AAA's investing in auto centers linked to its insurance/travel biz

TOWSON, Md. (Aug. 12, 2014) — There's a growing chain of auto repair shops on the East Coast that is moving into new markets with a pre-established customer base and famous brand recognition.

AAA Inc., known for its Triptiks and roadside assistance, is getting more involved in the car repair business. Since 2011 its AAA Mid-Atlantic club has opened 15 Car Care, Insurance and Travel (CCIT) Centers — six in Maryland and three each in New Jersey, Pennsylvania and Virginia.

It plans to open four more this year, with a goal of operating about 40 such locations by 2017.

The CCIT business model combines a traditional AAA retail store with an automotive repair facility under one roof. On one side of the building the retail store provides travel and insurance services to AAA members. The other side houses the auto repair facility that provides tire and undercar services to members and non-members.

AAA members receive a 10-percent discount on labor and an extended warranty for 18 or 24 months, depending on the service.

AAA Mid-Atlantic serves nearly 4 million members in Maryland, Pennsylvania, New Jersey, Delaware, Virginia and the District of Columbia. The ultimate goals of the CCIT locations are to offer the auto club's members additional services and to encourage non-member customers to become members.

“We have a very aggressive roll-out strategy and it is taking those stores that were the traditional stores and giving another reason to go into those branches, driving business back into the brick-and-mortar,” said Bernhard Koch, president and CEO of AAA Mid-Atlantic.

“We have 1.8 million members who normally, in a non car-care related activity, come in to our branches. We've always had a lot of foot traffic coming into to our retail.

“The whole venture into car care was: One, the car dealerships were contracting; and two, individuals continue to drive old cars (the average car age is still around 11 or 12 years). They are looking for that peace of mind as to, ‘Where I do I take my car to get repaired?'….the AAA brand is all about trust.”

He said the car care centers build upon the AAA reputation and they are driving foot traffic back into the retail locations.

“We really fostered the element of putting the two together on the sense that members can come to us now for a multitude of different reasons and while they are there, they can find out about other things that we do, because our biggest challenge is that most members are not aware of the full breadth of services we provide,” Mr. Koch told Tire Business.

“So if they come in for travel activity, it's, ‘Oh, I didn't know that you did repair.' Then there's another reason to come back to us.”

Conversely, if a customer comes in for car repair, the AAA staff has an opportunity to talk about insurance, travel services and credit card programs.

“As many businesses are constricting, we are proud to be investing in bricks and mortar as well as human assets. Many automotive service shops disappeared during the recession, so AAA Mid-Atlantic wants to ensure that reliable and trustworthy repair services are available to motorists,” Mr. Koch said.

He did not say what AAA Mid-Atlantic has budgeted to open a car care location.

Hybrid model

AAA Mid-Atlantic is one of more than 40 independently operated clubs under the national AAA umbrella.

Mr. Koch said each market is different, so a program that works well in one region may not be successful in another. He estimated there are about 100 AAA car care operations in the U.S., mostly in the East, and each is operated a little differently.

AAA Allied Group in Cincinnati, for example, got into the car care business in 2009 when it took over 30 Bob Sumerel Tire Co. Inc. retail locations in its market.

“Everyone is dabbling in it as another way to connect with the member,” Mr. Koch said, noting, “We took the best of what we found and we put together what we refer to as a hybrid model….

 “I think there are more and more of the AAA organizations getting into car repair as people are looking for a place to get reliable service. They're not going to get cheated in terms of paying for things that maybe they didn't need, and that really has been the strength as to why we continue to have a very aggressive roll-out strategy over the next couple of years,” he added.

“I think AAA-Mid Atlantic is the only one that is aggressively growing this population as part of our business. Not just the car repair side of it. I think that's where we're a little bit different from the others in that we are looking upon the integration, the degree of how much the business either comes in one door or the other, so to speak. It's that overall engagement. So based upon the car care (business), our foot traffic increases about 15 percent over what it was before.”

Insurance policy writings have grown 20 percent and credit card applications have increased 25 percent with the CCITs, he said, prompting the organization to hire more associates to handle member services.

“It's increased our foot traffic and that's why we really believe growing these (CCITs) not only helps the car repair business but also helps the relevancy of the brand in the other traditional areas as well.”

Competition

“If you ask the local market, we are definitely competition. In some locations we go right up against a Pep Boys kind of strategy or a Goodyear tire place. In most cases we'll do a side-by-side comparison. So there's no question we are competing with all the car repair facilities within our geographical footprint,” Mr. Koch said.

“We start with a marketing base of knowing we do have a membership. With the 15 stores we've seen a very noticeable pattern of a high degree of member engagement, so we know we have a built-in audience that we can immediately market to and that makes the ramp-up time less. So it's not like starting up from scratch. It's normally a high area that we've actively penetrated….

“There's no question that we are not welcome when it comes to the Pep Boys, the Goodyears and the Goodrichs of the world, that we may be taking business away from them.”

Mr. Koch acknowledged that the CCITs also present competition for independent AAA-approved Auto Repair shops (AAR), but they increase business for them as well.

“By the awareness of the fact we're in the car repair business, we're lifting all boats and we've sent a lot of work to them (AARs). So yes, there's apprehension at the time we start and make the announcement, but we have a designated communication program to go and talk to anyone in the regional in that 25-mile radius….

“We have a lot of analytical data to prove that those (CCITs) that we've started in these locations, people come to us more, there's more trust in that element and the overflow will actually be going back to (the AARs). So from the roadside assistance activities that help build their businesses and, in fact, growing car repair in the entire AAA network, the initial apprehension goes away in the first six months,” he said.

AAA answers more than 4 million roadside assistance phone calls annually, Mr. Koch noted, and about 83 percent of those jobs are handled by independent contractors that have car repair facilities, “so there is a big amount of business we already provide to those locations to grow their businesses.”

He also pointed out that the CCITs do not provide all the services that independent shops provide, such as engine rebuilds or very labor-intensive car repairs.

Mr. Koch said what sets AAA care centers apart from the competition is the focus on a high level of customer satisfaction.

“In our case, if it happens to be a AAA member or we want someone to become a AAA member, if they don't get a great experience on the car repair side, then guess what? They're not going to come back to us and talk to us about travel. They're not going to come back and talk to us about becoming a member, if they're not a member. They're not going to come back to have the opportunity to talk about insurance.

“So what really has made this successful for the AAA organization has been the co-mingling of the benefit so that one side of the house, the insurance side, refers to the car repair side; the car repair side refers people to the insurance side. People just view us as one organization and therefore that provides a higher degree of expectation in terms of how you're treated…”

Each store collects customer satisfaction ratings and each employee is scored in various service areas. “We live and die by those satisfaction scores,” he said.

Growth strategy

AAA Mid-Atlantic started with five CCITs in 2011 and has been opening about five to six stores per year. The organization recently opened a facility in Columbia, Md., and has four more under construction.

By year-end 2017, the organization expects to have 40 to 45 CCIT locations and 25 to 30 stand-alone traditional locations.

About 75 or 80 percent of the CCIT outlets are relocations of existing branch facilities. AAA Mid-Atlantic has 56 branch locations on leased property, so as the leases come up for renewal, the company decides whether to relocate and convert the branch office into a CCIT.

The criteria for opening a CCIT are a location with about 50,000 AAA members within a 25-mile radius and at least 40,000 cars travelling past the location for optimum exposure, according to Mr. Koch. The stores occupy a maximum of about 8,000 square feet and have six to eight service bays.

Some stores are built, but a majority, so far, have been retrofits of existing buildings, simply because it's easier, he said.

Each location hires about 10 technicians and is open for business 7 a.m. to 7 p.m. weekdays, 8 a.m. to 6 p.m. on Saturdays and 10 a.m. to 4 p.m. on Sundays.

“We do find the Sunday proposition, especially Saturday and Sunday, has proven to be very effective for us so (customers) know that no matter where they are—because cars break down on Sundays—having that ability to get back on the road and back on their way is a tremendous value proposition for our members,” Mr. Koch said.

More than 95 percent of the CCIT customers are AAA members, he said.

“That's part of our challenge because sometimes people just look at the (AAA) logo and think they have to be a member. So we do an awful lot of marketing when we announce a new location opening…,” he said.

 “We very heavily advertise that it's for members and non-members. And our hope is by the time they come into one of our facilities that we've given them great service and we actually show the extended benefits by being a AAA member. We actually convert and grow membership….”

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To reach this reporter: [email protected]; 330-865-6127.  Twitter — @kmcarr