Midas franchisee boosting business through tire sales

COLUMBIA, S.C. — Midas International Corp. had its beginnings in the muffler business, then it expanded into full automotive service.

Now, Midas franchisee Gus Herlong, president and COO of Palmetto Garage Works L.L.C. (PGW), wants to boost tire sales.

Herlong recently increased the tire inventory in half of his 32 stores and has tripled his tire business.

As tire unit sales have soared, so has his auto service business.

Part of the success in his tire sales he attributes to the new Midas Tire Golden Guarantee. It is still in the pilot stage and is offered in his stores and by a few other franchisees.

The Midas warranty, free with any tire purchase, offers lifetime flat repair, lifetime rotations, lifetime balances, lifetime alignments checks and, in the event the tire can't be repaired, a no-cost replacement as long as the tread depth is greater than 3/32nds inch.

"There is no catch, and I'm not charging you for that. If you get a nail in it and it's half-worn out, you get a free tire. If you have it three-quarters of the way worn out and you hit something that busts the sidewall, it's a free tire," he said, noting that the aim of the warranty is to boost premium tire sales, particularly Michelins.

PGW has offered the pilot program since January as Herlong was on the Midas franchisee committee that proposed the program. Herlong said it took three years to bring it to market.

"So the Midas heritage has had lifetime warranty on brakes, lifetime warranty on mufflers, lifetime warranties on shocks, struts and coil springs. So now they're adding tires," he said.

He noted the warranty cost is not built into the tire price, so Midas can stay competitively priced. Rather the cost is covered by the existing Midas warranty fund, royalties and the marketing fund, he said.

"So there is basically a pooling from several angles to fund this, and that took a lot of time to kind of put that together."

In conjunction with offering the tire warranty, Herlong said he is working on an in-house tire-stocking program with some of his stores in South Carolina and Florida that involves daily replenishments and promoting the Michelin, BFGoodrich and Uniroyal portfolio. Eventually all stores will be boosting tire sales.

"I'll order them tires every day," Tanner Bethea, PGW business solutions manager, said.

"I'll replenish the tires they sold, say the previous day, so they'll have the full amount of tires all the time, so they won't have to order themselves. It takes a load off the managers' plates and lets them focus on just the business and good sales and people coming in the door," he said, noting the in-store inventory program has helped increase tire sales.

Herlong said the tire inventory project already has cost $2 million, so he is expanding the program to his other stores as budgeting permits.

"It's trading cash for inventory, but it's positioning these business operators that we partner with, guys at our stores, to be able to grow the business," he said.

"So we could take the same money and go buy more stores. We could take the same money and go buy a beach house if we wanted it, but this is future thinking, setting ourselves up for being able to continue doing what we've built this foundation to do."

About 16% of PGW's sales come from tires versus auto service. That ratio is not likely to shift much as, interestingly, in the stores that have doubled or tripled their tire sales, service sales have grown even faster.

"When we're seeing more tires getting sold, we're selling more alignments, we're selling more wheel balances, we're selling more services," Herlong said.

"So that's been a huge benefit for us, because tires are growing our volume, the service is growing our profits," Herlong said.

"The average franchisee usually makes the argument, 'When you sell these tires, your gross margin goes down.' I have proof that it doesn't, because I'm doing it, and our gross margin is maintaining or going up with more tire sales.

"And when I can capture 'insert number here,' but let's just say 56% or 60% of $100,000 and I can maintain that 56% or 60% of $150,000, I'll take that. The tires got us to that level of $150,000, and our additional service maintained our margins.

"It has been an initiative that works. It's just going to take a lot of coaching on our part to get the rest of the stores bought in to understanding that. And that goes back to that training piece.

"Our teammates aren't pushing back on it because they don't like it. I mean, who wouldn't like it? They're pushing back because they don't understand. And that falls on us.

"They don't understand like, 'How does this impact me? How does this impact my compensation? How does this impact the business that you've challenged me to operate?' And that's on us.

"Coach, train, convince and get on our page and be successful with it. That's what we're working on in some of these stores," he said.

Tire brands vary by store and market but mostly PGW stocks Michelin- and BFGoodrich-brand tires in upper-income areas and use Uniroyal and Sailun tires as entry-price-points in other markets. The company can stock other brands.

"So mostly what we've been focusing on is building that partnership with Michelin, who owns Midas (through TBC Corp.). So it's kind of keeping it all in the family. When our franchisor wins, we should win," Herlong said.

While many tire dealers are seeing a consumer shift toward tier-four or value-priced tires, Herlong said he has seen the exact opposite.

"Our competitors are seeing a huge ramp up of Tier 4 tires and a huge decline of their premium brands. Now it's not like I all of a sudden decided, 'We're more valuable; we'll sell a bunch of Michelin.'

"That's what I invested in. We put that in our stores knowing it was going to be more expensive, but having that confidence with our value and our heritage being implemented with tires, now we can sell that value behind a very premium brand, and so our tires are increasing," Herlong said.

"Our tire business is increasing significantly, and opposite to the industry, we're growing our premium brands at an exponential rate where the exact opposite is happening with our competitors," he said.

However, he added: "I'm not trying to be a tire destination. I want to continue being the service destination that our entire heritage hinges on. But I'm gonna start selling tires, and I will make waves in that part of the industry, too."