FT. COLLINS, Colo. (June 10, 2002)- Taking a by-the-numbers look at the profit potential of add-on businesses such as oil-lube centers, two tire dealers knee-deep in “black gold” have found they really like monkeying around with the concept.
Asked if his family's Colorado-based company's Grease Monkey International (GMI) Inc. franchises have proved to be lucrative, Todd Patrick answered without hesitation: “Very much so.”
“On the GMI side, everything's so fine-tuned. As long as you don't make mistakes, you're going to make money,” said Mr. Patrick, who with his brother Scott and father Don operate four Grease Monkey outlets, a Big O Tires Inc. store, and two Dairy Queen franchises.
“GMI has a good reputation in Colorado. And it's the same with Dairy Queen, which has such a good name. We can pretty much do it with our eyes closed. If you run them well, they will be successful.”
The Patricks' DQ stores do similar volumes, annually averaging about $650,000 each. Their best Grease Monkey store averages 70 cars per day and just topped $1 million in sales; another store is close, doing about $950,000; and a third outlet has just broken into the $900,000 range. “So you can see why we're getting more into the Grease Monkeys,” Mr. Patrick said, pointing out “it took a while for them to hit that volume.”
Ron Lautzenheiser, who operates a Grease Monkey location across a parking lot from his Big O store in Fort Collins, Colo., keeps both as separate businesses with separate crews and managers, but shares the same computer system.
The lube operation sees about 40 to 60 cars per day, with tickets averaging from the mid-$40's to low-$50's.
Do the math, Mr. Lautzenheiser suggests. At a 40-car, $40 clip, that translates to $1,600 per day and, “at a 75-percent gross profit, we'll begin making some money and, within six months, we'll be in the middle of all Grease Monkey stores for productivity,” he predicted.
His first Grease Monkey outlet began turning a profit six months after opening its doors—which is not always typically the case with other franchisees.
What he particularly likes about GMI is that it's not tethered to a specific oil company such as quick-lube sites operated, for instance, by Valvoline.
“GMI makes its revenue stream from franchise and royalty fees,” Mr. Lautzenheiser said, “and allows us to use private branded oil if we choose.” That provides a big savings over name-brand lubricants.
He noted that several other Big O dealers have jumped on the GMI bandwagon, including former Big O president/CEO Steve Cloward, who owns three Grease Monkeys, and Delta, Colo., dealer Herb Hawley, who also operates as many.
“The main thing is, the oil business I did in my tire store was not profitable, was basically a customer convenience,” Mr. Lautzenheiser explained.
“A tire dealer doesn't want a hundred of these puppies—he just wants to complement his tire business, and (a lube center is) very, very, very profitable, and it really works,” with minimal management changes.
Like many tire dealers, he saw his tire store receipts take a tailspin following the events of Sept. 11.
But it is the oil business, Mr. Lautzenheiser acknowledged, that has brought his numbers back up into the respectable range the past few months.
Franchise, training costs
Both Big O and GMI offer training for franchisees as well as their employees, according to Mr. Patrick. Big O offered him six weeks of training—at a minimal cost—at its “Big O University,” covering areas such as sales, mechanical and financial counseling, as well as on-site training. GMI provides free training at its Denver corporate office in a facility that simulates a real store.
Both franchisers “offer exceptional help and support so that you open your doors with success,” he said. “If you're willing to follow their systems, you'll probably be successful.”
By comparison, he said training is offered by DQ, but the cost comes out of a franchisee's pocket and requires visiting the company's home base in Minnesota. “If you open a DQ store, you're required to attend their school, but it's hard to get a lot of support from them.”
On a scale of one to 10, he put DQ at about two for support vs. 10's for both GMI and Big O. “DQ pretty much leaves you alone; they just make sure you're operating right,” he added.
Costs typically vary among franchise programs, often depending upon how popular they are and how long they've been in existence. Newer concepts sometimes are less expensive to enter than established ones.
According to GMI's Mike Brunetti, vice president of franchise sales, development and real estate, the initial franchise fee is $28,000 for the first store and $16,800 for all subsequent locations. The firm's Web site states that the investment required is approximately $120,000 to $220,000 for a single center. Net worth required of a franchisee, for a single center, is $300,000.
Mr. Brunetti said the company charges a monthly royalty fee of 5 percent of sales for a franchise term of 15 years, and has a two-pronged advertising program. A monthly marketing/merchandising fee of 0.5 percent of sales is required, plus franchisees must make a commitment to spend at least 5 percent of sales towards marketing their business.
David Boeke, Big O's director of franchise development, said the company charges a franchise fee of $25,000 for a dealer to operate a store for a 10-year period. Additionally, 2-percent royalty and 4-percent advertising fees are assessed based on the previous month's reported gross sales.
Mr. Patrick said Big O waived his advertising fee for the first six months of operation, which is “awesome.” Apparently at Mr. Cloward's suggestion, he noted, GMI is now offering a similar waiver.
GMI and Big O both provided the Patricks with names of other franchisees.
As far as profitability goes, Big O “told us it would be about two years before we start making money—that's a little scary, but that's the time frame they give you,” Mr. Patrick said. For GMI, it depends on which market the Grease Monkey location is in. “They say you need to achieve a certain car count in order to make money. It used to be that 28 cars per day was the break-even point, but that's gone up.”
DQ “wants to make sure you succeed. They believe if you can make it for three years, then you'll probably be OK after that,” he added.
Factors affecting profitability include costs associated with securing a location and putting up a building.
GMI is, according to Mr. Brunetti, “actively pursuing operators of tire dealerships and auto service shops because there's a real natural synergy between them and the automotive aftermarket undercarriage service business.
“Their business sees customers maybe once a year, while ours is typically four times a year on a per-car basis….We don't do repairs on vehicles, so if we see a problem with struts or tires, for instance, we recommend the customer take it to their mechanic or tire dealer.”
A lot of tire dealerships are “maxxed out in their marketplace and have nowhere else to grow.” With their established infrastructure, “they can utilize a Grease Monkey to get good economics of scale,” he suggested.
Although GMI does not lease or sell equipment directly to its franchisees, it has national accounts with vendors and contracts with equipment manufacturers and also can offer deals available by purchasing through GMI.
Long-term help helps
The Patricks run their overall business ventures under the umbrella of their corporation, D & A Inc., based in Westminster, Colo., and hire others to manage their various stores. “You're only as good as the managers you have at each location—that's what's made us successful,” Mr. Patrick said. “We pay our managers well, and that has produced a lot of loyalty.”
While that allegiance has helped, the Patricks still found themselves in a predicament when they closed one DQ location for six months for remodeling. “It was tough,” he admitted. “We had to let some employees go, but we tried to move others to the other store.” He may face a similar problem if the family decides to temporarily close their other DQ to update the facilities.
All the Patricks' Grease Monkey managers have been with the firm seven years or longer (two were moved to the new Big O store), while their DQ managers have a similar history, plus one woman employee has logged more than 18 years overall with DQ. In one lube outlet—each has 10 to 12 workers—all the employees have been there at least four years.
“The customers love to see the same faces,” Mr. Patrick said. “They know this is the person who worked on their car the last time, and they can hold them accountable.
“That's why we've been successful.”