AKRON-The proliferation of private brands in the U.S. is a godsend to independent tire dealers struggling for control over their markets. But consolidation is likely to hit the private brand industry-primarily for smaller companies-in the coming years, according to industry officials.
``Let's just say private branders will continue to follow the rest of the industry,'' said Skip Viola of El Dorado Tire Co. Consolidation is a ``politically touchy'' topic for private branders, he noted-a fact amplified by the guarded answers of some private branders contacted by TIRE BUSINESS.
El Dorado, itself, is now under new ownership. Wanting more high performance tires to fill out its private brand lines, El Dorado determined it would be better off as a subsidiary and was acquired earlier this year by Treadways Corp., which does business as Sumitomo Tire (U.S.).
That instance might not necessarily be typical of the consolidation to come, according to Dan Wire, Treadways senior vice president of sales/marketing.
``It fit well into our plans and it fit well into El Dorado's plans to get aligned,'' Mr. Wire said. ``I don't think it's necessarily the case to say that we started a trend.''
Smaller private branders that have not carved strong market niches are the ones more likely to be swallowed up by their larger competitors or shoved out of business altogether, industry officials agreed.
Determining exactly who will survive is difficult because of the many factors involved.
It seems clear, however, that the most vulnerable are private branders which handle less than 1 million units a year and deal primarily in passenger and light truck tires. Such firms typically bear the brunt of the fiercest competition from other labels, according to Ron Frank, president of Frank's Enterprises Inc.
Companies marketing specialty tires, or those that deal with solidified niches, could survive for quite some time, added Mr. Frank, who markets Apple brand farm tires from his Union Gap, Wash., office.
For instance, Frank's Enterprises, doing business as Frank's Tire Store, deals primarily in low profile tractor tire sizes that have very little competition.
In addition, companies which rely on wholesalers to distribute their brand will find it increasingly difficult to secure customers as dealers turn to buying groups to take advantage of economies of scale.
``There is definitely a limit to how long the wholesalers are going to be around,'' Mr. Frank said. ``Small independents who have to buy from a wholesaler are not buying competitively, so they are forced into going out of business or joining buying groups to survive,'' he said. ``That eliminates the middleman.''
Independents buying direct from a manufacturer through a group can save 15 to 20 percent on the price of a tire, he estimated.
Because buying groups can work with larger unit orders, manufacturers producing private brands for them can ensure larger, more efficient production runs, according to Dave Casteel, director of private brand sales for Continental General Tire Inc.
Tire makers currently are looking for ways to increase production efficiencies, he said. And he believes ``manufacturers are going to take a pretty close look'' at private branders handling less than 800,000 units per year.
Instead of relying on wholesalers, private branders can opt to concentrate on smaller marketing regions. In fact, Don Salyers, vice president of sales and marketing for Kelly-Springfield Tire Co., said he believes small private branders have to concentrate on a regional rather than national market in order to develop a core group of customers.
They then have to realize growth that at least keeps pace with the market with ever increasing volumes, he said.
It's a difficult but possible task, he added.
``I would not want to start today with a new private brand without a (customer base),'' Mr. Salyers said, noting the private brand arena is one of the most competitive in the tire business.
Smaller marketers also can firm up their positions in the marketplace by securing ``solid, trusting relationships'' with their manufacturers, according to El Dorado's Mr. Viola.
Currently, about 50 percent of the tires sold in the U.S. are private or tire maker associate brands. That number could either increase or decrease depending on whether mass merchandisers decide to take on more or fewer private brands, Mr. Salyers said.
Regardless of their importance in the overall tire market, he said private brands will continue to be a growing part of independent tire dealers' business. He estimated as many as 70 percent of today's independents handle a private brand to some degree.
``The biggest strength they have is they offer the dealer a product that he can sell and make a profit on. . . because they have exclusivity,'' he said.
With private brands being so important to independent dealers, the better private label marketers will remain in the marketplace for quite some time, officials agreed.
``Many of these guys have developed a strong, established base,'' Mr. Salyers said, ``and they are all business minded, willing to adapt to a changing market.''