Monro fills technician ranks to meet service demand

ROCHESTER, N.Y. — Monro Inc. is adding a lot of new technicians to meet increased consumer demand.

The car parc is large and growing, the average age of a personal vehicle in the U.S. is more than 12 years and climbing, and consumers continue to show they are willing to pay increased prices to maintain their vehicle. This is all good news for service shop owners.

"Over the last three quarters, we've added about 650 technicians to our ranks. That's about a 15% increase in technicians," Brian D'Ambrosia, executive vice president of finance and chief financial officer at Monro, said. "That's in response to what we feel are demand opportunities that are going unmet."

Monro operates 1,304 company-owned retail tire and auto service locations and has 80 franchise locations as of May. It is ranked by Tire Business as the largest tire retail dealership in the U.S., in terms of number of locations.

D'Ambrosia talked about the state of Monro during investment firm Oppenheimer & Co. Inc.'s 22nd Annual Consumer Conference on June 14.

He said Monro's strategy revolves around three principles: Adding people, broadening outside of traditional service categories, and sourcing and procurement.

When customers come into a Monro shop, they aren't just there for a new part or tire replacement.

"Really the installation, the inspection, and then the recommendations and education process is really where we drive our value," D'Ambrosia said. "We need to have the right number of technicians, the right number of store teammates and that's really the first part we've been focused on."

While that means increased investment by the company, D'Ambrosia said Monro is in the "late innings" of growing its technician base. The next step is investing in educating technicians to increase production, not through a higher head count in the future, but through better trained people.

D'Ambrosia said he believes the investment will start to pay off in the second half of fiscal year 2023.

"Labor as a percent of sales will actually be an opportunity for us as we start to really see the productivity build, sales-per-tech hour build, (and) material margins start to leverage the labor investment we've made."

The majority of the 650 new hires were sent to medium and large locations, he said, "where we had the opportunity to add one or two techs to a store that was pretty much already doing a significant amount of business."

So far in 2022, he said business at the medium and large stores was up 5%, compared with 2019, which the company uses as a benchmark.

"Demand is there, but capacity is what we need to build to meet that demand," he said.

"It's not unique to us that it's a tight labor market for technicians. This is a pre-COVID trend, (and) it was exasperated during COVID. We have, for a long time, seen less and less graduates coming out of the technical schools as minimum wage has moved up and retail wages in general have moved up. They've put a little bit of competition on the technician wage."

Monro has built a recruiting organization and workplace that "has really let us take more than our fair share of technicians in this environment."

The company believes a larger team of more qualified technicians will open Monro up to offering a broader range of services. And it is coming at a perfect time. Looking at tire service in a broader sense, D'Ambrosia said, there are "signs of tailwinds in the industry."

The U.S. car parc has grown to around 300 million vehicles, he noted, and the age of the average vehicle tops 12 years. Advanced technology in newer vehicles is advantageous to businesses like Monro, he said, because many fixes may be too advanced for the do-it-yourself consumers.

When it comes to broadening services, D'Ambrosia noted, the company does well when it comes to servicing around the wheels and tires and under the car, but does a limited amount of under-the-hood service.

"We have opportunities to penetrate more deeply in categories that we already do, like batteries. We have more opportunity to expand into other categories, like being able to solve more of the 'check engine' light sensor issues or other things that are more under hood, and are becoming more and more widespread as vehicle technology improves," he said.

While rising gas prices are worrisome, D'Ambrosia said an initial spike in gas prices this year saw vehicle miles traveled (VMT) drop about 15%, but VMT recovered quickly when the price went down. When a second spike in gas prices hit, he said VMT dropped only 5%. Monro sees this is a sign that consumers are acclimating to paying more money for gas.

"Historically, gas prices effect VMT in a similar way, where it's an initial shock to the vehicles miles traveled, but ultimately the consumer figures out a way to fund their required miles through more cuts in discretionary areas," D'Ambrosia said.

So, despite rising prices, consumers are still investing in their vehicles.

In May, Monro sold its Tires Now wholesale tire distribution arm to American Tire Distributors Inc. (ATD), the nation's largest wholesale tire distributor, for $105 million. Monro said the divestment is part of its strategy of focusing on growing its retail service base. On the parts side, the company will concentrate its volume and use its buying power to leverage pricing.

Monro continues to seek new acquisitions. It has added 47 stores so far this year.

"We've really seen, with some of the private-equity transactions as well as continued strategics, those deals tended to have high multiples, but we were able to get our 47 stores in traditional multiples and realize our traditional synergies. And there's opportunities out in the marketplace," D'Ambrosia said.

Monro has not seen a crunch on getting inventory, which D'Ambrosia noted is likely due to its size.

"What we've seen is a rational pricing environment. The pricing we've seen in the marketplace is reflective, we feel, of the cost increases that our competitors are seeing. But as we tend to buy better than others, that presents some opportunities to manage that material margin a little better."