Midas, Big O franchisee LWG poised for growth

GREENWOOD VILLAGE, Colo. — The acronym of the tire and automotive management platform LWG, which stands for Leeds West Groups, might stand for three other words in the coming few years: Leveraging With Growth.

That is because the Greenwood Village-based franchise enterprise — which operates 117 Big O, Midas and SpeeDee Oil Change auto service shops in 18 states — has plans to grow, ... and grow and grow some more. How much?

According to founder and CEO Judd Shader, the group plans to expand its store footprint by about 10% annually.

"You are going to see us get really aggressive," Shader told Tire Business in an exclusive interview. "We've always been aggressive, but ... we're going to accelerate our growth even faster."

Shader said that growth will come by one of three ways:

• Buying out existing Big O or Midas franchisees;
• Purchasing automotive properties that tenants are leaving, then rebranding them as a Big O or Midas outlet; or
• Building from the ground up.

"Obviously our fastest growth will always come from buying out existing franchisees," Shader said, "but if we can create the right pipeline to be able to (build) a half a dozen, and escalate from there, call it six to eight, and continually to build higher and higher annually just from greenfield ... we can open a new store every 30 to 60 days from the ground. But it is going to take us some time to ramp that up."

LWG's goal, Shader said, is to acquire property in select markets across the country and create a greenfield program it can replicate easily.

The company has hired several firms to help facilitate the greenfield process: One to handle "the dirt work," another to handle the acquisition and a third to complete the build.

The greenfield piece of the acquisition puzzle will be executed only in markets where LWG operates currently but perhaps might be underserved, given the population growth.

"It's not meant to take us into a brand new market," Shader said. "It's meant to truly infill current strong markets."

Conversely, Shader said LWG has no aspirations of expanding into other areas or states via acquisition just to enter a new market. He said the firm prefers to grow in the 18 states where it's already active.

Founded in 2009, LWG operates 82 Midas locations, including six that are co-branded Midas and SpeeDee locations, and 35 under the Big O Tires brand.

It operates the most locations (22) in its home state of Colorado, and it has locations stretching to Wisconsin in the north, Texas to the south, Connecticut to the east and New Mexico to the west.

Shader said if an acquisition presents itself in a new state that makes sense, LWG will pursue it.

"If someone calls us and has a bunch of stores in another state, yea, we're definitely going to look at it," he said. "But we're never going to go into a new state with just a few stores."

Shader said he estimated that at least three-fourths of the acquisitions that LWG consummates are initiated by the shop owner.

And he said they approach the equity firm because they know the deal will go smoothly.

"They know we have the capital to acquire them; they come to us because they know we're going to be easy to deal with; we're not going to a bank; we're not going to the (Small Business Administration); we have all legal in-house; we have all accounting in-house; we can write checks and close deals in 30 to 45 days.

"People come to us because they know we can get the deal done."

LWG, unlike other equity firms, also will acquire the real estate where those locations sit. While that isn't essential for a deal, Shader said it is a strategy that works for several reasons.

"One, it controls our own destiny, as we see ourselves as a longtime player, so it allows us to create a longtime presence," Shader said. "And second of all, we look at it as good business from an investment standpoint. It fits our mold well because we are a longtime strategic player, and we look at owning our own real estate as just good business."

And business, he said, has been booming across all LWG locations. The company's sales are up 12% over last year, and its Big O franchises are up 20%.

Business hasn't just increased this year. LWG has posted record sales each of the last four years, Shader said, outperforming the averages significantly.

That success, Shader said, can be attributed directly to the company, its team of employees and the remodeling of every Big O location in the group.

"We've done an incredible job of upgrading people and talent across our organization, and I think there is good demand out there. It's all of those factors coming in."

And he said, higher labor rates have played a role, too.

"The costs are higher, as far as average ticket," Shader said. "It's a little bit of a perfect storm from our organization of pent up demand, and then our team is just doing a great job over the last three years of positioning ourselves to be able to capture."

He credited Derek Wessels, chief operating officer and president of the automotive division, for assembling a talented team.

"When you have talent in an organization, exciting things can happen," Shader said.

Still, the business is not without its challenges. Two of the most pressing are product shortages and talent acquisition and retention.

Shader said his team has done "an incredible" job navigating some of the supply chain issues, utilizing substitute products whenever necessary.

The labor market challenge, however, is different: it has hampered the industry for years, with no solution in sight.

"It's been a challenge for a very long time and continues to be a challenge to have and attract and retain the best technicians," Shader said.

LWG has seen additional challenges in filling entry-level positions. "It's harder and harder to attract those new positions," he said.

The company has reacted to the labor crisis just as almost everyone else in the business has: offer a sign-on bonus; competitive wages; a training platform; incentive bonuses for service-related sales; and the ability to pay for training and certification.

"The industry has to be able to show, once you go through the trade school or vocational school, you can make a lot of money in this industry, and it's a really good place to have a career," Shader said. "I don't think it's a lack of trying from industry. The industry has been trying to continue that message for a very long time."

Within the past decade, equity groups such has LWG and a host of others have invested billions into the tire and automotive service industry.

What makes shops so attractive?

The first, Shader said, is that it's recession-proof.

"It's brick-and-mortal retail that's proven time and time again it can continue to perform no matter what the markets environments are. It's somewhat insulated. That's a big piece."

Secondly, e-commerce does not affect it. "It's hard to mail your car in to get fixed or to order the part, and cars aren't getting easier and easier to fix."

And thirdly, costs continue to rise. "Any way you look at it, the cost of repairing your car is not going down. The complication of repairing your car is not going down. And the price, the parts to do it, is not going down.

"So I think when you put all of those together, it's an attractive space."

LWG, meanwhile, separates itself from its competitors by doing things "the right way," Shader said.

"We don't just buy anything; we don't just enter a new market to enter a new market. We don't just throw up a ton of stores just to throw up a ton of stores," Shader said.

"Everything we do has to do with how solid our foundation is, and we're really trying to do it the right way, build it special and build it for a long time."