Monro Muffler Brake not stopping at 1,000 stores
The first Monro Muffler stood on Rochester's northeast side.
It was there in 1957 that businessman Charles August opened a Midas Muffler franchise. Nine years later, August — now deceased — broke from Midas and started a new company that offered a wide array of car repair work.
The 1,000th Monro Muffler is in Florida, one of 35 Tire Choice stores Monro bought there this month in its first toehold into the Sunshine State.
And in between, the Rochester-based car-care chain is becoming an increasingly common presence beneath the hoods of cars and light trucks across the eastern half of the United States.
Under such brands as Monro Muffler, Mr. Tire, Tire Warehouse, Autotire, Tread Quarters, and Ken Towery Tire & Auto Care, it now operates 1,005 stores in 24 states. It moved into Kentucky in 2012 with the purchase of one existing chain, and into Michigan this June when it bought 19 tire and auto service stores there.
And the chain has aggressive plans for yet more stores, as well as new markets, in coming years.
"East of the Mississippi are all markets we're looking at," Monro Muffler Brake Inc. CEO John Van Heel said in an interview.
The move into Florida "helped balance us — we have a lot of stores in the mid-Atlantic, the Northeast," he said. "I never say never about anything. But within the next five years, I wouldn't plan on us being west of the Mississippi. I'd plan on us having a lot more stores east of the Mississippi. More in Florida. Probably add Georgia. A lot more within the states we currently operate in. We have four stores in Illinois. We're not at all in the Chicago area. We have a presence in Indiana, but it's 30-some stores. Huge opportunities. Compare that to 150 in a state like New York (where) we're not even in the real downstate markets. We've got such a huge amount of opportunity in our existing states, 'I don't need to think, 'Let's be in California.' "
Expansion through buying out competitors has long been a big strategy of Monro. Over the past decade, it has purchased more than 400 tire car-care stores across the eastern half of the country. And it represents a huge part of Monro's growth plans.
As the number of Monro-run locations grows, so too is the number of cars and light trucks on American roads. According to auto industry research firm IHS Automotive, there are roughly 253 million cars and light trucks on U.S. roads today — up about 1.5 percent from a year ago. Meanwhile, the number of places offering general automotive repairs has been slowly shrinking as fewer gas stations also offer repair services and as car manufacturers such as General Motors and Chrysler forced many dealerships to close.
All of that adds up to good times ahead for Monro, said Van Heel.
"Our business is all about maintaining and repairing cars," he said. "The more you drive it, the more you need brakes, the more you need tires, the more you need oil, and those are the main pieces of our business. After a couple years of being stagnant, the number of vehicles in operation in the U.S. is starting to tick up. You have more cars out there. You have slightly fewer bays. Some of those industry trends are in our favor."
At the same time, Monro's recent financial results have been decidedly mixed. While revenues have been steadily rising — $732 million in fiscal year 2013, $831.4 million in fiscal year 2014, with expectations they'll top $900 million this fiscal year — and the company has been profitable every quarter for the last five-plus years, fiscal 2013 saw earnings down. Same-store sales for the first quarter of fiscal 2015 were up 1 percent, an amount Van Heel said, "we are not satisfied with." And comparable store sales have been a trouble spot for a couple of years. They were down slightly in fiscal 2014, an improvement from the 7 percent decline in fiscal 2013.
However, tough times for the car-care industry help in Monro's aim to grow bigger, Van Heel said.
"Our numbers may suffer but we grow even faster through acquisitions because the smaller guys will be pressured even more," he said. "More of them incrementally are going to say, 'Heck with it, I'm going to go to Florida.' We had a tough year in fiscal 2013, we had a record year for acquisitions. Those stores and areas we added to the company will continue to pay off long after we get a tough year for the industry behind us. People need their cars. That's just the way it is."
The trouble is consumers continue to pinch their pennies particularly hard, putting off repair work, Van Heel said.
"One of the biggest challenges we have right now, people are very pressured," he said. "There's a higher level of deferred work out there now than there has been in other years."
But in a note to investors, Northcoast Research warned that Monro might be facing bigger trend woes. "As cars age, consumer spending in the automotive aftermarket shifts away from the services that Monro specializes in and toward medium and heavy repair work," wrote Senior Vice President Nick Mitchell, adding that through 2017 the number of cars that are 13 or more years old will increase by more than 25 percent.
Van Heel discussed Wall Street pressures; differentiating an oil change from one offered by competitors; and what a future of hybrid, electric and fuel cell cars means in an interview. Here are edited remarks:
On Wall Street pressures:
I think investors understand our global plan: continue to run a good core set of stores and take advantage of some of the industry dynamics at work. We're a need, not a want. You don't want to go get your brakes done. You have to keep your car maintained. That's where I have confidence the business is going to be there. You can get temporary periods — and extended periods like now —where consumers really pull back. Sometime soon I think we'll get some help. People are still driving almost 12,000 miles a year per capita. Were going to have the same number of cars out there or slightly more. This company has an opportunity to continue to add stores, add geographies. It's a good, lower-risk strategy.
On differentiating from the competition:
It's not all pricing. You've seen us have and maintain a promotional price on oil changes, that's to bring people in. But our guys, we focus on trust. You go buy a quarter of oil off a shelf, that's truly a commodity. The piece that makes service not commodity is just that, service. It's how well do we treat you. It's how well do we inform you about your car. It's how convenient are we. We operate all our stores, so we have a great ability to make that service more consistent.
On the "lower trust" world of car repair:
We're a high service, lower trust business. There are enough guys out there who over the years have given that business a tough reputation. So we focus on recurring services where we can develop a good relationship and help a consumer manage the second most costly they thing they probably have, after their house or wherever they live. I don't want to try to sell you everything under the sun. We fire guys if we feel like they have that approach at all. The way we compensate guys is typically 80 percent salary and 20 percent customer service and store profitability, not sales. You don't want to give guys incentives to do the wrong thing. If you go that way, it's not a long-term way to build a business. That person has probably two other cars, there are more three-car families right now than two-car families. Why would you give away the work on other vehicles? When you do a great job for that customer, you want them to bring you all their vehicles. Our message to the guys is you shouldn't stretch for the sale today, you need to keep that customer. You can't oversell. We will fire you for overselling, absolutely. We need to keep attracting new customers and hold on to as many existing customers as we can. We don't get it right every time, no doubt about it. But I'm pretty happy about how we execute that. I'm pleased with the culture we have.
On hiring:
It's obviously a high priority. We're interested in guys who want a career, who want to develop and be with the company for a long period. We do things like full benefits package, we reward our top guys with stock option awards that allow them to share in the success of the company. That holds you with the company, which is what I want to do.
On the changing face of what's under the hood:
Even plug-in hybrids have combustion engines; they have tires, they have brakes. (Forty-four) percent of our revenues are from tires. Another 20 are from brakes. So there's an awful lot within the business that's unaffected. An electric vehicle doesn't have a combustion engine so you don't do oil changes. Oil changes are 10 percent of our business. Think of being the local quick lube — it's probably 85 percent of his business. Those guys are trying to test doing other things because as they look out, this oil change thing might be one of the things that might be at risk. The number of alternative drive-train vehicles outside of hybrids is really small. If you look at electric vehicle sales, they're going to be small as far out as 2020. We'll see what the opportunities are. It's not really a tomorrow thing. It's not even a next-day thing. But it's coming. There will be opportunities that come out of that, not all of them yet defined.
On working on cars:
I'm not a gearhead. I don't let myself near the cars we're repairing. The closest I get is saying 'Hi' to the guy qualified to work on them. We've got guys that know everything there is to know. I understand the industry. I'm not a weekend gearhead guy currently rebuilding a transmission of a '68 Mustang in my garage. I spend time with my family, my kids. Play basketball. Play a little golf. Simple. It's boring. It's good.
By the numbers
1,005 Number of Monro Muffler Brake Inc. stores around the nation as of Monday.
6,433 Number of Monro Muffler Brake Inc. employees, including close to 200 at its Rochester headquarters.
44 Percentage of the chain's sales that comes from tires
4 Percentage of Monro Muffler sales that comes today from exhaust work
11.4 years. Average age of cars and light trucks on U.S. roads, according to IHS
MDANEMAN@DemocratandChronicle.com