Midas CEO Says Tires Bring Customers

In a conference call to investors last week, Midas says that tires is what has brought its customers to the dance.

"70% of people will get their service done from the place they buy their tires. And we have seen with our tire customers a propensity for them to come back more for subsequent service occasions. So we think the more tire business we can get, the better off we'll be." Alan Feldman, CEO of Midas

Midas and its CEO should receive kudos for identifying that the tire business is the important driver for the auto service industry — 70% of subsequent auto services worth. Some might still remember Midas as the muffler guys.

But running a viable franchise chain is about not just talking the talk but also how well one can walk the walk. In other words, is there operational and marketing alignment on the company's key strategies? This is where the pedal hits the metal. To bring it more down to earth, if tires are an important marketing driver, why aren't tires prominently featured in Midas' corporate website? (There's only a hyperlink on the word tire in the middle of a long list.) What about in the marketing materials? And what about the franchise level - the repair shops?

And if tires is what brought customers to the dance, then how do you retain these dancing customers with the franchises and not leaving with someone else? A certification system for customers could help accomplish this. Jerry Marks, an investment analyst of AutoRetailStocks.com suggests such a certification system for customers that could be good for Midas' franchisees:

This (Feldman's quote above) is a great example of a CEO focused on what is really important. I try my best to remind investors that returns are a byproduct of finding a need and filling it. Usually the reverse problem comes up. Retailers see an opportunity to generate "incremental profits" by adding some product line and end up confusing their customer base about what the real value proposition is that they deliver to the market. With tires on the other hand, if you just run the ROI (return on investment) analysis you might not come up with an attractive ROI conclusion. Although I think if done right, gross (not percentage) ROI dollars are pretty attractive with tires.

The bottom line is that if you focus simply on the byproduct (the return) you might end up missing the primary things that cause customers to come to the repair shops in the first place. David Cosper, Sonic's Vice Chairman has a catchy slogan on the company's earnings slides that says: "spend money where you make money." And for the most part I agree. Because usually where you generate the best return, is where the greatest need is being filled.

But please don't lose sight of the fact that the return is the byproduct from filling a need. And so if you simply focus on the individual (category) return without understanding the full customer relationship and need you are trying to fill, you (or the company you are invested in) could make some serious blunders.

So I think Mr. Feldman deserves considerable credit for trying to help his franchisees develop a relationship with the customer, instead of get lost in a byproduct metric (his quote was in response to the % profitability of tires).

And I still think they should develop a "Midas certified" vehicle programs for their franchisees. You might remember, the free inspection program idea I raised with Monro's results where repair shops begin offering free 30/60 point inspections on vehicles and therefore maybe "certifying" them as having been through the inspection process (for anyone interested in buying a used vehicle from an independent dealer or even online).

If they were to begin a program like this, Midas might really find their franchisees are getting the first look at any reconditioning work and also developing a relationship with the customer right from the get go (so they can send relevant service reminders versus the junk mail and inefficient mass promotions that go on in the industry today).