After several years of working to get its name in dealers' doors, Kumho Tire USA Inc.'s strategy for growth is simply to expand its share of independent tire dealers' retail business.
But to do that, the Fontana, Calif.-based subsidiary of South Korea's Kumho Tire Co. Inc. is first trying to improve its fill rates, convince dealers to promote its brand and establish openness and cohesiveness with dealers.
For Kumho executives the ensuing growth requires a balancing act between the independent dealer and mass merchandisers. Officials kicked off this strategy to about 70 tire retailers and wholesalers Jan. 7-11 with Kumho's annual dealer meeting, held in Cancun.
Ideally, officials would like Kumho tires to make up at least a third of dealers' sales, whereas some now are as low as 5 percent.
``(Kumho's) not going to be the majority holder, but you're going to have a significant share,'' Mike Leverington, director of marketing, told Tire Business. ``That's the key. When you have a 5-percent share of business, you're an insignificant supplier, and you can be dusted off tomorrow and they won't miss you. You have to be significant enough to their business that they'll be hurting if they drop you.''
But the most significant obstacle to that has been fill rates. David Hudrlik, senior vice president of sales, said fill rates in the second half of 2004 until December were about 80 percent. Light truck tires-whose capacity is not close to demand-were especially culpable for bringing down the average, he noted.
In 2005, Kumho is targeting fill rates of 95 percent, a promise that many dealers told Tire Business they are anxiously anticipating. ``They promise it's going to be better this year, so I hope it is,'' said Steven Shannon of nine-outlet Steve Shannon Tire Co. in Bloomsburg, Pa. ``(I'll) just wait and see, but we had a lot of shortages.''
Mr. Hudrlik said Kumho's capacity has hovered around 38 million to 40 million units for a number of years. The tire maker recently added capacity with its Nanjing, China, plant expansion and its new Automated Production Unit (APU) in South Korea. In 2007, Kumho will open a plant in Tianjin, China, giving the tire maker four manufacturing facilities.
>From APU alone, Kumho will have 2 million additional units in 2005. Nanjing, whose capacity was doubled, will be producing about 6.5 million units more per year, 25-30 percent of which is slated for the U.S., Mr. Hudrlik said. Some of that added capacity will handle the firm's Road Venture H/T and A/T tires. With these expansions, Kumho's capacity is about 47 million units a year, or 17 percent ahead of last year.
In addition, Kumho is expanding its warehouse capabilities. Warehouse capacity now is about 738,000 square feet in the U.S. among five facilities, he said. By April, Kumho will expand its Los Angeles distribution center from 286,000 square feet to 600,000 square feet, and its Columbus, Ohio, facility will grow to 135,000 square feet from 85,000 square feet. The expansions would give Kumho about 1.1 million square feet of warehouse space. In 2006, Atlanta's 120,000-sq.-ft. facility also could be expanded.
Relieving these supply problems should go a long way toward increasing Kumho's share of dealers' business, Mr. Hudrlik said.
``They're waiting for Kumho to say, `I can handle your needs,''' he told Tire Business. ``Once I say that, it'll be in their product offering. Right now we're in transition, we're increasing capacity, so as far as I'm concerned, we need to do nothing to change our customer base. All we need to do is support them more.''
Indeed, Mr. Shannon said he hopes Kumho becomes a bigger share of his business. It now stands at about 25 percent of sales, and supply has been the primary obstacle.
But for some dealers, increased supply isn't the magic answer. Steve Kowski, advertising and marketing manager for Kauffman Tire Inc. in Atlanta, said Kumho is represented in Kauffman's ultra-high performance sales plus some light truck and medium truck, but it's likely to stay at current levels. ``The mix that we got is pretty good,'' he said.
And Myron Melnikoff, president/CEO of Mallory Kotzen Tire Co. in New York, said growing his Kumho share beyond its current 10 percent will depend on the direction of the UHP market and Kumho's product offerings.
When asked what primary reason he would give dealers to increase their share in Kumho, Mr. Hudrlik had a simple answer: margins. In fact, Mr. Melnikoff, whose dealership carries 16 brands and has been in business for more than 90 years, agrees on that point.
``Generally speaking, we do very well with Kumho, and that's one of the major reasons why we carry the line,'' he told Tire Business. ``It's very profitable in our product screen.''
Mr. Hudrlik said he also wants to be open with dealers, forming a more solid-and hard to give up-relationship with customers.
Chris Wood, president and purchaser at Tire Discounters in Cincinnati, said he feels closer to Kumho than to some tire makers that have a larger share at the dealership. ``They're not afraid to tell you they don't have it, and they'll give you an idea when they're going to have it,'' he said.
But as Kumho grows, the prospects of original equipment (OE) fitments in North America and selling through mass merchandisers loom on the horizon. Mr. Hudrlik said Sears, Roebuck and Co. is Kumho's only big box retailer, and in 2005 Sears will sell some lines that are differentiated from those offered by independents.
``We've been very pleased with Kumho and are looking forward to a lot of success,'' said Jack MacDonald, associate tire buyer for Sears.
Mr. Hudrlik said Kumho is in talks with other mass merchandisers, but he declined to name them.
OE fitments also are possibilities. Kumho ``absolutely'' has plans for OE in the U.S, Mr. Hudrlik said, and talks are under way with some car makers, though they also were not named.
Ken Towery, owner of 16-outlet Ken Towery's Auto Care Centers in Louisville, Ky., said he wants Kumho to grow so it can boost its capacity and fill orders, but he hopes the company avoids choices that have strained relations between dealers and makers in the past.
``Certainly there's going to be growing pains if they start producing for the mass merchandisers,'' he told Tire Business. ``No. 1, they need to address what market they already have. I think they would make more (gross profit) on the individual (tire dealer) if they can provide everything that they need. If they branch out, you got to be cautious there.''
Mr. Hudrlik said Kumho is aware of the concerns. ``We're being very, very careful because the independent tire dealer is what brought Kumho to what we are,'' he said.
The next issue of Tire Business will look at Kumho's marketing plans and sales goals for 2005.