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July 10, 1995 02:00 AM

DEALERS PREFER PRIVATE LABEL'S PROFIT POTENTIAL

Joe Truini
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    AKRON, Ohio-Comparing public recognition of private-label tires with that of major brands is like contrasting China's Olympic basketball team with the U.S.'s ``Dream Team,'' which featured such well-known stars as Michael Jordan and Magic Johnson. Most people can name a couple members of one but none of the other. Nevertheless, many are sticking to private brands-and relying on them for a large portion of their sales-despite the obscurity of some of their names.

    TIRE BUSINESS estimates that private brands account for about 32 percent of U.S. replacement passenger tire shipments, whereas manufacturers' ``flag'' brands make up about 50 percent and their associate labels round out the picture.

    This means that of the approximately 170 million replacement passenger units shipped in the U.S. during 1994, an estimated 54 million were private brand tires.

    High profit margins and low cost attract dealers to private brands, according to Steve Bradford, manager of Russellville, Ark.-based Arkansas Tire Wholesalers Inc., which distributes private-label Telstar, Madison and Eldorado tires, which comprise some 85 percent of his sales.

    ``We make more profit from them because they are cheaper and sell better,'' he said.

    Private brands offer customers a better value, some dealers said.

    ``No one can compete with what I give to my customer,'' said Leon Hurst, manager of Hurst's Tire Service Inc. in East Earl, Pa.

    Jetzon tires, which comprise about 80 percent of the company's sales, are ``the best tire for the dollar that you can find in the industry,'' said Mr. Hurst, who is in charge of tire purchasing at the dealership. He added, ``No one can offer anything close to Jetzon's warranty.''

    The warranty, available at no cost to Mr. Hurst's customers, offers free replacement for any manufacturer's defect or non-repairable puncture from a road hazard during the first 50 percent of the tread wear, he said. ``Nobody's willing to go that extra mile.''

    That extra mile is what attracted Gerald Sauter, president of Michigan TBA Distributors Inc., to private brands tires, such as the Dean brand, which accounts for some 90 percent of his sales.

    He recalls struggling to get his tire business started 25 years ago because there was too much ``red tape'' to get a credit line with a major tire manufacturer.

    He was approached by a private brand dealer who told him, ``I'll sell you some tires and get them on the road today.''

    Today, Mr. Sauter likes to say, ``I built my business out of private label tires.'' His Adrian, Mich.-based firm distributes tires to about 400 dealers.

    Mr. Hurst, who has only one location, said that the major tire manufacturers also show a lack of commitment to small, independent tire dealers by not giving them territorial protection.

    Major manufacturers ``show complete disrespect'' for independent dealers, he said. ``They don't care about the independent unless he has 50 or 60 chain stores.''

    Dealers also sell private brands because the technology gap between them and major brands continues to close, according to Gary T. Van Brunt, senior vice president of tire purchasing at Discount Tire Co. in Scottsdale, Ariz.

    Gerald Miller, owner of Miller's Automotive Electric in McPherson, Kan., which sells Laramie tires, said he stresses the quality of private-brand tires to his customers.

    ``We run Laramie tires on our own vehicles,'' he said, ``and can reassure them of the quality.''

    As major tire manufacturers continue making attractive deals on their flag and associate brands, some dealers are in a quandary.

    Douglas Blaine, owner of Tire Depot of Ocean County, in Toms River, N.J., sold mostly Spartan tires until switching to Kelly-Springfield tires three years ago.

    He said that, originally, he wanted to get hooked up to a major brand because of the ``up-to-date'' styling and consistency. ``We used to buy (private label) Sigma tires. Then, we couldn't get them any more and we had to start all over again.''

    He said Kelly offers competitive prices, the option of ordering small quantities and helps him with promotional materials. ``There's no advantage to selling a tire that nobody's heard of,'' he said.

    As prices between private and flag brands get closer, flag brands will get a larger part of the market, according to Mr. Van Brunt.

    On the other hand, Mr. Miller said private brands will remain strong, though he doesn't see sales increasing dramatically. He said a major shift already occurred in the market about five years ago.

    Will increased consumer awareness lead to a higher demand for private-label tires?

    ``We're leaning more to private brands all the time,'' said Arkansas Tire's Mr. Bradford. ``There's not enough difference in quality for the price differential. I think consumers see it the same way.''

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    Do you have an opinion about this story? Do you have some thoughts you'd like to share with our readers? Tire Business would love to hear from you. Email your letter to Editor Don Detore at [email protected].

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