GREENVILLE, S.C.—It would simply be suicidal for a major tire maker to ignore the private and associate brands marketplace, since it accounts for about half of the passenger and light truck replacement tire sales in North America annually. Yet when Michelin North America (MNA) cut itself loose last year from some of its largest private brand customers—with the accompanying sales loss of several million units—the shock waves reverberated throughout the industry.
Some wondered if the tire maker had decided to downplay that market segment.
It also highlighted the dicey situation in which some tire manufacturers find themselves: How to boost the stock of their flag and associate brands while staying on good terms with their legions of private brand customers.
For Michelin—mired in a fill-rate problem the past few years—the decision to reallocate its private brand resources was a painful one, it acknowledged, not only for the company but for customers such as Del-Nat Tire Corp. MNA's biggest private label buyer, it was forced to scramble to get new suppliers.
That loss of sales for Michelin became a gain for a number of its competitors, including the company on the receiving end of a lot of Del-Nat's largesse: Cooper Tire & Rubber Co., which had lost Winston Tire's private brand business when it switched allegiance to Goodyear's Kelly-Springfield Tire Co. unit.
After a year of regrouping and attempting to solve its admitted poor fill rates, the shakeout period for MNA is apparently over.
At the Michelin Americas Small Tires (MAST) dealer meeting, held in Phoenix in January, the private brand picture that company officials painted was hardly filled with technicolor dreams. They said MAST's private and associate brand volume was down in 1998 due to several factors. The biggest was that nagging inability to supply enough tires, along with the accompanying changes in distribution.
On the bright side, because Michelin now has fewer direct customers, MAST's vice president of national dealer sales, Kenneth W. Kruithof, said it has more resources available to focus on the needs of its dealers and private brand customers—and to support its brand strategies in 1999 and beyond.
Though MAST expects continued strong sales of its Michelin, BFGoodrich and Uniroyal flag brands, he predicted overall growth in its private and associate brand sectors will be ``less spectacular'' but ``still outpace the industry growth.''
Pete Selleck, MAST's chief operating officer, said the company's overall ``bottom line result was excellent'' last year, in part because it targeted the private and associate brand part of its business during the company's supply shortages.
``We carefully managed prices,'' he explained, ``and we slashed costs wherever we could.''
He told dealers that while private and associate brand sales took an expected slump, the company understands their need for those types of tires, ``and we are committed to quickly recover the sales we lost last year.
``We do this because it is good for your business, and therefore it is good for ours, too.''
During interviews, several MAST officials told Tire Business the company's fill rate problems have stabilized and, as they put it, there would be ``no Del-Nats'' this year—meaning Michelin's trimming of private branders was over.
Tom Bennett, MAST manager of private and associate brands, assured dealers that, ``despite what some say, MAST is a serious player in private and associate brands''—which comprise 50 percent of the passenger and light truck market—because ``it's not in our best interest to ignore'' that segment.
It was a tough decision to drop some of MAST's larger private brand customers, he admitted, but ``we believe it was the right decision in the long term.
``The shortage of tires was opportunity disguised as a problem.
``It forced us to believe in our strategy and to place emphasis on smaller, more focused groups of dealers.''
Michelin entered 1999 with three associate brands that Mr. Bennett promised will ``have a more focused place'' in MAST's overall lineup. Growth in that segment will come by offering attractive, contemporary and competitive products of good quality, he said, while at the same time providing customers with dependable service and controlled distribution.
MAST's plans call for ``resurrecting'' Riken into a ``strong associate brand'' focused on retail markets. The line will emphasize fully differentiated performance and light truck products with new point-of-purchase materials, the company said, and will feature a new ``Raptor'' tire aimed at delivering a new, aggressive image to fit its ``bird-of-prey'' name.
Michelin's Cavalier associate brand will have a full product range destined for the wholesale market.
On the other hand, Mr. Bennett said a ``brand awareness'' must be developed for MAST's Medalist associate line, which has been looked upon as somewhat of a ``neutral'' brand. It will be used at both retail and wholesale levels, as needed, and will have its own look, new point-of-sale materials, along with a full range of products and full differentiation in the marketplace.
``When you think of MAST associate and private brands,'' Mr. Bennett urged dealers, ``think full orientation into MAST's lineup of products.''