SOUTH SAN FRANCISCO, Calif.—You can call it a lot of things, but don't ever make the mistake of using the adjective ``sedate'' to describe what's gone on in the private brand tire marketplace over the last few years. It more closely resembles the Wild West.
There's been a fair number of marketers riding out there on the range with prices on their heads, and bounty hunters aplenty—some in the guise of major tire manufacturers—willing to rope 'em in.
While there hasn't been one major shootout at the OK Corral, consolidation within the industry continues. Tire makers and private labelers alike are chipping away at the herd, acquiring a private brand here, converting one into a manufacturer's associate brand there.
One of those top gunslingers has been Treadways Corp., the South San Francisco marketer that does business as Sumitomo Tire (U.S.).
It thundered over the horizon in 1995, purchasing long time private brander Eldorado Tire. A year later, Treadways applied its hot branding iron to three more hearty industry players, buying Jetzon Tire & Rubber Inc., Telstar Tyre and Laramie Tire Distributors Inc.
For the time being, no further acquisitions are planned. But that doesn't mean Dan G. Wire, president and CEO of Treadways, is content to sit in the bunkhouse and sip sarsaparillas.
Like most other marketers, Treadways has felt some competitive pinch from manufacturers' associate brands. Yet, in a wide-ranging interview with Tire Business, Mr. Wire admitted it's hard to say just how his company has been affected, since its business is up ``dramatically.''
Exclusivity still counts
If you expect to survive, you can't let any grass grow beneath you. Treadways will attest to that.
In order to fight the crunch from associate brands, the company is looking at ways to improve its service and distribution functions. ``That's where we feel we have the advantage over associate and flag brands,'' Mr. Wire said. ``We continue to emphasize exclusivity.
``Exclusivity equals profitability, and that's still a big issue with dealers. A lot of distributors feel they need their own brand to market.''
Right now, tire makers are all tying their various flag and associate brand programs together, making it very tough for a private brander to compete, he said. However, ``one thing they're having trouble convincing distributors about is the exclusivity of that associate brand offering.
``If a large flag brand dealer wants that associate brand—even if someone else has it—odds are he'll probably get it.''
Treadways has taken pains to let its customers know: ``We're independent and do honor exclusivity,'' he said. ``We've got a track record, and for the long term, you're better off being with a true private brander.''
He tends to differentiate between private labels and what he calls ``public brands''—associate brands almost anybody can get their hands on.
Thin margins
Because business is ``extremely solid'' for Treadways, Mr. Wire said the company is ``satisfied with where our margins are—we don't feel we've been negatively impacted by associate brand programs.''
The company saw double-digit increases last year, is projecting the same for this year, and is ``way up'' through the first two months of 1999.
That's not to say the squeeze isn't happening for others.
Associate brand programs appear to be very close to private brand prices.
``Both spreads have moved slightly closer in the past year,'' he said, to where there's perhaps a difference of three or four points.
He put the margin on flag brands at about 7.5 percent.
He senses, from what his company has heard from its two private label suppliers—Cooper Tire & Rubber Co. and Goodyear's Kelly-Springfield Tire unit—that ``they feel the margins have gotten too close.''
But ``it will take a price increase to allow them to make some changes,'' he added. ``Part of the problem is we haven't had price increases.
``The result has been that it's not given manufacturers the chance to do some inlining.''
If prices rise, ``that spread will get back to a more reasonable level,'' which Mr. Wire believes should mean at least a 7.5-percent difference on associate brands, and 10+ percent on flag brands.
The big problems
There are several factors impacting private branders, but Mr. Wire sees the most critical being the expense of keeping tire lines current, as the cost of tire molds continues to rise, and the fact that proliferation of stock-keeping units (sku's) ``is going berserk.''
``The private branders who are going to succeed must find a way to differentiate,'' he noted. ``We feel strongly about the uniqueness of product and mold ownership, and that's expensive.''
The company tries, for the most part, to own its own tire molds for each of its companies, though it does have some ``family-shared'' molds for products such as Laramie and Jetzon, for example.
Along with mushrooming sku's, add on the cost of warehousing all those tires.
It's important to find ways to get smaller quantities of products to dealers in a more timely manner, Mr. Wire said. ``For this entire industry, distribution, along with technology, are very critical factors. They're going to be the two keys to surviving in the future.''
Laramie Tire Distributors generally offers next-day deliveries. He said Eldorado, Jetzon and Telstar follow a more traditional industry pattern of three- or four-day service times for a trailer load, though ``we're working to improve that.''
What will help lessen that is a new Treadways mixing warehouse now in the final approval stages. The 400,000- to 500,000-sq.-ft. facility will likely be in Mississippi, across the border from Memphis, Tenn., and should be operational in the first quarter of 2000.
The company's brands are scattered throughout seven of its own mixing warehouses, though the Eldorado brand is distributed out of Cooper's Findlay, Ohio, warehouse, and Kelly-Springfield handles Jetzon and Telstar out of its Atlanta warehouse.
It will probably take most of next year, but when Treadways' distribution plans are complete, it will have only three warehouses.
More consolidation due
Because of increased costs and skyrocketing sku's, Mr. Wire sees further consolidation among private branders, with the strong surviving and weaker ones being bought or fading from the picture.
``You've got to keep your tire lines fresh and modern,'' he said. ``All that makes it tougher for smaller marketers to survive.''
He ventured a guess that eventually the industry ``will probably get down to two or three big private branders, and we may have some niche players—there'll probably always be those.
``But the number of marketers will be a handful who, like us, maybe handle several different brands.''
A retail identity?
Although Mr. Wire said Treadways feels it currently has enough private brands and is not looking at further acquisitions, ``We do feel retail is a very interesting concept, and we're currently studying the feasibility of going into retail.''
No timetable has been established nor has a plan been fully developed, he added.
Like other private branders—such as TBC Corp. and J.H. Heafner—that have decided to take that route, Treadways would likely try a combination of acquiring existing dealerships plus do some start-ups.
The company also is interested in further developing its export business throughout the world, and Mr. Wire wouldn't rule out getting into retail internationally.
However, he said Treadways is not willing to link with another private brander even if the ``right offer'' came along.
``We're not in the acquisition mode with any other private branders,'' he stated, despite plenty of talk in the industry that there are deals to be made.
``Pricing's pretty high, and I'm not sure the recovery of the investment is there,'' he said.
``The bottom line is, you still have to find a way to make money, and I'm not sure that's possible on some of these deals.''