When I first joined the tyre industry, more than 30 years ago, retail stores were in their prime, generating handsome returns. Over the years, the marketplace has become saturated, with consumers spoilt for choice on where to purchase their replacement tyres. While this turn of events may have been beneficial for motorists, the plethora of tyre outlets that now exists, has impacted negatively on the industry.
Today, franchises and dealer stores are struggling to remain competitive amid perpetually shrinking profit margins. An over-supply of retail outlets coupled with a shifting market dynamic, have created apprehension, with retailers now looking at alternative ways to supplement their turnover.
Historically, wholesaling was not the norm in the tyre industry, but this has changed, with manufacturers now compelled to sell product to wholesalers at drastically reduced prices, to meet their target volumes. This according to industry sources. While wholesalers have their place, some of the dealers we spoke with, (all of whom requested to remain anonymous), claimed that a surge in wholesaling practices was adversely impacting their businesses, making it even more difficult for them to compete.
One franchise owner we spoke with questioned the need to pay franchise fees, when in reality, buying from a wholesaler is far cheaper. “Disposing of new product via a wholesaler, in order to meet monthly targets, is an old way of doing business, one that does not support the manufacturers’ franchises and branded stores which are actively promoting their affiliated brands,” he said. And then there is the growing trend for manufacturers to offer direct selling to their customers, something that is particularly evident in the commercial segment.
In response to these allegations, Sumitomo Rubber SA, said: “SRSA currently does not have a direct to market approach and uses the Dunlop dealer and independent channels to reach the consumer. Consumers that are interested in purchasing Dunlop tyres online will be directed to Dunlop dealers (based on location), as the fulfillment partner.” 7 www.satreads.com This statement was further backed up by Bridgestone SA, who said: “Bridgestone does not offer direct purchasing on our core tyre business.
Bridgestone’s retail approach is to offer our products through premium partners that can deliver superior service. We believe that dealers who can render high quality service, have a greater chance of enduring market pressures.” “Business cannot be successful without our partners,” echoed Goodyear. “At Goodyear, we adhere to what we like to call ‘the connected business model”.
Essentially, this means connecting all aspects that make up the business, from the product, to the OEM, customer (retailer), to the end-user and all factors in-between. In South Africa, we are working with all retailers to ensure that we strengthen our relationship with them and also support them in their respective market segments, so that it is a win-win relationship.” And yet, the perceived lack of support some in the distribution trade say they receive from their manufacturing partners, often leads them to explore other options, a popular one being, switching alliances from one brand to another. How often does one drive past a retail outlet, that seemingly overnight, has switched signage to mark its allegiance to a different tyre brand?
This is now commonplace, with retailers hoping to gain greater support from a rival brand, or in some cases, choosing to forego alliances altogether, in favour of becoming an independent store. In these economically pressing times, it would appear retailers are doing anything and everything in their power, to ensure their businesses to survive. “There are relatively limited barriers to entry to the tyre retail space, and this allows, at points, more retail offerings than the market requires. The change of alliance more closely aligns to the value proposition of the individual retail chains and their ability to differentiate their offering made to dealers,” added SRSA. “Offering premium products that are locally manufactured and fitted with exceptional customer service, will continue to deliver sustainable growth for retailers,” claimed Bridgestone SA.
Reliable service, backed by a sound product range remain key in this highly competitive business. But this alone may not be enough. As our exclusive interview with Rene Baker aptly illustrates, retailers who extend their product offering and services to include underbody components and other affiliated services, set themselves up for sustainability. “In the current economy, consumers are ever conscious of their reduced disposable income due to the rising cost of living, fuel increases and the like. We recommend the dealer segment should consider a dedicated focus on ancillary products in-store, to provide a full solution to the customers’ needs in the automotive segment,” SRSA concluded.