AKRON-Imagine, for a moment, that while you're stacking tires in the back of the old tire shop well past closing time a genie suddenly appears in a puff of smoke from within a dusty P215/75R15. He or she, depending on your persuasion, promises you greater buying clout, name recognition, competitive pricing, consistency, a protected territory, top-notch advertising programs, more quality product than you can shake a lug wrench at, and much, much more.
It's been another endless day and you're in no mood for any games. An independent tire dealer, you've struggled to earn a living, trying to make ends meet while exploring new ways to better service customers and still derive a little joy-and, hopefully, profit-from your business.
If you just follow the rules of my ``proven'' system, the genie entices, that elusive ``P-word,'' profitability, might finally creep into your vocabulary.
Sounds great. Too good to be true? ``What do I have to give up, in return?'' you ask. Nothing, except some of your cash-and perhaps a little independence.
All you have to do is sign on with a franchiser, then wait for the money to start rolling in, right? Hold on. Not so fast.
There are literally thousands of franchises out there. Everything from slinging burgers, to changing oil or selling tires and automotive service. To mix metaphors, most every franchiser claims to have built a ``better mousetrap'' through years of trial and error.
Tire franchises, available to existing dealers as well as fresh-faced recruits, offer many of those aforementioned benefits, especially group buying power, through specific systems and prices.
But if you're an independent tire dealer, is a franchise for you?
By law, all information about a firm's program is available in what is known as its Uniform Franchise Offering Circular.
In this special section, TIRE BUSINESS explores several of those programs. While not a comprehensive look at every one in the industry-we did not, for example, examine the half-dozen or so known franchisers in Canada-this report should provide some of the nuts and bolts of five established programs in the U.S.
Most require similar initial investments, offer comparable services, then diverge from there.
Because of Federal Trade Com-mission regulations, franchisers are not allowed to make promises about return on equity-that is, when franchisees will recoup their investments. Some hedge, saying an infusion of between $100,000 and $300,000 could take at least three years to recover.
Others point out that the time span on most Small Business Administration loans is seven years, so draw your own conclusions.
At least one says a typical store in its program generates $50,000 to $100,000 annually in pretax profits after normal expenses.
The following companies interviewed for this report-Goodyear, Big O Tires Inc., Tires Plus Groupe Ltd., Tire Warehouse Central and Aspen Enterprises/Tire Pros-vary in size, in geographic areas of operation, and are not ranked in any particular order.
Whether there's a franchising program for you is a complex question. One that should be considered only after exhaustingly considering all the ramifications.
And not without, we hasten to add, talking with franchisees who've either succeeded, or failed.
Like the U.S. Marines looking for ``a few good men,'' tire franchise programs are constantly on the prowl for a few good, financially established franchise candidates. Some don't even care if a recruit has a background in tires or automotive service, and others even prefer they not.
The most important qualification of a potential franchisee, according to a spokesman for Akron-based Goodyear, is ``the ability to supervise people and to make things happen.''
They also need ``solid retail experience, an interest in automotive products and services, adaptability, and a strong desire to be in business for themselves.''
Having a retail background is more important than one in tires or auto service, he said.
``Our program works with the entrepreneur to help select a location, equipment, displays, computers, fixtures, training-everything needed to open a store,'' the spokesman said.
``We also help arrange financing to buy the land, building and equipment,'' or negotiate a lease, and provide professional counselors who offer advice on how to set up a business, merchandising etc.
As it does for personnel at its company-owned and independent auto service centers, the tire maker offers franchisees training seminars in Akron, at other Goodyear stores, and at regional automotive training centers.
Since it began its franchising program in 1968, the company has opened more than 1,300 franchise locations, and currently has 200. Over the years many have grown from being a franchisee to joining Goodyear's standard ``G-110'' program for dealers, according to the spokesman, adding that Goodyear franchised and company-owned outlets are essentially indistinguishable in appearance.
He was unsure how many Good-year franchises fold in a year, but explained that ``starting a small business is one of the toughest things there is to do. Tire centers are no different than any other franchises-some make it, some don't.''
Claims of loss of independence to the contrary, the spokesman said a franchisee-as opposed to an independent tire dealer-``is in business for himself, but is not by himself. We provide.*.*.*a lot of things to help you make it.''
Those include business counselling, continued training, business systems support and solutions to special problems.
``We don't run the business for them,'' he said, ``but we provide
lots of follow through to help them keep going, because once we sign a franchisee, we want them to be successful.''
Franchisees have minimum purchase and sales objectives that vary by market, but are not ``forced to buy 100-percent Goodyear products,'' he said.
If a franchisee can't make a go of it, Goodyear will help find another suitable person to operate that dealership, he said, rather than lose that distribution point.
``Franchisees, just like our dealers, are independent business entrepreneurs, free to pretty much run their businesses as they need to,'' he reiterated. ``We help, but don't run the business for them.''
Tires Plus Groupe
Franchising is pretty much second nature to John Hyduke.
Vice president of franchise development for Burnsville, Minn.-based Tires Plus Groupe Ltd., he arrived there three years ago after a 20-year career in a similar ca-pacity with International Dairy Queen. And he grew up working in his parents' two Dairy Queen franchises.
Asked to enumerate some drawbacks of franchising, this unabashed proponent paused for at least 20 seconds before finally admitting: ``I'm obviously biased to franchising. I see the benefits far outweighing the negatives.''
He then acknowledged that ``sometimes there are unreal expectations on the part of franchisees and franchisers with regard to the performance of one another.
``There needs to be more patience, understanding and empathy,'' he insisted.
Good franchisees ``have a caring, servant attitude toward their guests,'' he said. ``You really have to like dealing with people who are coming to you because something's wrong with their car.
``You have to listen, diagnose, then gain their trust and repair the product.''
That assessment follows the somewhat unusual Tires Plus credo that uses sports analogies to label consumers as ``guests,'' store managers as ``coaches,'' assistant managers as ``assistant coaches,'' and makes store personnel part of the ``team.''
When Tires Plus first began operating retail stores under the tutelage of co-founders Tom Gegax and Don Gullet, the company also had a thriving wholesale business, according to Mr. Hyduke. As some of the larger wholesalers saw the success of those stores, they asked about the possibility of the company franchising its concept so they could join.
Ideal candidates have an automotive service background-though it's not required-and perhaps have owned their own business, such as a service station. Or they've been a service manager of a tire dealership. Tires Plus has several franchisees who previously owned new-car dealerships.
Lack of auto service knowledge tends to lengthen a franchisee's ``learning curve'' and reduce credibility, Mr. Hyduke said. ``The public may not realize it, but employees certainly will.''
With a franchisee's cash equity of $150,000 on hand-and no initial franchise fee-the company sets the wheels in motion through its ``Development Plus'' program, becoming the project manager for a new franchise store.
``We help them find the real estate; we go to the city, sit in on planning commission and council meetings, check out all codes, solicit bids and negotiate them down,'' explained Mr. Hyduke.
Franchisees only pay fees to third parties, such as attorneys, a buyer's broker, or for surveys, soil tests, etc. ``We treat any new store like it's company-owned, and charge franchisees nothing for our time, travel or professional expenses.''
What the company gains, he said, is a project put on a tighter timeline ``so the store's income stream generally starts faster.''
The franchisee, however, can at any time take over control of the project, and is involved in all decision making throughout.
From an average 200 to 250 inquiries annually, some 20 percent move to the initial ``filter'': filling out financial statements before meeting with Tires Plus executives. They also are required to begin a due diligence process and must meet with four existing Tires Plus franchisees.
The company, which began selling franchises in 1981, currently has 25 franchise stores. Three have folded since 1990. Two closures were due to outright failures, and the third was mutually terminated when the owner ``decided to get out of the tire business and do something else with his life,'' Mr. Hyduke said.
All Tires Plus stores have exclusive areas, and franchisees are provided with reports weekly on the unit and sales performances, and parts and labor dollars of each of the firm's 46 company-owned stores. There is, he added, ``no veil of secrecy.''
``The wonderful thing about franchising for somebody who is psychologically meant to operate their own business is that it gives them the opportunity to work with a proven business format,'' he said. "They can rely on experts in
Various areas of product development or advertising or whatever to help them run their business and plan for the future.
``Look at the independent dealer who owns his own tire store. No one is working on his behalf to help plan new product development, ad strategies or testing new concepts. He's on his own.''
``We're constantly looking for ways to drive operating costs out of our business,'' Mr. Hyduke continued. ``As we implement the policies and procedures in our company stores, our franchisees benefit. We're all in the same boat.''
The company looks for ``individuals who can work within a range of rules and procedures-a person who can be interdependent with a franchiser.''
Each franchisee gets field operation and technical support for in-store computer systems, is required to take four months of free educational training at the firm's ``Tires Plus University'' in Burnsville, and periodic update training.
Future plans call for more company stores in prime large market locations that will ``drive franchisee development'' in small- to medium-sized markets, he said.
``Success begets success.''
Big O Tires Inc.
One of the largest automotive service franchisers in the world, Big O Tires' ideal candidate is, ``very simply, not a tire dealer,'' said Ronald Lautzenheiser somewhat tongue-in-cheek, admitting the company does have a program to convert existing independent dealerships to the ``Big O system.''
Typically, a potential franchisee is between 45 and 55 years of age, possibly been ``downsized'' out of middle-management job in an unrelated field, and has a minimum net worth of $300,000 with $100,000 in liquid cash, he said.
``Some of our most successful owner/operators are husband-wife teams,'' said the vice president of business development for Englewood, Colo.-based Big O. ``What's really exciting is, these are well-educated non-tire people. They make good franchisees because they often come out of a corporate environment'' and are comfortable following rules and programs.
``A good franchisee is not necessarily a good entrepreneur,'' he continued. ``These are men and women who want to pursue the `American Dream' to own their own business, control their own destiny, be their own boss.
``Will (franchisees) make any more money than (working for) a big company? Maybe not. Work harder? Probably. Have fewer ulcers? Probably, because they will control their own destiny.''
In the last few years Big O has become ``real estate driven,'' Mr. Lautzenheiser said, so most of its franchisees buy their land and building by securing loans from the federal Small Business Administration (SBA). However, Big O also has put together lending programs through Heller First Capital in Chicago and The Money Store in Sacramento, Calif.
Big O sells franchisees ``a complete business system,'' including:
A complete set of architectural drawings ready to be taken to an architect for minimal revisement;
Five weeks of instruction at ``Big O University,'' a retail store/training complex in Denver;
National advertising and marketing, exclusive competitively priced products; and
Common insurance and health care programs.
``It's so turnkey an operation,'' he said, ``that we'll even ship the mops and brooms. That's no joke. We'll help you with phones, a computer system, equipment. One obvious result is economic efficiencies via group buying.''
In turn, the company also demands its franchisees comply with strict quality standards for such things as store cleanliness, merchandising displays, and use of approved products and services.
``As a business man, if I want to run a pig-sty store or rip off customers, I can. But not in the Big O system,'' Mr. Lautzenheiser stated. ``We'll cancel you.
``We just canceled a guy for violating our adjustment programs, and another because he insisted he had to do tune-ups.''
No longer as aggressive as it was several years ago, Big O now targets up to a dozen new store openings annually, he said, while looking to close ``bad or tired-out locations'' along with those that financially fail. This year it has opened 11 new stores thus far, but has closed an equal number.
In the event a franchisee wishes to get out of the business, Big O will, for a fee, find a new buyer.
Its recruitment consists of advertisements in the Wall Street Journal and, to a lesser degree USA Today, for national exposure. It also advertises in regional and local papers, if necessary, and via the International Franchise Association, based in Chicago.
Big O averages 2,000 to 3,000 inquiries annually, narrowing that down through a screening process. Franchisees sign a 10-year renewable contract that may be canceled at any point, but only for cause.
The advertising fee franchisees pay goes to a group co-op advertising fund. Its disbursement is determined by a dealer committee.
Franchisees get a ``protected'' territory-a two-mile radius surrounding their location-and Big O guarantees it will not open more than one franchise per 50,000 people residing in a trade area.
David Boeke, national director of franchising, said Big O would prefer its franchisees ``buy all their product from us, but we realize from time to time they won't be able to do that.''
``We have probably one of the most flexible concepts in automotive franchising across the board, in my opinion,'' he continued.
A dealer-run organization, ``almost all the major decisions are made in the field by gathering information from our franchisees,'' he said. ``Our executive staff acts almost as a consulting firm, listening to what our franchisees' needs are, then working on those and coming back with solutions.''
The company, which was recently purchased by TBC Corp. of Memphis, Tenn., has a dealer advisory board and about two years ago established the ``Big O Tire Dealers of America'' association to promote the common business interests of its dealer-owners.
``Why is franchising growing to nearly $2 trillion a year in business?'' Mr. Lautzenheiser asked. ``Because consumers like the consistency. No surprises. That wherever they go, the product costs about the same, tastes the same.
``That's what franchising offers. But a true entrepreneur may not like that'' and will probably have a ``hard time'' inside a franchise.
Tire Warehouse Central
It's a simple test. One that Rick McDonald uses to help find and evaluate suitable franchisees. He asks questions such as:
``Are you mentally and physically capable of operating this type of business?''
``Are you willing to work long hours?''
``Do you enjoy dealing with the retail public?''
``Do you have a strong need to succeed?''
``Are you a self-starter with ambition and initiative?''
The vice president of franchise development for Tire Warehouse Central (TWC) in Keene, N.H., said the test often helps determine whether a franchisee may be successful, or be prone to failure.
``We do quite a few conversions of existing tire dealerships,'' and they're the toughest, he admitted. ``A lot of times people are not looking for our system. They just want our name recognition and are looking for product acquisition power.
``That can be very dangerous and detrimental to the company.''
TWC offers free training in all aspects of business operation and looks for business-educated, retail service-oriented franchisees. Without a ``retail frame of mind,'' he said, they're ``doomed for failure.''
And candidates must be reasonably set financially ``to be able to sustain (themselves during) the couple of years it takes to get a franchise to the point where it's making a lot of money and can work on its own.''
The company learned those lessons the hard way.
When Mr. McDonald took over TWC's franchise program in 1991, two years after it began, it had three franchisees. He added 12 more in a year and a half.
``My plan was, if you had a pulse and a pocketbook, you could have a franchise,'' he recalled.
To get needed visibility and name recognition in New England, TWC opened stores as fast as it could. A number of them failed. Same old story in many cases: undercapitalization.
In others, TWC's program itself was the culprit. Early on, over what Mr. McDonald called a ``glitch''-a rigidity in payment terms-the company lost a franchisee. ``We ruined a good account over a dispute for $300 bucks.''
``We're still a young franchise,'' he said. ``We've learned that to be successful, we must be flexible and change with the times. . . Sometimes it's good to be unique, but sometimes you have to pay the price-and we've paid the price.''
Part of what distinguishes TWC from some other tire dealerships-beside the fact all its stores sell auto parts under the ``DoubleDiscount'' name-are the three service options it offers customers:
Cash and carry;
Semi-self-service-TWC provides jacks, lug wrenches etc., allowing customers to do some of the work and save money; and
Full service-four tires are changed in 20 minutes.
TWC's royalty fee kicks in only after the franchisee hits a predetermined breakeven point-usually after nine to 12 months. ``We realize how difficult it is,'' Mr. McDonald said, ``and how crucial that first year is for any business.''
A regional player, TWC also belongs to the Tire Alliance Groupe (TAG), consisting of eight of the nation's largest dealerships.
TWC's two franchise options are:
The ``Alternative 2'' store program for small markets of 4,000 to 14,000 vehicle registrations within a three- to five-mile radius; and
The ``Alternative 1'' program for large markets of 14,000 to 40,000 registrations (same radius).
Why do some franchisees fail?
``They pay an astronomical amount of money up front, including huge royalties, before they make a dollar, for the privilege to use the system,'' he explained. ``So we said, `Let's let the guy make some money the first year, then we'll start taking our share.'''
He doesn't believe for a second that ``loss of independence'' criticism. ``I look at it very much as an athletic team: They all wear the same uniforms, follow the same rules and regulations, yet don't have all the same talents. Some excel and some don't.
``It's not that you put the uniform on. It's what you do once it's on. How well you follow the system, how your talents enhance it.''
``We've made many of the mistakes, tried and failed, taken the lumps for you,'' he said, while perfecting the system.
TWC franchisees must buy product exclusively through the company, and Mr. McDonald said that rankles some dealers who say they can find it cheaper elsewhere.
``Across the board, we're cheaper in the long run,'' he tells them. ``But if you're going to pick apart every tire deal, then you don't need us. . . We offer one-stop shopping-one vendor, one warehouse, one bill, everyday delivery.''
Still, tire franchising can be a tough sell. ``It's not a glamorous business, it's dirty. Some people would rather make donuts than change tires,'' he said. ``But it's a stable business. People will always need tires and auto parts.''
When TWC began franchising, Mr. McDonald said, ``it was the hope of Norm Harper (TWC founder) to help independent tire people already in business or independent entrepreneurs to achieve successful business results, as he had.''
Long-term projections are for 150 locations in New England within 10 years, he said, though TWC ``has designs to eventually go national.'' Because of its TAG affiliation, however, ``we must be careful of our expansion plans.''
Aspen Ent./Tire Pros
For various reasons-all revolving around the sale of product-Aspen Enterprises, doing business as Tire Pros, has focused much of its franchising attention on the conversion of existing dealerships, according to Carey Mellor, vice president of marketing.
``It gives us immediate, new distribution and also another store already up and running to add to our retail store network'' which, in California, includes 10 company-owned, 76 franchise stores plus a wholesale division.
The Simi Valley, Calif.-based firm's system ``allows the independent owner to participate in the synergies of being involved in a large group,'' Mr. Mellor said, ``so there's not a lot of risk.''
Tire Pros has a field staff working with franchisees daily, he said, to address marketing, training and business management needs, and assist in all aspects of their retail management operations.
Mr. Mellor would not disclose specific costs of Tire Pros' franchise program, other than to say they are similar to those of other franchisers, and that the company has a ``very low monthly fee structure'' for its conversion stores.
As a member of the American Car Care Centers (ACCC) marketing program, Tire Pros provides its dealers with nationwide warranties for tires and service and quarterly ACCC point-of-sale packages.
``We take advantage of our volume buying, and pass the savings back to the independent owner,'' he said, adding that although dealers are asked to purchase as much as they can from Tire Pros, ``we have available some behind-the-scenes programs to ensure their loyalty and enrich their profits.''
Those include credit card, parts and shop supplies discounts.
In franchising since 1988, the company's goal is to have 100 to 125 franchise stores by year's end.
Dealers who convert to Tire Pros can keep their own signage, but are also required to display a small ACCC and Tire Pros sign.
``The last thing we want them to have is any disassociation of their existing customer base,'' Mr. Mellor said. ``They're looking to us to get them to the next level of volume and profitability. If they weren't successful in this market, they wouldn't be in business.
``They're looking for help to compete with the big guys, and that's the strength of our program.''