Ancillary garage services offer alternative income streams in tough times
After a double-dip recession in the UK last year and with widespread financial turmoil across Europe, no-one is denying that these are tough times for garages, autocentres and tyre specialists. And in tough times you need options. So this month we are taking a look at the role that non-tyre services play in the tyre business and asking what they offer garages. For the purposes of this feature we are lumping together everything that is not a tyre and calling it all “ancillary garage services”. Everything that’s not a tyre is probably a clearer definition, but this offers a clear category for all the products that aren’t our beloved round black circles.
Last year tyre retail volumes fell between two and three per cent, if you take a consensus of market views. This followed several years of decline following the outbreak of financial pandemonium that came to the fore in 2008 meaning annual tyre volumes in mature markets such as Europe in general and the UK in particular have been slowly deviating from their long term development trends and as a result fewer tyres are being sold each year. The effect this has had on tyre retailers has been magnified by the widely reported increase in part worn tyre sales, an issue that is especially influential in the UK. These tyres are generally sold by unidentifiable and unregulated operations, but the best estimates say part-worn sales are hovering around record levels. The latest government Used Tyre Working Group (UTWG) data, for example, estimates that UK part worn tyre market at 4.4 million units, approaching 15 per cent of the total replacement market.
At the same time declining fuel sales and similarly slowing mileage data tells of another factor pushing down tyre change frequency that can be seen to a greater or lesser extent across Europe. In February the Department for Transport released statistics demonstrating that road traffic was down in Britain during the fourth quarter of last year and for 2012 as a whole. Over the year, the volume of all motor vehicle traffic fell by 0.4 per cent to 302.6 billion vehicle miles. Cars accounted for 240.7 billion vehicle miles, which is 79.4 per cent of all motor vehicle traffic and broadly the same proportion as in recent years. But – coming after a long line of mileage declines – this decline is more significant than it looks. To put the numbers into perspective it has been over a decade since British vehicle miles were lower, totalling 236.9 billion vehicle miles in 2001. (See “Miles Driven” table for more on this)
Bringing all the talk of trends, statistics and lunar mileages back down to earth, Tyres & Accessories recently had the opportunity to hear first-hand what this means for tyre dealers themselves during a visit to a local depot for a routine service. While paying for some fitting and balancing work, the local dealer put a human face to all the figures and confirmed that demand has been falling each year and that even the saving grace of winter tyres that had helped in previous years didn’t provide salvation at the end of 2012. He also recounted how earlier that same day a customer came in with a broken exhaust and was reduced to tears when they pointed out that all four tyres on her car were illegal and therefore needed to be replaced. She had already borrowed money from family members for the exhaust repair she knew needed doing. As far as she was concerned there simply wasn’t any money for the tyres too, leaving the depot manager in a quandary about letting a customer with illegal tyres drive off the forecourt.
According to data collected by Micheldever Tyre Services, such stories are far from unique. The leading tyre wholesaler’s quarterly tread depth analysis shows that between March 2012 and March 2013 between 50 and 60 per cent of tyres taken off in depots were already below the 1.6 millimetre legal limit. A further 40 per cent were on or just above it and only around three per cent were above 2 millimetres. Flicking back to when the research began in June 2008 it is clear to see that that the situation has deteriorated markedly over the last four or five years. Back then only around 15 per cent of tyres brought into depots were already illegal. Now it is more than triple that. (See “Tread Depths” table for further details)
What we can see from both the anecdotal account and all the figures we have seen is that consumers continue to face significant budgetary pressures and that this has arguably led to de-segmentation (where consumers trade down from premium products to less expensive tyres, but that subject’s another article all by itself) and in the UK at least many others are choosing to buy part worn tyres as a substitute for new replacement tyres. However, as clear as these figures are and as moving as our story may be, we in the tyre industry still want to offer better products and services to customers in contrast with some of the market regression that can be observed and of course it is natural that tyre business want to maintain and increase sales and profitability.
A bigger pie means a bigger piece
While on the one hand our aforementioned sob story speaks volumes about economic pressure on purchases, it also highlights another point – the importance of capitalising on all the business opportunities available to depots. This is something that tyre specialists have traditionally been very good at, readily identifying new services that are complementary to their existing offering. And when you consider the size of the aftermarket in general, who can blame you for wanting to increase your piece of the pie?
While the European aftermarket has felt the effects of the financial crisis as much as any sector, there is no denying that it is a massive sector and therefore represents a potential opportunity. According to relatively recent third party research, the value of the European automotive aftermarket sector shrank to a value of around US$199 billion in full-year 2011 calculations. However the current forecasts suggest this could continue to shrink by another 3 per cent by 2016. The largest part of this (around 35 per cent) is occupied by the specialist crash repair sector. But the next largest chunk represents a crossover region for tyre fitters. Almost 20 per cent of total European automotive aftermarket revenues are generated via the replacement of so-called wear and tear parts such as brakes. The third largest sector is tyres, which occupy around 15 per cent of the total and one which the tyre business is already aware of. In the UK the shares occupied by crash work and wear and tear repairs are roughly 10 per cent higher each.
With this is mind, it is no surprise to learn of suggestions that the dividing line between what we might refer to as autocentres (garages specialising in all routine services) and fast-fits (tyre specialists also offering brakes, exhausts and batteries amongst other things) has blurred somewhat as the latter has taken on more ancillary services over the years. And with the UK leading the way in terms of the dominance of fast fits and with these businesses being more reliant on tyre sales than other comparable operations on the continent it is no surprise that these businesses are at the forefront of integrating additional services into their business models. The fact that they are also very strong in terms of fleet business makes the thought of offering additional servicing all the more appealing. In very broad brush strokes around two-thirds of UK fast-fit turnover is generated by tyre sales and somewhere around a third is generated by other wear and tear sales (such as exhaust batteries and brakes). Servicing accounts for just a few percentage points between the two, meaning there is great potential for increase on the non-tyre side of things.
To put this in perspective let’s compare this with the approach of a company moving in the opposite direction (from classic autocetre in the direction of doing additional tyre sales). According to its most recent investor’s presentation, Halfords Autocentres generates 40 per cent of its £111 million turnover from “other” repairs; 20 per cent from servicing, 18 per cent from brakes, 11 per cent from MOTs and 11 per from tyres. However there are two observations to add to this: firstly, autocentre tyre sales appear to be growing; and secondly the balance of work (and therefore risk/opportunity) is much more evenly spread at the autocentres.
Options, the old and the new
So what are the ancillary service options available to those wishing to broaden their horizons? The time-tested combination of tyres, exhausts, brakes and batteries has often been supplemented with MOT testing, which also naturally lends itself to related repair business. However recent changes to testing regulations have put some off embarking on this route. Instead of this (and in some cases as well at it) fast-fits and tyre specialists have reportedly taken to things like nitrogen inflation, menu servicing, air-conditioning recharges and SMART repairs. There are also opportunities to be had with tyre pressure monitoring technology TPMS (see last month’s feature for more on this).
The latest opportunity Tyres & Accessories has heard about is radio upgrades. Yes you read it right, radio upgrades. T&A has to give credit to NTDA director Richard Edy for bringing this one to our attention as the association is already researching opportunities for tyre dealership to provide the necessary upgrades to car stereos that will enable to receive digital broadcast signals once the conventional FM signal. Now that is an example of innovative diversification.