Europe’s Best Kept Secret?
The tyre retail system in countries like Norway, Sweden and Finland presents a fairly unique brand of independent tyre retailing. Perhaps the best demonstration of this can be found in the example of Nordic retail group, Dekk Partner. Tyres & Accessories met the group’s managing director, Leif Kristiansen, and asked what other national markets can learn from the tyre trade in the north of Europe.
The success of the Dekk Partner retail group is quite possibly the European tyre industry’s best-kept secret. Think this is an exaggeration? Just look at the numbers. The group’s collective turnover is expected to reach up to 300 million euros in 2005. In recent years the Nordic tyre retail group has seen its geographical spread, number of branches and, consequently, its turnover grow dramatically.
Dekk Partner was founded in 1994 when managing director, Leif Kristiansen, saw an opportunity for the Nordic region’s numerous independent tyre dealers to form a retail network. In the beginning Dekk Partner had 32 partners, one of which was Nokian-owned equity Vianor. The problem with having an owned equity as a member was that it brought an unwarranted amount of pressure when it came to selecting product portfolios. Vianor left the group in 1996/1997, putting all members back on a level playing field. Kristiansen puts it more diplomatically, saying that Vianor’s membership was not inline with the Dekk Partner philosophy.
Now things are radically different and the group currently has 274 member outlets. Despite its marked growth, one feature has remained the same – each partner irrespective of size has one share in the network and one vote. “This means all partners can tell us what they want to do,” comments Leif Kristiansen. While the managing director may play a large part when it comes to steering the Dekk Partnership, the fact that Christer Borg (a former Scania Norway MD who has also previously worked for Continental) is chairman also points to solid future plans.
Currently Dekk Partner has 113 outlets in Norway, 95 in Sweden, another 65 in Finland, and even one in Estonia.
After reading about such rapid expansion and hearing the news that there is now one Dekk Partner outlet in Estonia, you could be forgiven for thinking that the group’s next step would be eastwards. However while “these markets have a lot of potential” the company’s movement east across the Baltic nations has been halted before it really got going, says Kristiansen. “We want to finish the job in Sweden, Norway and Finland first,” he explains.
Dekk Partner has some ambitious and very specific targets for its strongest member countries. In Sweden for example, where a significant proportion of the group’s business is done, Dekk Partner is aiming to extend the number of member outlets from 90 to 150, in Norway they are aiming for their current 120 to become 130 and in Finland the company wants 10 or 15 more outlets in addition to its current 65. “If we can reach these targets we will cover the Nordic areas very well,” says Kristiansen understating the significance of this kind of growth.
And Denmark? In many respects Denmark is seen as being behind the other Scandinavian countries in terms of its tyre market. Despite its chilly weather and close proximity to other Scandinavian and Nordic countries, it is still a one-season market and therefore a world apart from the likes of Norway, Sweden and Finland.
Nordic consumers are arguably more discerning than the UK’s. For example: “everybody knows that three millimetres of tread is better at dispersing water than 1.6 millimetres,” says Leif Kristiansen.
Furthermore, in the UK somewhere between 40 and 50 per cent of consumers actively purchase budget tyres. Denmark aside, in the Nordic markets 90 per cent of customers are interested in buying brand name premium tyres. This means that groups such as Dekk Partner can have successful symbiotic relationships with manufacturers and that budget and private brands are significantly less common than they are in the other markets. “Working together we can have good volume levels and therefore can work as partners with the suppliers,” comments Kristiansen. But of course the manufacturers that negotiate strong supply positions with groups like Dekk Partner also gain market share.
In addition to manufacturers, certain Belgian wholesalers have been known to supply the group’s limited budget line up. However as this level of products doesn’t make up a very significant part of the group’s product portfolio, Dekk Partner representatives do not see this supply channel as a priority, preferring instead to supply second line and budget products from their premium supplier partners.
One explanation for this market’s penchant for premium products is the fact that there are a number of very strong economies in this region. Let’s take Norway as an example. In Norway tyre technicians can be paid as much as 35 – 40,000 euros. Of course it’s never as simple as that. On the downside taxes are very high and car prices are nigh on ludicrous.
Taking such high salaries into consideration you might be imagining that Norway is a nation of Mercedes and BMW drivers. In fact this simply isn’t the case, because a car like a Ford Focus would cost roughly the same as a tyre technician’s annual salary (35,000 euros) and a Peugeot 607 diesel can cost as much as 75,000 euros. For UK readers these prices might make painful reading, but there are benefits for the tyre trade. Due to the fact that cars cost so much, consumers generally hold onto their vehicles longer than they would in other parts of Europe, and therefore return to their dealers for tyres and servicing more frequently.
One consequence of this longer-term car ownership philosophy is that there are fewer newer cars on the market in countries like Norway and Finland. This also means, somewhat ironically, that at the moment there are less high value run-flat winter tyres in the economically strong and meteorologically cold Nordic markets than in the more temperate German market.
However this peculiarity looks likely to change in the coming years when the new generation of BMWs arrive in Scandinavia, much to the Nordic tyre business’s delight.
As you might imagine, the wintry weather experienced in countries like Norway, Sweden and Finland means they have pretty solid dual-season markets. From October to March the vast majority of drivers drive on winter tyres (which are often studded), switching to summer products between April and September. Furthermore it is not uncommon for truck drivers to run on winter tyres all year round.
Due to the fact that studded tyres are often necessary, rougher and thicker road tarmac is also required. This in turn causes faster wear for the soft compounds of winter tyres when it is cold, but not freezing. “In summer we talk about lifetime, while in winter we talk about quality and safety. But to be honest customers are more interested in quality in general,” comments Kristiansen.
‘Everybody wants the best bottom line’
Now going back to that 300 million-euro turnover figure. While this approximation may be accurate, it is important to point out that not all of these 300 million euros worth of tyres are bought through Dekk Partner. Why? The answer can be found in the retail group’s loyalty scheme.
You might already be wondering how Dekk Partner manages to foster loyalty and cooperation between its members despite the fact that they largely come from three different countries, with three different languages. Simply put, it’s because there is something in it for them.
Members whose purchases are 75 per cent or more loyal to the group brands receive a maximum bonus, while outlets that demonstrate 60 – 75 per cent loyalty receive 75 per cent bonus. Branches that are 50 – 60 per cent loyal only receive half the possible bonus, while outlets that are less than 50 per cent onboard receive no bonus and six months probation.
On average members are roughly 80 per cent loyal. While Dekk Partner may well expect its individual member’s entire turnover to total at some 300 million euros this year, only approximately 240 million euros of that will actually be bought through Dekk Partner.
Looking a bit closer, a few regional variations in group loyalty can be seen. Sweden and Norway average out as 82 per cent loyal, while in Finland loyalty is nearer 70 per cent. Kristiansen puts this figure down to the fact that Dekk Partner is a relatively recent phenomenon in Finland. He expects this number to reach 80 per cent next year.
According to Leif Kristiansen, Dekk Partner aims to keep the costs of running its operation to a minimum, so the members get the maximum return from their involvement. That’s also why Dekk Partner’s head office only employs 10 staff members, who organise and oversee all Dekk Partner activities.
The beauty of the Dekk Partner loyalty scheme is it ensures all the benefits of a franchise operation with none of the perceived disadvantages. However due to the fact that all members use Dekk Partner branded hoardings and receive a handbook suggesting branch layout and marketing ideas, perhaps its better to refer to the retail group as a franchise without the franchise.
Either way, Kristiansen is keen to emphasise the considerate side of his organisation’s brand of ultra-soft franchising: “If a member has bad results we can offer help and training, and also provide regular advice.” But there are sanctions for consistently bad performance. “If nothing improves then eventually they will be asked to leave the group,” said Kristiansen explaining the group’s ‘firm, but fair’ approach. “All dealers want to have the best bottom line,” he added.
Dekk Partner is certainly not the only retail chain operating in the Nordic markets. Manufacturer owned equity chains in the shape of Continental’s Dekkman and Nokian’s Vianor also hold significant portions of the wider market. Currently Dekkman owns 43 branches in Norway and one in Sweden, but there are rumours that the company is planning increase its presence here. This means that, despite the fact that Dekk Partner aims to provide a wide range of different brands, the products produced by competing manufacturers like Continental are absent from the group’s portfolio.