Finding ways to fuel sales
Can auto aftermarket franchises adjust under higher gas price pressures?
“Everything is kind of on ‘ignore’ right now,” says Tom Layman, a Multistate Transmission franchisee in Waterford, Mich., summarizing consumer attitudes toward car repairs.
However, current economic conditions haven’t prompted every auto franchise to downshift. Some continue to move forward at a steady clip—especially those with services targeted to high-income customers.
The mobile effect
Perhaps few businesses feel the pinch of gas prices more than concepts with mobile operations.
At Creative Colors International, a repair and reconditioning service with 68 franchises and 150 mobile units, fuel costs are cutting into profit margins, but owners are largely unable to pass these expenses onto customers. “With individuals, we can charge a little more, a service charge, if we go to their home,” says CEO Mark Bollman. But at dealerships, “they’ll eliminate us and bring in someone who’s cheaper.”
Creative Colors repairs leather, fabric and other materials, and 90 percent of its business is auto-related. Most sales come from dealerships; 10 to 15 percent of sales are direct-to-consumer. To compensate for rising operational expenses, Bollman says owners are selling additional services and products to existing customers, such as dealer plastic for used cars and customized dealer logo mats.
At ABRA Auto Body and Glass, a damaged vehicle repair company that offers mobile service for glass repairs, CEO Rollie Benjamin says current conditions have yet to affect sales but the concept has other issues to address, such as reduced insurance claims. ABRA has 93 locations, 23 of which are franchises.
For the past six months, ABRA’s same-store sales are up 6.3 percent; however, Benjamin attributes this increase to a growing market share, not growth in revenue opportunity. “One of our gauges is what’s happening with insurance claims, and during the past several years the amount of repairable cars reported to insurance agencies getting fixed has been declining,” he says.
Benjamin estimates that insurance companies pay for 90 percent of ABRA’s customer tickets. He cites higher deductibles and fears of escalating premiums as reasons for the decline. He also thinks people simply are using their cars less.
“There’s (no) definitive research of people driving less miles because of higher gas prices but we’d have to believe there’s a direct correlation between miles driven and the number of accidents that occur,” he says. “Intuitively, it’s going to have some impact on the number of accidents and glass damage.”
Money left for extras?
The trick with selling accessories is convincing consumers they’re still necessary even when funds are tight. Several franchises, so far, have successfully been able to do so.
Although new truck sales declined 6 percent during the past 12 months, Line-X CEO Scott Jewett says the concept’s 500-plus stores are still seeing 2 to 3 percent sales growth, due in large part to truck bed liners that franchisees sell to consumers with existing trucks. A truck bed liner costs $450 to $600; Jewett says stores sell on average 60 to 150 liners per month.
In California, Paula Hilliard, a master Line-X franchisee in Anaheim who oversees 60 locations, says demand for liners is slow, but adds she’s driving sales by stepping up marketing efforts to do more “light industrial work,” such as lining surfaces of rides at Disneyland. “Light industrial is only 10 percent, maybe 20 percent, of the business, (but it’s) growing,” she says.
ClearBra, a new franchise that sells protective auto aftermarket products, saw sales increase 40 percent in July over the same period last year at its corporate store, which opened in 1999. In July, the corporate store installed 160 bras, which range in price from $399 to $1299, depending on the package selected. While Director of Sales Sterling Acree doesn’t forecast a dip in dealership work, he does see a potential decrease in consumer business.
“For someone who walks into a dealership and spends $30,000 on a new car, extras are just going to be something they include in the deal,” he says. “I’m more leery about the retail market where people already have cars and they’re now spending more on gas. They might not have as many options (with how they spend their money).”
Concern about the impact of gas prices is also trickling down to car washes. Susan Black-Beth, director of franchising at Super Wash, says, “We have regular customers at our facilities that used to wash once a week, and are now washing every other week or once a month.” Super Wash, a self-serve car wash franchise, has about 350 locations.
On the upside, she adds, consumers who used to pay $20 to $50 to detail their cars are now using Super Wash instead. Black-Beth says: “While we’re losing some of our regular customers, we’re gaining some through the compressed market.”
Maintenance maintains sales
Despite gas costs, several franchises that provide regular maintenance find consumers aren’t skimping on preventative services for their vehicles.
“The changes in fuel prices haven’t had a dramatic effect on our overall business model,” says Nicholas Cocco, CEO of All Night Auto. He refers to the concept as an “automotive concierge business” that provides services ranging from vehicle maintenance to help with purchasing a new vehicle. “We have seen an increase in the number of fuel-efficient vehicles being purchased but since we help with that process and get paid for doing so, it has offset any lower service dates,” he adds.
All Night Auto, which has 10 locations, targets professional females and baby boomers with household incomes of $78,000-plus. Cocco says All Night Auto stores typically generate $1 million to $3 million in annual revenue.
Similarly, management at Grease Monkey, a preventative maintenance service provider with more than 230 locations, says the concept hasn’t been hit by economic conditions. While Michael Brunetti, vice president of development, wouldn’t give specific numbers, he says same-store sales are up over last year, and points to greater consumer awareness about the importance of keeping vehicles at peak performance.
“It’s good knowledge in the automotive business that if you keep a car at its peak performance through routine maintenance it can increase the gas mileage by as much as 40 percent,” he says.
Going forward, Brunetti doesn’t expect gas prices to have a negative impact on systemwide sales.