply retain the right to approve the quality of parts.”
According to Feazell, interested distributors can first contact the national franchisor or an individual store to contract business. Approved distributors then either can supply stores on a limited, local level or distribute to the entire network of franchises.
Feazell notes Express encourages distributors to work with all stores in a franchise. “We want to offer their benefits to everyone,” he says.
Grease Monkey adopts the same policy. “If they offer a better price, we want them to be a part of our system,” says Benson.
Distributors that become part of a franchise program often form closer business relationships with franchisors than they do with other customers. The business nomenclature changes to reflect these relationships. Franchisors often refer to distributors as “partners.” These partners sometimes take a role in the development of the franchise.
“Our distributors truly are a partner with us,” says Roger Hill, vice president of operations for Tuffy. “They even attend our management and dealer meetings.” Forming these close partnerships aids franchisor and distributor alike. Both work at expanding the franchise, which means more service revenue for the franchisor and increased sales opportunities for the distributor.
Franchise portraits
Along with similar business structures and rules, auto service franchises also share — and compete for — the same customer base. Franchises usually set up shop in middle- to high-income areas to attract customers for whom “time is a premium,” according to Feazell. “We look for populations of 20,000 to 25,000 in a three-mile radius. Because time is important, they’re willing to pay to have a job done quickly and right.”
Davis notes, “Our target is tier two customers, customers who are looking for quality and will pay for it. As for tier three, the super low price, discount repairs, well, we aren’t going fishing in that hole.”
To attract these customers, franchises market their services in different manners in order to differentiate themselves from similar franchises and other competing businesses. Understanding the uniqueness of each franchise can be key in contracting with them. A brief review of four growing franchises reveals how each has positioned itself differently to create a unique industry identity.
Grease Monkey: Based in Denver and in business since 1978, Grease Monkey proclaims its stores have one distinct difference from other quick oil and lube franchises. “We aren’t owned or controlled by an oil company,” says Benson. This means Grease Monkey can offer different brands of oil and oil filters. Along with oil changes, Grease Monkey shops offer transmission fluid changes, air conditioning services and parts such as windshield wipers. According to Benson, the company gears its services to preventive maintenance and helping motorists “uphold their warranties.”
To meet this goal, Benson notes that Grease Monkey tracks its services per car, not per customer. “That way we focus on the needs of each vehicle separately. If a customer has three cars, we don’t look at servicing one customer. We see three different customers.” Grease Monkey has 198 shops in the U.S. and 37 in Mexico.
Tuffy Auto Service Centers: Founded as a muffler shop, Tuffy now performs suspension, brake and steering work. Not yet as large as competitors Midas and Meineke, this Toledo, Ohio-based company opened its 265th shop in 2004 and expanded into its 19th state. Tuffy plans to aggressively expand its franchise, opening 20 new locations each year. Current locations range through the U.S. with shops in Florida, North Carolina, Illinois, Wisconsin and North Dakota. Tuffy shops average 100 customers per week.
Express Oil Change: One of the fastest growing franchises in the U.S., this Birmingham, Ala.-based business has 149 stores in nine southern states, ranging from Alabama to Tennessee to Florida. Express plans to open 100 more in the next five years.
Express separates its services into two areas: oil changes and brake work. Express stores feature one or more pitted bays for oil changes and a separate area with seven to eight bays for brake work. “We don’t want to tie up oil changes with other work,” says Feazell.
Feazell further explains, “We use the oil change business to build customer trust. Once customers have visited us a few times and know they can rely upon us to do quality oil changes, we hope to gain their business on the brake side.” Feazell notes that Express shops don’t aggressively push the other services offered at their shops and aren’t currently looking to add more services. “We want to stick to our core services.”
Describing Express’ operating philosophy, Feazell adds, “We don’t focus on ticket averages. We count cars. What we’re really after is return business.”
Express Oil Change shops service an average of 57 cars a day.
Tilden for Brakes Car Care Centers: Relatively new to the franchise industry, Tilden began as a family run brake shop in 1923 in New York. The business eventually grew into full service auto repair and expanded to eight metropolitan New York City locations. In 1996, Tilden began to franchise its stores.
Rather than aiming for niche markets, Tilden is targeting customers wanting full auto services — with state-of-the-art diagnostic and repair equipment — offered locally and below dealership prices. Tilden Car Care Centers typically are 4,000 to 6,000 sq. feet with six to nine service bays. Planning to eventually operate internationally, Tilden currently has 60 franchise locations in the states with designs to add.
An opportunity on every corner
Franchises, of course, don’t offer guaranteed success. Economic conditions, changing demographics and competition can close any business, franchises included. The empty hulks of former oil and muffler shops in suburban business districts bear witness to this fact. Still, the market for auto service franchises remains relatively robust.
Statistics that were compiled by WorldFranchising.com, a Web company that tracks franchises, paint a compelling portrait of the size and economic power of these franchises. For North America, these statistics report 151 different auto service franchises with a total of 24,521 franchise shops. That translates into millions of customers and billions of dollars of revenue, with more to come. Considering the variety of distributors used by franchises, this also means fertile business opportunities at national (sometimes international) and local levels.
As the auto services industry expands and the franchising industry grows with it, aftermarket companies might have to ask themselves how much longer they can stay out of this field. Franchises certainly aren’t the only available market. They aren’t even the biggest — yet. But they are significant players in an expanding, ever-changing service economy.
Professionals in the aftermarket industry also note their special relationship with franchisors. The California/Nevada Automotive Wholesalers Association (CAWA) President Rodney Pierini remarks, “Franchisors like Midas are part of the AAIA [Automotive Aftermarket Industry Association]. They’re all part of the aftermarket family.” That being the case, aftermarket companies might help themselves by reaching out to these distant cousins. The benefits they stand to reap could make this family reunion of sorts well worth both their time.
