Though few might ever admit it publicly, private brands may have become one of the weaker links in the supply chains of some tire manufacturers.
Actions tend to speak louder than words. No need for that bespectacled, obnoxious Brit of NBC's Weakest Link game show to yell, ``Where'd you leave your brain? In a tire warehouse somewhere?'' While several years back the market share held by private label tires was neck-in-neck with that of manufacturers' flag and associate brands-they almost evenly shared the marketplace-that success has evaporated.
Today, private branders struggle to remain afloat among a sea of shrinking margins, cut-throat pricing and, in some cases, lack of a supplier.
Their ace in the hole has always been and remains exclusivity and guaranteed territories. But in some cases, they're losing the battle on the pricing front in this new-found era of the so-called ``flight to quality.'' Read that little phrase as a flight to ``name'' brands, as some dealers stand and salute the flags-at the expense of private labels.
But wait a minute... most private branders would vociferously argue that theirs are indeed ``name'' brands-at least to their loyal customers and their customers' loyal customers.
Still, the road to reality is paved with some mighty treacherous potholes, based on responses Tire Business received in its annual survey of private brand tire marketers. Some are struggling, while a number of them are still holding their own as manufacturers understandably show a preference to hawking their own labels.
Adding flags to the mix
Some companies, like Hercules Tire & Rubber Co. in Findlay, Ohio, are expanding their private brand programs to protect their customers.
``We are recommending and helping our members market a major brand, combined with a complete private brand offering,'' said Steven E. Buck, vice president-general manager of the company's tire division. While he couldn't divulge Hercules' strategy, he acknowledged that means the availability of Goodyear and Michelin brands.
``We're also doing some spot and special buys at every opportunity,'' Mr. Buck said. ``We'll take those and put them in our distribution center. Basically, we run them through to cover our distribution cost and try to get them out to our customers at below-market pricing. They can use them as they see fit: As retail loss leaders, retail sales builders or wholesale items.''
The company's customer base for its Hercules and Merit private labels is close to 100 distributors who enjoy exclusive territories.
But make no mistake about it, a lot of the time their backs are against the wall, Mr. Buck said. ``What we're finding is that, in many cases, we'll have major brands right on top of private brand pricing-where our upper end and their lower end are comparable. They get real close in pricing.''
Business for Hercules during the first quarter was ``awful,'' he said, though April saw an improvement and May was OK. There were some bright spots, however. The company's West Coast business ``was really great and the export business was very strong.''
As for competing with the manufacturers, Mr. Buck's still a firm believer that private branders can have the upper hand-if they play their cards right. ``With Hercules' distribution system, we can out-service them. Our fill rate is in the mid-90 percent range. And the other thing that we do is, we don't have the bureaucracy the majors have. If someone needs to get something handled, (they deal with) me, Craig Anderson, our president, and/or the board. It's a very quick, easy system.''
Just like at Wal-Mart, where shoppers are warned to watch out for falling prices, a number of TB survey respondents said profit margins on private labels continue to drop. For Coral Gables, Fla.-based Tirex Inc., they decreased by double digits due to foreign competition. Chinese-made tires, especially in the truck category, have affected the competitive situation in the marketplace, said Alvaro de Prat, Tirex vice president, noting ``competition is at its maximum overseas.''
Isaac Dargoltz, president of Miami-based Stephanie Tires Corp., also said tires from China and Korea were impacting private branders.
In addition to escalating gas, oil and energy expenses, increased freight costs were cited by several marketers as a factor impacting their businesses. One Midwest company which saw its profit margins decrease by 5 percent said there are simply ``too many tire companies'' competing.
Like their manufacturer counterparts, a number of private branders said they have increased tire prices on average 3-5 percent. Whether or not price hikes were sticking was open to debate.
Classic tire marketer Coker Tire Co. in Chattanooga, Tenn., was among firms that are increasingly using the Internet to conduct business and seeing some admirable results. Allen Sturm, sales manager, said that while there is ``tremendous competition'' for tire sales in North America, Coker has ``increased our business dramatically with our e-commerce site. Dealers are given a password to give them different pricing than retail customers.''
In decrying industry overcapacity, Jeff Kreitzman, CEO of China Manufacturers Alliance L.L.C., said that situation ``is forcing manufacturers to dump product in the market at any price.'' The company is in the process of expanding its Web site services to include direct tire ordering, and has several new tire sizes set for launch this year in its Double Coin medium radial truck line.
Despite the pricing war, Gary Paulson, vice president of sales for one of the nation's largest wholesale distributors, TBC Corp. in Memphis, Tenn., said he hasn't witnessed customers turning more to ``name'' or flag brands in the wake of the Firestone tire recall of last August. After all, he noted, ``it was a flag brand that was recalled.''
On the other hand, he, too, cited the impact of ``excess capacity'' as a concern. ``The competitiveness of the market tends to follow the industry,'' Mr. Paulson pointed out. ``With the replacement market off substantially through April, competitiveness was intensified.''
TBC-which includes the Big O Tires Inc. retail chain among its holdings-continues to maintain ``an active acquisition strategy,'' he said.
Maintaining a healthy stable of private label offerings is all fine and good, but what does a company do when its longtime supplier pulls the plug on a brand?
At least several marketers have been faced with that predicament, as manufacturers such as Goodyear and Michelin North America Inc. continue to scale back the private brands they make in favor of their flag and associate brands. In compiling a list of brands, Tire Business discovered at least 33-including many private labels-that are either defunct or have been mothballed by either their manufacturer or marketer in the past two years.
Don't kid yourself-being small isn't usually a positive when competing in the tire brand arena.
Just ask the now-former marketers of the defunct Pos-A-Traction private label. A small Inglewood, Calif., firm, Pos-A-Traction Inc. became a victim about a year and a half ago when Goodyear began paring the long list of private labels it was making.
That move basically ``eliminated our sales,'' closing the door on what had been a good business, said Timothy Low, a Pos-A-Traction vice president. When Goodyear's Kelly-Springfield unit was handling manufacturing of the brand, he said, ``they did it more on a relationship-type basis'' with private branders. That is, until the Kelly operation was completely absorbed by its parent and became simply another Goodyear brand.
``I think Goodyear looked at the numbers and decided to scale back,'' Mr. Low added. ``We were probably one of the smaller marketers to go.''
In today's climate, ``you must be a mega-wholesaler (of private brands) to survive,'' Mr. Low said. ``So it's an almost impossible situation for small companies like ours, based on the investment it would entail for us to continue to market the brand, and the return on investment.''
The company, which started in retail in 1939, continues to maintain its sole outlet, Inglewood Tire Inc. Mr. Low, the dealership's general manager, said at one time the company had several stores but now has ``devolved'' back to its roots as a one-shop operation that handles ``any and every brand.''
The handwriting's also on the wall for Milwaukee-based TeamTBA, which has marketed the industry stalwart Atlas brand, a longtime staple in numerous auto repair shops and service stations across the nation.
The company has decided to do away with its tire program, ``basically because of the competitive nature of the industry,'' Ryan Tomaz, operations manager, told Tire Business. ``There are just so many tire sources out there, it was getting to the point where the margins just didn't justify continuing the program.''
Of course, the other major problem facing TeamTBA is that it no longer has a supplier.
Chalk up the Atlas brand as another on the list cut loose by Goodyear.
``We've looked at some other avenues to see if we could continue the brand and be competitive, and keep the margins where they need to be. There's just no way we can do it,'' he said. The only way to make a go of it would be to ``work off very minimal margins, and it's just not worth the headache to do that.''
It is ``a changing industry,'' Mr. Tomaz lamented. ``Goodyear was one of the biggest private label manufacturers, and they're just cutting out so much of it'' in order to emphasize flag brands.
The Atlas tire brand, however, is ``not quite'' dead yet.
Before pulling the plug, Goodyear produced up to a year and a half supply of Atlas inventory. That, Mr. Tomaz said, ``went out to our Atlas distributors'' who will continue to sell the tires, as will Disney Tire Co. Inc. in Louisville, Ky., which also purchased a stock of Atlas tires, said President Steve Disney.
Meanwhile, TeamTBA will focus on what Mr. Tomaz called its stronger product lineup: Atlas- and Shell-branded automotive filter lines, Atlas batteries, as well as wiper blades, belts and chemical additives, sold through distributors to gas stations, dealer chains and auto service shops.
The company's ``still searching some avenues to see if we can find a European manufacturer to possibly make the Atlas brand,'' Mr. Tomaz said. ``But it's a struggle to make it work financially.''