Blackcircles Prepares for Volume Growth through Tesco Partnership

Following a gestation period of some five years, a new retail venture entered the UK tyre market in January 2011. Blackcircles.com has announced the launch of Tesco-Tyres.com in partnership with Britain’s leading retailer, a venture that offers access to Tesco’s massive nationwide customer base – including its 13 million Clubcard holders. Speaking with Tyres & Accessories, Blackcircles.com founder and managing director Mike Welch reflects on what the realisation of this long-held goal means for his company and what the future for Blackcircles may look like.

“It’s a big deal for us,” he shares. “Over the past decade we’ve gained good web exposure, and now with Tesco we’re establishing ourselves as a major retailer.” Indeed, in 2011 Blackcircles.com finds itself in a good position to achieve this, having developed a nationwide network of some 1,200 fitting outlets over the past few years. In this capacity Blackcircles works with local independent garages, and today 1,000 outlets in its networks are franchisees. Furthermore, Welch has built up a “first class” team that today is still growing. “We are bringing in four new people at director level and they will transform the business – we should be turning aces by the end of the year. What differentiates us from other online retailers is that we’re geared for partnerships like Tesco. We’re equipped for this deal.”

To promote Tesco-Tyres a total of 30 million individual pieces of communication will be sent to the Tesco customer base over the coming 18 months. Those who order tyres through the new website or over the phone will deal with an operation fundamentally the same as Blackcircles. Welch explains that a slightly smaller range will be offered through Tesco with an emphasis on supporting brands – the three brands initially showcased on the Tesco-Tyres.com website are Pirelli, Yokohama and Hankook. Yet one significant point of difference exists between Tesco-Tyres and other online tyre retailers, and Mike Welch is confident it will prove invaluable to the new venture.

Adding Incentive

“We have a unique proposition with the Tesco Clubcard,” the Blackcircles founder elaborates. “Club cards that reward loyalty are unique in retailing. Now Tesco customers can be rewarded through Tesco-Tyres.com – this is something that will differentiate us from discount operators. No other real propositions out there have equal power when it comes to adding value.” Welch believes Tesco-Tyres together with the Clubcard will not only be a key selling point for customers; suppliers will also be quick to see the value of the incentive offered here and a “fairly big conversion” is anticipated.

Tesco-Tyres is not Blackcircles’ first retail partnership; the company has successfully worked with partners such as Unipart and the RAC, albeit on a far smaller scale. “Our retail partnerships have been fairly good but nothing to this extent,” notes Welch. “Three years ago the Tesco deal may have been too early for the market, it is being launched at a time when we have the required maturity in supply chain and brand credibility.”

This maturity and brand credibility is needed. One pound in every six spent in UK retail is spent in Tesco, thus the growth potential the Tesco-Tyres venture offers is huge. Aided by Tesco-Tyres, Blackcircles.com estimates company turnover will increase 66.7 per cent to ₤30 million in 2011. Not a bad achievement for a firm that started life in 2001 as a one-man operation, and Welch is quick to share credit to those who have helped Blackcircles come so far. “When we launched in 2001 as an unknown business it was difficult to gain traction in terms of acceptance and credibility,” he explains. “In the early days it was difficult but we were supported by a few key manufacturers and suppliers – support we intend to repay in buckets. Now the Tesco deal has reached the stage it has we will repay in volume and brand penetration.”

What sort of volume does Blackcircles anticipate generating through Tesco-Tyres? Welch says his company would be happy if the venture brought about a 30 to 50 per cent volume increase in the first 12 to 18 months, however he admits that “everything hinges on the promotion of Tesco-Tyres and the frequency of promotion.” Blackcircles has at any rate reinforced its supply chain and sales team structure to accommodate all eventualities: “We have prepared our service and sales networks for a 500 per cent increase in terms of capacity,” the managing director explains.

The Tesco-Tyres operation launched in January remains a work in progress and the Peebles based tyre firm is already discussing further options with the retail giant. “There are other propositions that we can possibly work together on in the next 12 months or so,” Welch comments. “We have a team of guys that spend a lot of time down south at Tesco. We have fantastic relations with the Tesco team, we’re very integrated.” All current plans focus on the UK market, Welch adds; overseas expansion is viewed as an opportunity for the future.

Blackcircles.com to Develop in Tandem

Working with a company as large as Tesco carries the risk that your own identity may become overshadowed. Welch is aware of this and intends to ensure the Blackcircles.com name remains a strong presence in UK tyre retailing: “We would be less comfortable if our total affinity deals (Tesco, RAC, Unipart) exceeded 50 per cent of our total turnover. Blackcircles.com remains our core proposition. Tesco is admittedly more an integrated partnership than those we’ve had to-date, therefore our challenge is to grow our core business in tandem with Tesco-Tyres. The two cater for slightly different markets.”

So in which direction does Mike Welch see Blackcircles.com developing? “We will start to see Blackcircles move into other products and services,” he shares. “I see Blackcircles as a ‘motoring for less’ proposition. We have just launched a servicing proposition across 400 sites in partnership with Unipart, who provide the parts. Through this Blackcircles can offer service at up to 60 per cent less than its competition. We will end up with a nice, compact offer for customers. We will incentivise customers, just as customers are incentivised through the Tesco model. Customers will be able to choose between a Clubcard or Blackcircles incentive, depending on their own preferences. In the next eight to 12 months you will see Blackcircles being more heavily promoted.”

One thing Blackcircles will not become, either on its own or through its affiliated partnerships, is a tyre discounter. “I’ve worked across the industry and believe the single biggest issue it faces is reckless discounting, producing a situation where there is no price floor,” says Welch. “Our emphasis is everyday low prices. Over the last nine years we’ve proven to the market that we’re not here to crash prices and are instead here to develop brands and work in partnerships. During the recent financial crisis we took a hard line against discounting.”

This approach has paid off for Blackcircles, the managing director reports: “Over the last two years customers have been spending their pounds more wisely, and we have been recipients of that shift. We have offered low but respectable prices and realised an annual growth of 25 to 30 per cent.” The key factor behind this growth has been customer referrals, and Blackcircles boasts a monthly referral rate of 30 per cent along with a 98 per cent satisfaction rating. Yet complacency has no place in business and Welch is well aware that during the coming three years – a time in which the company will see a significant growth in volume – Blackcircles must pay particular attention to industry peaks and troughs.

Another Alternative for the Market

The significance of the Tesco deal is, Welch believes, that it gives the market another horse to back: “The UK market contains two or three volume retailers and the rest is spread over a large number of smaller operators. In the past it has been the fast-fit guys for volume, and now we’re giving the market an alternative. We can work on a smaller budget than our competitors and with greater volume comes leverage; with this volume we can develop better practices.”

All in all, Welch believes Blackcircles to be “at a fantastic place” in its evolution. “We’ve grown from nothing and today have a good structure, we’re making money and have opportunities on the table. The business has steadily grown mainly through affinity and partnerships. We have no debt and are building a business that is sustainable. I have a team of excellent, first class people and I love what I do – this makes all the difference. As time goes by developing Blackcircles is becoming even more enjoyable.”