Rising gas prices are prompting tire distributors to rethink pricing and service models

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In late March, the US government reported that the national average gasoline price reached $4.23 per gallon, an increase of $1.38 or 48% per gallon from a year ago. The on-road diesel fuel situation is worse, having increased by 64% in the last 365 days. For tire distributors, these increased costs are painful and are forcing many distributors to rethink everything from tire pricing to service models.

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Recently, for some distributors, monthly fuel costs have rivaled rent in some locations. This shows how significant the annual increases in gasoline and diesel prices have been. But retailers are facing rising costs across all categories. People, warehouse racks, vehicles and equipment all cost more year after year.

Tire prices are also up sharply from a year ago as all tire manufacturers have implemented and continue to announce price increases on their products to reflect rising raw material costs. and other inputs. A number of manufacturers, including Michelin, Bridgestone, Continental, Yokohama and Hankook, have all announced price increases already in 2022. On average, tire prices are up 25% to 30% year-on-year . However, while tire distributors are mostly successful in passing these increases on to their dealer customers (and dealers through to consumers), these increases do next to nothing to help cover increases in other aspects of their business. , such as fuel and others previously mentioned. As a result, distributors have had to find new and innovative ways to cope with these rising costs, while some have resorted to proven methods. I have spoken to a number of these WD’s. Then, I summarize what I have learned while offering some personal reflections.

Historically, fuel surcharges have been a favorite of the wholesale distribution community in response to rising gasoline and diesel prices. However, these additional charges are viewed with increasing disfavor by a large majority of independent tire dealers. Given an ultra-competitive wholesale tire environment, it’s not uncommon to find three to five WD browser tabs open on the workstation of a service advisor or store manager at any dealer anywhere in the country at any time. Most WDs don’t want to be the first to do anything that will push a customer towards a competitor. As a result, most WDs, until now, hate to apply surcharges in response to these skyrocketing fuel cost increases.

As an example, Ricky Benton II of Black’s Tire in Whiteville, North Carolina told me, “There’s a huge need right now to add fuel and delivery surcharges to be sustainable with the current cost structure. Currently, Black’s Tire and BTS Tire & Wheel Distributors do not have a supplement in place, but the need is definitely there. Ricky’s sentiments matched those of most WDs I spoke with, who are reluctant to make significant changes to their policies or delivery programs for fear of creating a competitive disadvantage. I think these distributors are thinking about things the right way. Not only do surcharges generally annoy customers, they do nothing to increase the retail price of a tire. Thus, their impact simply moves money from one pocket of the value chain to another; The WDs win at the expense of the dealers. This type of charge transfer is not sustainable. So what do or should WD do instead?

Orlando Delgado and the team at Tire Group International, a major Florida-based distributor, have taken the lead in installing fuel tanks on their property that their drivers use to fill their own delivery vehicles. According to Delgado, TGI has not only saved on the cost of acquiring fuel (compared to retail), but its drivers are saving time by no longer queuing at gas stations. “We’ve found this strategy to be even more cost-effective than having tankers come to your facility after hours to refuel your trucks,” Delgado said. Many other distributors I’ve spoken to are also cutting unnecessary and unprofitable services while doing whatever they can to cut the fat they can find in their own businesses. Ricky Benton II told me, “The BTS team is working on efficiencies and best practices for freight consolidation and route optimization.” In the process, Black’s reduced service that was not generating sufficient returns while combining other routes for greater efficiency. In addition, they offer attractive discounts for voluntary calls to reduce the length of journeys. Many WDs similarly combine loads and look for opportunities to serve the same number of customers with fewer vehicles and/or driving fewer miles.

More than a few have done or are considering investing in route optimization software. At TGI, their operations team incorporates driver feedback into their optimization routines, which further impacts fuel consumption. By finding ways to make their operations more efficient and profitable, these companies help offset the higher cost of fuel, knowing they cannot price it or otherwise collect it as a surcharge. Many were quick in the era of $4 gas to increase minimum delivery/freight order sizes to reduce the number of deliveries. Some ask drivers to stop vehicles at red lights and in traffic jams. Others are working to reduce inventory carrying costs to offset rising fuel bills. Still others are studying more fuel-efficient vehicles, even weighing trade-offs between size and fuel efficiency. But one thing few talk about is electric.

Unanimously, the WDs I spoke with don’t see electric as a realistic option for their business. The current lack of range offered by these trucks, coupled with the relatively non-existent charging infrastructure in the market, disqualifies electricity as a viable consideration. “The projected single charge mileage for the first generation of electric ‘last mile delivery trucks’ is just over 100 miles. Our local delivery vehicles average nearly 200 miles per day and our long-distance trucks more than 400 miles per day,” said Tom Geiger, Jr., head of Capital Tire, a 103-year-old distributor based in Toledo, Ohio. . But for Capital Tire, solving the fuel dilemma isn’t about making electric trucks or “doing something fancy,” as Tom put it. It is a question of being attentive to its collaborators and its customers.

The best of these distributors, like Black’s, Capital and TGI, seek ideas from those closest to the customer and closest to the job. If the people working on your business problems are furthest from them, you’re missing out on the best ideas for solving them. No one will know more about how to fix what’s wrong with your business than the people who actually do the work and touch your customers every day. So to solve a problem like high fuel cost, just ask them.

As of this writing, the fuel continues to rise. From my point of view, it does not matter who is responsible for these increases; it is mostly obvious. But that doesn’t matter much to a business owner struggling to achieve profitability in one of the harshest climates to have done so in 40 years. Instead, it is essential that manufacturers, distributors and dealers seek every opportunity to increase the total collectible value of each tyre, ensuring that the profitability of each stage of the distribution chain is maximized. . It happens when each party involved provides products and services that others want and are willing to pay a premium for them. For distributors, that means better fill rates, more and faster deliveries, and friendlier, more knowledgeable people. Reducing any of these things in response to higher fuel costs will only mean more business for your competitors. So, at the end of the day, the best way to deal with rising fuel costs is to simply be better than everyone else. Easy to say. More difficult to do.

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