Freitag, 31 Juli 2015 09:53

Trends in the European tire business - an interview with Helmut Wolk

1 - What are the main tire trade trends in Europe?

Basic comments:
Compared with other automotive aftermarkets like parts, glass, body and parts the margin of the tire business is on a low level. That is primarily based on:
  • Intensive cutthroat competition with a strong entrance of new competitors (online, car dealers, IAM garages accompanied with decreasing target groups like mass merchandizers and gas stations.
  • branding policy of all tire manufacturers with a lot of brands from premium level to low budget level and private labels (is forcing cannibalization combined with lower margins)
  • one of the biggest negative influence factors is the conservative and passive wait and see attitude of most of the traditional tire dealers.
From these points of view – especially based on the low and decreasing margin development – the B2C business combined with online routing strategies and additional business fields like auto service will get more and more importance in the future.

Now and near future:
  • Increasing online business (B2C) web shops (car parts webshops in germany report).
  • Increased expansion of online customer routing to own chains/distribution partners.
  • Increased expansion of B2C business
    • Direct delivering in the supply chain from tire manufacturers to repairers/fitters. That means forcing the retail business.
    • Increased expansion in controlled chains of auto service business in fact of better margins.
    • the increased cutthroat competition is countered by appropriate marketing activities like permanent price screenings, permanent medium-term business plans etc. instead of price deductions
  • Rebuilding the controlled distribution of tire manufacturers from controlled distribution to hard franchised chains (cost savings and stronger identification of the entrepreneur).
  • Stronger building up auto service
Distant future:
  • Discovering niche target groups like IAM garages including the parts distributors with the high frequenced just in time delivery.
  • Partnership with garage online portals like Fairgarage, Ebay/autobutler, Bosch Drivelog (see garage online caomparison portals).

2 - Currently, 30% (>50%) of European parts market is dominated by a small group of large retailers. This trend of concentration in parts distribution business is also observed in the tires? In what way?

Besides the “only tires wholesaling distributors" especially the big parts wholesalers discover the tire business. There are some old guys like W&M in Germany with a traditional high tire share; more and more other parts distributors are discovering the tire business.
What we can see in the European major tire markets is, that the professionalized IAM garages – particularly the IAM garages which are connected to a systems – belongs to the winners in the last 3-5 years. They won higher market shares than the online business. Reason: close and permanent personal connections to car drivers especially for people with small/medium and older cars who need “normal tires” to a good price / performance ratio.

Advantages:
  • High frequented delivery (at least 3 times per day). The parts distributors are much better than the traditional tire logistic partners.
  • The parts distributors can deliver at the same time necessary parts (in these cases that the tire fitters include also a auto service business).
Weak points:
  • The most of parts distributors deliver tires outside of tire dealers. The main target group is the IAM garage.
  • The mechanical IAM garages are mostly passive acting in the tire business – their tire business is not “proactive”. Thus the parts wholesalers are delivering what the IAM-garage needs.
  • In view of thousands of part article numbers and a limited sales staff the most of parts wholesalers are perfect logistic partners but not professional sales partner to force the tire business proactive.
  • To force the tire business with IAM garages the parts wholesalers need the sales know how of the tire manufacturers and “their active help”. Parts wholesaler = push, tire manufacturer = pull – both supported by an active Online Routing tool.


3 - What is the best balance for the tire market to remain healthy and profitable?

It depends on the tire target group.
For a traditional tire retailer:
  • Exit from the wholesale business with ruinous prices (it´s the business only for some big specialists in Europe)
  • Service expansion to car services (lower half offers e.g. in a first step to wearing parts etc.. In the majority of cases (>50%) that would be the best solution.
  • Important: A traditional tire retailer needs help from a third party like a tire manufacturer, system know how of a parts wholesaler or other external advisors like wolk after sales experts.
  • In view of the great future tasks in the tire business (new technologies, more regional, national and global competition (online shops, fleet business), high investments in new equipment / well trained staff / new qualified staff for new auto service business etc.) one of the best advises is, that a “free single tire shop” tries to find an appropriate “system partner” form the tire industry or from an international tire chain / buying group like Point S. Reason: The most of the small and free tire shops has not the resources (Man power, know how, finance resources) to start with a new concept in the future.
  • Development of a medium term business plan (what are my targes? Do I have the resources to reach my goals?) If all is answered positive, the tire dealer has to speak with his bank to finance these restructuring.
  • Concentration to a market niche / car driver target group including establishing of USP´s (unique selling propositions)
  • Training of the staff to increase the proactive sales possibilities, optimizing internal processes for cost savings etc.


4 - How can defend small and medium distributors of large distribution groups?

  • Medium especially small parts distributors have to be concentrated to the tire business. No success without strong involvement in this business. The most important point: The staff have to be trained well - they have to motivated to sell also tires.
  • If such a medium or smaller parts wholesaler does not spend additional resources (personal, know how, time, money etc.) in this special tire business it won´t have any chance.
  • As I said before: A collaboration with a tire manufacturer, a chain / tire buying group or a big part distributor as a local partner could force the tire activities.


5 - The tire trade has been harmed by the crisis of the automotive industry in recent years?

In general: there is nearly no player in the automotive aftersales business without negative impact on its business. Tires are replacement parts. To a certain degree the replacement may be delayed - within the framework of legal requirements.
More important is another important aspect what we often found on the occasions of visits in Europe: Dealers which started their process of change on time, do not suffer far below the cyclical recession!!


6 - What has been the development of sales of premium tires compared to quality and budget tires?

Especially in countries that are affected by the economic crisis, budget products have gained greatly. This can be observed particularly in tires by private car. In general you can watch a general trend: less medium, strong increase of low budget/budget/private labels, slightly increase of premium products for business cars and cars in the high class segment.


7 – What is the importance of 2nd trademarks by manufacturers (eg. Michelin – Karmoran; Continental - Uniroyal) and the importance / trend of own brand (Ex. Norauto; Point S).

See above: More and more car drivers know that the budget and private label lines come from big tire manufacturers with OE history and high standards. On the one hand there is the influence of test reports. On the other hand the opinion of the fitter is more important if he is able to argue good.


8 - In the past the business model has always been based on the tire trade margin and the "supply" of services. Today, with the sophistication of steering and suspension systems, can we continue to "offer" these services? What is the new business model?

The technical tire development is always going to produce new technologies. The tire dealer is forced to follow this development.
That means: training, training and training. Better trained fitters. Recruitment of new “auto service mechanics, mechatronics, electronics.
Consideration whether diversification is useful in new business like auto service.
For the tire industry or chains is one way to develop new “know how transfer companies” to offer these future orientated technical services to all of these “old/traditional tire dealers” who don´t follow the new technical trends/needs.
IMPORTANT:
Such “know how company” could relieve the small traditionalists of investments in expertise/know how, new staff and equipment. This could survive even the little ones. They would not capitulate to the future.


9 - The tire workshops are joining the concept of networks or remain independent?

The most of the tire dealers/workshops have to join to a concept/system of a tire manufacturer, chain, buying group. See also questions 1-8.


10 - What are the main threats and challenges facing the tire distributors in the coming years?

The following statements are only reflecting the tire wholesales business of special tire distributors
Threats:
  • Decreasing margins
  • The Online web shops
  • The parts distributors delivering more and more tires to their workshop system partners. (Activities of the IAM mechanical garages with tires are growing).
  • Decreasing of winter tire business (especially in D, CH, A, SLO, SLK, CZ, Scandinavia and eastern Europe) based on climate changes.
  • Car manufacturers /authorized car dealers are forcing the tire business
  • Economic crises esp. in South and South East Europe and East Europe
Challenges:
  • Technical developments forced by car manufacturers and tire manufacturers with its high demands on the staff quality and long term company direction.
  • See also question 8: IMPORTANT. The products are following the know how!! If distributors offer such “know how help” - more tire dealers / IAM-workshops can survive.


11 - And the tire workshops?

Threats:
see threats above under tire distributors + decreasing margins

Challenges:
  • New tire technologies (RDKS, Run flat) favour the tire specialists based on specialized know how
  • The future is based on tire plus auto service (higher pressure)
  • One weakness has to be removed quickly in such outlets offering tires as well as auto service. In the time of high frequented tire changing the focus should be more on the auto service. Car service must be equal to the tire sale because the gross profit of auto service is much higher. Good benchmarks show a share of more than 65% gross profit of a) auto service (parts and service) and only tyre service (tire fitting, tire- and wheel balancing).
  • Tire hotels provide regulated frequency increase
  • See also question 8 

12 - The direct supply of tire manufacturers to workshops, is harming independent distributors. What can do the small distributors to survive in the market?

Stronger customer relation management (sell out marketing activities)
  • Additional services like tire hotels incl. call center activities
  • One possibility could be a local partnership with a tire manufacturer or a tire buying group / chain
  • Another idea is a local collaboration with a big parts wholesaler.


13 - What new business concepts can exist in the tire trade?

See above points. e.g.
  • Tire and auto service for tire retailers
  • Tire hotel / storage of tires. Especial in countries with a winter tire business.
  • Tire retailers must have a partner contract with fleets (Routing business is growing)
  • To be a fitting partner of online shops
  • Mobile fitting service like in the auto glass business. Forced by Carglass to reduce cost, to be in line with requirements of fleets, auto clubs etc.


14 - The sale of tires online is growing?

Yes it is growing permanent. In Germany 12 years ago from nearly zero up to 13% in 2014. A certain share is based on ordering of workshops, moon light workers and DIY people. The future of the B2C web shop online business is based on offering the fitting via online routing to partner workshops.



15 - What are the advantages and disadvantages of e-commerce tires (B2B and B2C)?

Advantage:
  • convenience
  • offer comparisons
  • good prices
Disadvantages:
If no routing to fitting partners: no advice of tire experts, no fitting, now wheel balancing.
The car driver has to find a fitting partner by himself in case of more than only wheel fitting.



16 – You believe that online service portals will change the tire trade? In what way?

Online Service portals like FairGarage, ebay/autobutler etc. have at the moment no importance for auto services (less than 0.1%). But in the next 10 years – especially for tires/wheels the importance will grow, as tires are more easily to handle via online than other parts for auto services. Online portals for tires are similar the same like B2C web shops incl. car driver routing to fitters. Delti.com routes tire customers to more than 8.000 fitting stations all over Europe. They will start the online business also with car parts. All the other important B2C online shops I know too.
Especially when it comes to the so called "internet of things" we can imagine that the condition of tires can be tracked. If the condition of parts or tires reaches a certain level the system would be able to order new ones and agree an appointment with a predefined workshop. This sounds like science fiction but will reach us earlier than we imagine.



17 - And in the Fast Service Garages, which has been the evolution / trend? Have appeared new chains of quick specialist services in the tire assembly?

It is not so easy to make a prognosis. In France and UK this kind of business is running. In the other countries the auto service business is concentrating to IAM system garages. In Germany the business of the fast fit chain of “pit stop” is developing negative. Instead of the classic fast fitters / auto centers the tire chains are forcing the auto service business eg. Premio/High Q/Vulco (Goodyear-Dunlop), Euromaster (Michelin) etc. .



18 - Proper management of marketing tools, may have a decisive impact on sales? In what way?

Shrinking margins change the business policy. This development you can see esp. by tire chains controlled by tire manufacturers. The investment to support the auto services in partner networks is increasing dramatically – forced by the technological developments. On the other hand the tire gross profit in tire retailing is developing down (16-18%). How the headquarters will finance the increasing service support? That’s one of the most important questions in the tire business and of course in the developing of tire networks.

The headquarters have to reduce costs, has to optimize the processes inside the partner outlets and has to do all activities to find possibilities to increase the profit. They have to find possibilities to generate + 2-3% gross margins for the tire dealers. Otherwise there is the danger of partner insolvencies especially in countries with economic crises or countries with a strong winter tire business. Climate and environmental influences have on the tire business a dramatically influence. If it is not possible to increase the gross profit situation of tire dealers by at least 3% we will have a tire dealer net reduction in the next years between 10-20% (depends from country to coutry).
It is time that the headquarters of the tire chains have to do something outside of offering additional discounts to their partners.
  • Permanent advice (internal or outsourced) especially supporting business planning, technical help, marketing help, staff support, help in new orientation / diversification in auto service / help for participating in the online business, permanent local price screenings to generate higher gross margins etc.
  • establishing help in installing regional “know how transfer units” 



19 - Delivery of tires just in time is now a requirement of the workshops, but has huge logistics costs for distributors and retailers. This trend will remain?

That’s especially a demand of the IAM garages. If also tire dealers are “jumping on this train” it is possible, that the parts distributors can benefit from it. For the tire manufacturers it would cost too much money. Professionalizing of tire warehousing and tire hotels could reduce the logistic costs.
That is the real advantage of online garage portals = online booking including fixed fitting appointments between the car driver and the tire dealer / workshop. The higher the online termination- the lower the rate of just in time (JIT) deliveries. That means: Forcing of online termination between car drivers and tire fitters – as soon as possible.

 

Letzte Änderung am Freitag, 31 Juli 2015 11:04

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