Monro eyes brand realignment, store updates, online sales

ROCHESTER, N.Y. — As Monro Inc. continues gobbling up independent tire and auto service retail chains across the country, the behemoth retailer is taking time to consolidate, realign and update its operations.

During Monro's fiscal fourth-quarter conference call May 21 with investment analysts, President and CEO Brett Ponton detailed the company's strategies in the areas of brand consolidation, store redesign, acquisitions, product mix and online sales.

In addition to continuing to expand its geographic territory, Monro has set its sights on increasing its customer base through its partnership with Amazon.com as well as development of its own online sales channel.

• This story appears in the May 27 print edition of Tire Business.

Meanwhile, Monro is putting more focus on tire sales with the intention of shifting some of its auto service-focused locations to tire-focused operations and reducing the number of retail brands its stores operate under.

Monro closed its fiscal year on March 30 with 1,197 company-operated stores and 98 franchised locations, which generated a record $1.2 billion in sales.

Store branding

Over the years Monro has acquired and continued to operate several regional retail brands. Now Monro said it will be leveraging customer data analytics and local brand awareness to consolidate its existing nine retail banners — Mr. Tire Auto Service Centers, Tire Choice Auto Service Centers, Tread Quarters Discount Tire, Ken Towery's Tire & Automotive, Autotire Car Care Centers, Monro Auto Service and Tire Centers, Tire Warehouse, Tire Barn Warehouse and CarX Tire & Auto — into five regional brands and "take advantage of this opportunity to convert service stores to tire stores when we identify targeted demographics that favor a tire store format."

Monro didn't identify which five brands it will move forward with. A spokeswoman said the company "will analyze customer data, brand awareness and banner concentration market by market and will be methodically prioritizing markets where they see the strongest potential for increased visibility and traction of their tire banners."

Monro has operated two store formats in the majority of its key markets with a focus on increasing store density. Its service store formats — Monro Auto and CarX — each generate about $600,000 in annualized sales per store while the more tire-focused stores generate about $1.2 million in sales per location.

"Overall, our goal is to increase brand awareness in our regional markets, while lining our store banners with market demand to optimize growth, specifically where we identify opportunities for higher tire sales," Mr. Ponton said.

He added, "By optimizing brand awareness and banner concentration in targeted markets we can increase our sales and relevancy in the marketplace without sacrificing service revenues. Importantly, last year we piloted this rebranding strategy at a district in the mid Atlantic, shifting our few selected stores to tire-oriented brands."

Meanwhile, Monro has begun to modernize and standardize the appearance of its stores as part of its drive for consistency across all its locations that currently include a wide range of stores and formats.

The store "refresh" began with 31 pilot stores in the Rochester, N.Y., market in the third quarter and will be extended to about 50 stores in the South during the fiscal first quarter.

Mr. Ponton said "the completion of our stores reimaging has led to a sequential improvement in traffic and comparable store sales trends at these stores from the third quarter to the fourth quarter of fiscal 2019."

The modernized store layout is on track to be rolled out across the company's remaining markets and store formats over the next three to five years, he said.

Acquisitions

"We continue to actively capitalize on acquisition opportunities, which remain a core pillar of our growth strategy," Mr. Ponton said,

Monro recently expanded its footprint to the West Coast with the acquisition of 40 Certified Tire & Service Center stores and one distribution center in California, which have been rebadged as Tire Choice.

Also during the fiscal first quarter, Monro closed the acquisition of Lafayette, La.-based Allied Discount Tire & Brake Inc., enabling Monro to move into the Louisiana market. The 12 locations were rebadged as Tire Choice.

Monro built three locations in the fourth quarter, for a total of 21 greenfield store openings in fiscal 2019.

The new stores added $17.7 million in revenue, including $14 million from recent acquisitions in the quarter.

For the year ended March 31, Monro reported a slight decline in operating income on record sales of $1.2 billion. Operating income slipped 0.5% to $126.7 million, or 10.6% of sales, due primarily to five fewer selling days in fiscal 2019 versus 2018, the company said.

Acquisitions announced and completed in fiscal 2019 collectively represent an expected $132 million in annualized sales, or 11 percent of annualized sales, Mr. Ponton said, adding that Monro's "M&A pipeline remains robust" with over 10 non-disclosure agreements signed covering potential acquisition opportunities ranging from five to 40 stores.

Monro extended its revolving credit facility to fund consolidation opportunities and the continued execution of its "Monro Forward" initiatives launched a year ago to standardize in-store operating procedures and brand standards which, Mr. Ponton said, "will position us to more effectively and efficiently integrate these and other acquisitions."

Tire brands

Monro said it is continuing to boost its "good-better-best" product and service packages and introduced new Tier 2 tire brands, including the Cooper brand, to optimize tire assortment in the fourth quarter.

Monro also carries BFGoodrich, Dunlop, Falken, General, Goodyear, Hankook, Kelly, Laufenn, Michelin and Pirelli, as well as the Pantera private brand.

Tires are Monro's largest category, representing half of its sales, Mr. Ponton said.

In the service and repair categories, Monro said it continues to capitalize on a strong demand for brakes, which was Monro's strongest performing category in the fourth quarter.

"Similar to previous quarters, our optimized 'good, better, best' brake package pricing combined with higher brake transaction volume contributed to gross margin expansion this quarter," Mr. Ponton said. "In our remaining categories adjusted for days, comparable store sales were up slightly for alignments and flat for maintenance, while front-end shocks declined year-over-year."

He noted the "good, better, best" product assortments are driving higher in-store conversion, including an increase in demand for brakes during the past four consecutive quarters.

"As we continue to optimize our tire assortment, we are focused on becoming the number one destination for tires at any price point," he said.

"To that end, we are leveraging our scale and choosing suppliers for optimum brand and pricing assortment to create the best value for our customers and for Monro. Specifically, we have identified opportunities to expand our Tier-2-branded tires assortments, as we want to offer great value for our customers at any price point.

"Therefore in the fourth quarter, we introduced new branded tires, rounding our assortment mix, while optimizing branded tire margins. As you may know, our private label tires continue to represent approximately 40 percent of tire units and remain a key competitive differentiator, allowing us to provide our customers significant value at opening price point levels."

Online sales

With plans to launch its own online sales presence, Monro recently doubled the scope of its partnership with Amazon.com, offering tire installation services to Amazon customers at more than 800 of Monro's stores in 21 states.

Monro announced the partnership last July initially in the Baltimore area and then expanded it to 300-plus stores in October. The program eventually will extend to all Monro locations in 30 states.

Mr. Ponton said about half of the customers who come to Monro via Amazon.com are new to Monro.

"So it gives us a great opportunity, I think, to drive traffic and build a relationship with a consumer. It allows us to not only convert that tire installation to other services when they are at the store, but also allows us to build a long-term relationship with them via our CRM platform going forward," he said.

"The economics — certainly we don't sell the tire as it relates to tire installation — but the installation revenue itself certainly is high margin given the high labor content and low material costs of installation as well as the opportunity for us to add on incremental high-margin sales when the consumers are at the stores.

"So we still think that this is a net accretive strategy for our company, and we'll look to expand relationships with Amazon as we progress throughout the year as well as collaborate with other online retailers going forward."

Monro stores also offer tire installations for customers of online retailers Tire Rack and SimpleTire.com, according to information on monro.com.

"Our preferred tire agreements with online retailers are a key initiative for our omni-channel strategy. And this expanded collaboration underscores the strong progress we have made as we continue to develop our online presence," Mr. Ponton said.

"Following the modernization of our retail and corporate websites in fiscal 2019, we expect to complete the final phase of our omni-channel build-out in the second half of fiscal 2020. Once fully rolled out, our customers will be able to view and purchase tires online and seamlessly schedule an appointment for in-store installation."

Marketing

During fiscal 2019, Monro said it repurposed its marketing budget to invest in data-driven customer relationship management (CRM) and customer acquisition campaigns.

"Following the rollout of our new data analytics-based CRM platform, we have focused our customer retention efforts on delivering tailored messages and service recommendations to our customers based on their specific vehicle needs," Mr. Ponton said.

"The initial results show that leveraging customer data and insights leads to a notable increase in customer visits, giving us confidence that this strategy will allow us to increase the overall lifetime value of our customers."

Monro recently launched data-driven campaigns to acquire new customers by leveraging market segmentation of demographic data specific to geographic areas surrounding Monro locations.

Staff app

Internally, Monro plans to implement a cloud-based data-driven store staffing and scheduling system to improve store staffing efficiencies by more accurately rebalancing the level of technical skills in each store.

The system is expected to help stores recruit technicians with the required skill levels and be supported by a mobile app that allows employees to pick up shifts and give them the flexibility to increase hours and earnings, the company said.