ENGLEWOOD, Colo.-Big O Tires Inc., North America's largest franchiser of independent tire dealerships, will shave prices 5 to 15 percent on its Big O private brand tires in a bid to increase sales at its 368 stores in 18 states, primarily in the West and Midwest. The Englewood-based company also plans to build an additional 168 stores over the next five years, primarily as part of its planned eastward expansion in the U.S.
The price reduction, which takes effect Aug. 1, generally will find the premium end of the Big O line receiving the largest discounts, according to franchised dealers contacted by TIRE BUSINESS.
Franchisees also said they will pass most, if not all of the resulting cost savings on to customers. Big O's corporate management has indicated it eventually wants the Big O private brand to account for at least 75 percent of the average franchisee's tire sales.
Big O brand tires represented about 67 percent of the corporation's own sales in 1993, according to its 10-K report to the Securities and Exchange Commission.
In addition to its own brand, Big O supplies franchisees with Michelin, Uniroyal, Goodrich, Mohawk, Heritage and Sonic brand tires. Most Big O brand tires are produced by Kelly- Springfield Tire Co.
Securities analyst Stephen Girsky of PaineWebber Inc. in New York said Big O appears to be banking on increasing sales volume sufficiently through the price reduction to offset any temporary revenue declines. ``Time will tell if it's going to work,'' he said.
Mr. Girsky said much of Big O's appeal in the marketplace has to do with its relatively costly free lifetime replacement warranty.
He said that by shifting production of the Big O brand to Kelly earlier this year, Big O's management dramatically reduced warranty costs. ``Now they're in a position to pass some of that savings on to the customer,'' he said.
Big O franchisees generally welcomed news of the price cut, some saying it was long overdue.
Franchisee Bob Brown, owner of Big O Tire Store No. 52 in Yuba City, Calif., said Big O was ``four years too late'' in lowering prices on its house brand-something he said California franchisees have been ``screaming for'' at least that long.
The brand does well in that market, he said, but retail prices are too high to be competitive.
``Every time they'd raise (the price) to us, we'd raise it to the consumer,'' he said. ``After a while, it gets out of hand.''
Meanwhile, Debbie Blevins, co-owner of a Big O outlet in Louisville, Ky., said she's ``never had a problem'' selling the Big O brand.
Nevertheless, she believes reduced prices will further increase her dealership's sales of the brand, which already exceed the 75-percent goal set by the corporation.
Mr. Brown said Big O brand sales at his dealership are running at about 70 percent, and he sees the corporation's goal as attainable with the lower pricing.
Big O President Steven P. Cloward said the company has been considering the price reduction and other changes in its marketing program for several months.
The corporation's plans-which include what he called ``some tweaking of Big O's warranties'' (offering mileage and road-hazard coverage on some tire lines that haven't had them up to now)-were outlined to franchisees in meetings with corporate officials during the past 30 days.
To keep Big O dealers competitive, Mr. Cloward said, management realized it had to buy at the best possible price, one of the main reasons for shifting most Big O brand production to Kelly.
That need also helped precipitate the franchiser's affiliation with Summit Tire & Battery Inc., marketer of the Heritage brand-Big O's ``price-point'' tire.
Mr. Cloward said Big O's board has authorized an ``aggressive building program for new franchising,'' which calls for the construction of 168 stores over the next five years, most of which eventually will be sold to franchisees.
Analyst Girsky, who believes Big O's future will depend largely on increasing its present store base, said the company is using its borrowing power to eliminate one of the biggest obstacles faced by most prospective franchisees-namely, the high cost of commercial real estate.
``It's easier to grow stores when franchisees don't have real estate costs to worry about,'' he said.