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Distance Retailing - Developing a Channel of Substance Some
Form of Grouping Required – for Parts Installers, Manufacturers
and Distributors There have certainly been some big changes taking place in the motor industry. The growth of Visteon; Unipart buying Partco, Lex buying the RAC, Centrica buying the AA and the biggest of all so far - Ford buying Kwik-Fit; they all have major implications for those operating in the aftermarket. Some
Form of Grouping Required – for Parts Installers, For some time longer component life, more sophisticated technology, extended service intervals, vehicle assembler strategies, environmental legislation, part number proliferation, fleet needs and others, have gradually been eroding traditional installer network outlet profitability - along with the ability of small garages in particular to deliver the high customer satisfaction generated by the first time fixes they strive for. Hence the reduction in the number of outlets – franchised dealers and independent garages – but particularly small sites. Some form of critical mass advantage is becoming vital for survival in today’s world of higher consumer expectations and more complex vehicles. The independent sector consists of a high proportion of smaller outlets. So the power balance between independent distribution/installer customers of major component manufacturer and their o.e. clients is beginning to shift in favour of o.e. Particularly with o.e. customers reducing the number of suppliers they deal with per product. If you are an o.e. supplier it’s big business and in many cases the gateway to the aftermarket in R&D/facilities terms. But the eggs in baskets factor looms large. The consolidation of the independent distribution sector itself is causing concern to component manufacturers, with a handful of rapidly growing companies taking a huge slice of the cake. These component manufacturers are caught between two stools. They too know they need to reduce the number of distributors they deal with to lower distribution costs and increase their own and trade customer profitability. However if they reduce the distributor base too much they are creating a rod for their own back and the tail could start wagging the dog. But the future of these big distribution companies – just like the parts manufacturers – is still in the hands of installers and retailers. Smaller outlets obviously need support if they are to remain active players of substance and they require some form of grouping to gain the advantage of volume purchases, technical support, market information and national network capability for fleet businesses and cost effective marketing. Clearly something has to be done to develop channel entities rather than hundreds of small supplier/customer deals, which in an oversubscribed market tends to drive profits and standards down. This is becoming a common need for component manufacturers and the larger distribution companies. The term ‘distance retailing channel’ is the umbrella term created by Brian Taylor – author of the Castrol Car Service and Customer Satisfaction Trend Tracker to describe all these activities. He says, "There is a great variance in the cover and commitment of the programmes being developed. There are clear differences in the needs of the different programme operators. Some wanting to improve distribution channels for a single or limited product range and others wanting to cement a more substantial link between installers and distributors without the huge investment of retail site ownership. They range from point of sale promotions to full business franchises. Although it is generally regarded as the generic term used to describe these developments, the term soft-franchise only really loosely describes a particular type of arrangement". "But the one thing they have in common is a deeper involvement of the component manufacturer or distributor with the actual installers and retailers. A channel culture is being created rather than a supplier/customer relationship. Suppliers are developing their role as being part of a channel that benefits motorists rather than a supplier going all out for market share by buying it with short term discounting. Like ‘distance learning’ provides the facility for people to learn without going to an educational centre, ‘distance retailing’ allows suppliers to become involved with how their products are installed or retailed at sites owned and operated by independent businesses – adding value and profit". Individual retailers and installers have to trade off varying levels of their independence to become members of a channel. But the result should be a channel that is more cost effective in product movement terms, with more real power to channel members than remaining a small independent player. The channel becomes the strength. The ‘not-so-big’ cultural change that channel members then have to make is to ask what’s in it for the channel rather than what’s in it for me? Those already in such channel programmes have not in the main found this such a difficult view to take. It’s suddenly not so lonely out there and becoming part of a team is a fairly natural development – particularly when you make more money. Part of a ‘Lean Supply’ System It was a topic discussed by John Kiff at the recently held AFD Workout, which was generally regarded as the best ADF conference ever held. He talked about the principles of ‘’lean supply systems’ necessary to provide cost-effective service and repair work that delivers the car fixed first time, when promised, at a competitive price. He pointed out that pre-diagnosis and correct parts identification was the key to enable parts to be prepared before hand – parts that will fix the car first time because they are correct. In a scenario of expanding part numbers the problem is more cost effectively addressed from a channel point of view rather than the more untidy and costly strategy of each installer and factor ensuring his own backside is covered. Without it, installers will not be able to keep up with rising customer expectations of service levels. He pointed out the role that parts distribution played to ensure parts availability, along with the fault lines in the current system. A system of national and regional warehouses need to be more closely linked with installers rather than the current un-economic system which typically produces an over-stocked system with too much slow moving stock at installer or local factor level and not enough in the channel for fast delivery to where its needed. Funding enough parts in the constipated system costs too much – in money and incorrect parts supplies. To a greater or lessor extent this basic scenario applies to vehicle assembler franchised dealers and independent parts distributors. Parts Need Trends Favouring Independents Vehicle assemblers are addressing these limitations. Going lean is relatively easy on a single marque basis because the franchiser makes standardising systems easier and the number of part numbers is not so great. But apart from the giants – volume is difficult to achieve. Independent garages have a more complex supply system and the need to feed an all-makes appetite. One way or another parts need to be sucked through the system and that means more sophisticated channel links. It cannot be denied that there is a decline in the market value and market volume of parts and service work associated with cars – on a per car basis. But most of that reduction is with younger cars – typically franchised dealer customers. Future Aftermarket – Older Cars
The reductions once cars get older are not so great. So the market for parts and service is moving to ever older vehicles which will by nature be with third and fourth owners – typically independent sector customers rather than franchised dealers. The values of these cars decline as they get older so the proportion of total mobility investment represented by parts and service purchases each year increases as cars move to their fourth and fifth owners, typically with 8, 9 and 10 year old cars. But fleets too are looking outside the franchised dealer regimes to save costs – as are insurance companies for accident repair work. So increased penetration of the younger car parc work is occurring and there is a future for professional independents working as part of an integrated parts supply channel based on a wider vehicle age group than some would have you believe. Single Product or Full Service? Currently, full service capability of ‘distance retailing’ programmes is more often provided by parts distributors (Partco’s Drive-In and Drive-In Plus, Unipart’s Car Care Centres and Finelist’s Nationwide Auto Service for example) and buying groups (the FSG’s Autocare Service Centres and the IFA’s Autosafe whose target is 153 outlets by the year end). In a way A1 Motor Stores is in this category but for retail shops. But other distance retailing programmes are product-specific applying to items such as shock absorbers, brakes and clutches. Distance retailing can also be seen in the fast-fit industry with tyre manufacturer programmes like Continental’s Tyre Expert, Bridgestone/Firestone’s First Stop and the recently launched Pirelli Driver. The electrical/electronic sector sees Prolek, Lucas Autotech Centres, the Bosch programmes, Diagnostic Centres from Autodiagnos, and so on. Outlets on some programmes will clearly need more than one channel programme to provide a one stop full service capability to motorists and many observers believe we will see a merging of these programmes into a more comprehensive offer. In practice it does happen now at a site level with some installers operating a store-within-a-store strategy based on a range of programmes and identities. But if too many programmes are used the consumer message becomes at best confused and none of the programme operators get the full benefits either. The table lists programmes with yellow indicating full service programmes and blue diagnostics. The others are basically single product. Workshop
Distance Retailing Programmes – June 1999
Source; Castrol Car Service &Customer Satisfaction Trend Tracker Certainly many of these programmes are developing elements that prove they are moving towards providing a credible alternative to owned installer chains. More substance is being built within programme elements offered which are mining much deeper into site operational activity and company culture than superficial marketing activity. Many programmes include very comprehensive marketing elements now ranging from direct mail to website provision. For example Ferodo includes initial free and then distributor supported advertising for its Ferodo Brake Specialists - plus free press relations. Clutch Express have a very visible identity which they promote extensively and the offer is now full service. A recent addition is their Fast-Fit Express offer. Prolek’s recently announced apprenticeship scheme is an example of the deeper commitment now coming through. The need for electrical/electronic skills has been known for some time and the responsibility was seen as residing with individual companies, trade associations and suppliers. But backed by ReMIT, Prolek’s 3 year NVQ3 scheme shows how deep and important the role of a programme provider can become. 8 weeks per year, residential ‘Block Release’ education at Coventry’s Tile Hill College is part of the Apprenticeship. NAS is a full business franchise from Finelist that has developed a range of branded products designed to drive business into NAS sites. But they have done more by investing in Territory Managers to support their franchisees. An example of the sense of this investment is the success of the NAS Business Direct Service targeted at small and medium sized fleets. The combination of best practice direct mail communications, a very appealing offer supported by face-to-face presentations by Territory Managers is a major contributor to the typical 22% increase in business that NAS franchisees experience. Partco’s Drive-In Plus programme features extensive marketing, which includes national advertising. But again the depth of commitment to developing a national chain offer with channel substance is demonstrated by the linking of training to business composites developed and analysed by an independent resource – the Automotive Strategies Group. They have been designed to help installers measure, compare and improve performance levels across a bunch of key measures. It is absolutely unique in the distance retailing sector, giving those on the programme levels of business management information only previously available to owned chains and franchised dealers. With the development of pan European chains, the FSG programme Autocare Service Centres shows how soft franchises can be a part of this move. FSG is a member of Group Auto Union, so Autocare Service Centre outlets will be part of a much bigger enterprise with opportunities to develop a much broader offer in association with programmes such as TopGarage(France), PuntoPro(Italy) and EuroTaller(Spain). The move towards component manufacturers forming marketing groups themselves has been slow to get of the ground in the UK. Prolek is probably the closest yet but Sachs are still working at developing the Autocrew concept in the UK. And despite the restrictions of existing large owned parts distribution channels working against this trend, it should not be ruled out. Shared warehousing might be the first sign. It is also interesting to note how many of the programmes are beginning to hone in on franchised dealers as prospective partners. Even Mr Clutch is now focusing on this sector for growth. There are lots more examples, which space alone prevents us from identifying. The whole distance retailing sector is ratcheting up the anti. Entry level costs and standards are being increased as the channels build more credibility and deliver increased benefits. Environmental Need for a Channel Approach Clearly there are many economical and marketing reasons for developing distance retailing channels. But there is an increasing environmental need as well. For example for maximum environmental benefit some components will need to be designed for remanufacturing and multi-life rather than a single life strategy. Remanufactured components will have to be introduced earlier in a vehicle’s life – replacing secondary new component brand sales in some cases. Implications for Maintenance Schedules and Channels But to provide for truly efficient component lives – economically and environmentally – maintenance schedules will need to be in place to take critical components out of service life at the optimum time. This is the norm with airline maintenance but detailed maintenance data needs to be logged at regular checks. So maintenance channels will need to reflect this expanded role as the front line ‘guardians of environmentally friendly mobility’. An annual MOT test will not be enough. Repair and maintenance schedules will need to be backed by legislation directed at car owner and service companies. Licensing technicians and outlets is increasingly seen as part of this need – again a topic receiving favourable support by delegates at the ADF Workout It is importance to take a component out of service before the increased failure trend at the back end of its effective life. On-board diagnostic systems will likely prompt this in the future. All component manufacturers therefore need to capitalise on the sale of the remanufactured goods and put in place good core return channels as well as sales channels. These will also enable the vehicle assemblers to dictate the optimum age for taking a vehicle out of service. This is of heightened interest with at least one vehicle assembler looking at a recyclable car that can only be rented and serviced by approved channels. Whatever way you come at this, some form of channel entity of substance is where the future lies. And keeping up with change is a mandatory requirement of remaining in business – not an option. If you don’t want to sell-up to an owned channel – distance retailing represents the only long-term future for independent installers. It is a trend that has to be incorporated into business strategies of installers and suppliers. Tony East, Leader of the ADF Council, offered a thought for the day as he welcomed delegates to the 1999 ADF Workout. ‘Grant me the serenity to accept the things I cannot change and the courage to change things I cannot accept’ A pertinent thought for installers and suppliers to contemplate. Brian Spratt, Chief Executive of the ADF offered another one when he closed the event. ‘In Africa every morning a gazelle wakes up and knows it must outrun the fastest lion or it will be killed. Every morning a lion wakes up knowing that it must outrun the slowest gazelle or it will starve. The moral of the story is that whether you are a gazelle or a lion - whatever you do in the morning you’d better be running’.(8/99)
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