-- TIRE VALET: A MOBILE TIRE COMPANY Any part of the day during the week you may see a white box truck. in the high income neighborhoods of the Boston suburbs working on a resident's automobile, SUV, or truck. The driver of the truck who is also an auto mechanic may be changing the tires on a vehicle or performing some mechanical service. Inside the truck you can find machinery to change, balance, and repair tires, or tools and parts to repair brakes, change oil, or perform other basic repair functions. After about an hour and a half, the owner of the vehi- cle may be seen paying the driver with a credit card Or check the $600 plus it cost to replace four new tires on her or his SUV. This service was performed right in her driveway or his and saved her or him a of few hours precious time that it would have taken to drive to a tire service facility and then to wait to have the four new tires installed. The customer in this instance appreciates Source: This case study was prepared by Michael P. Peters with the intention of providing a basis for class discussion. rool 558 PART 6 CASES the fact that the cost of this service will be slightly higher than what a retailer would charge but is well worth it given the time saved and convenience of having this service performed right in her or his driveway, even during cold weather months. The company. Tire Valet-A Tire Changing Service, is based in Waltham, Massachusetts (a Boston suburb), and is a recent start-up launched last spring. The owner of this start-up is Jack Welch and according to his research his is the only company performing this ser- vice in the Boston area. He discovered that there were many mobile tire service companies in other states, par- ticularly in warmer climates, but none based in the Northeast. Welch's inspiration for this start-up occurred after two events: the first was having a damaged wind- shield replaced in his driveway in January and the sec- ond was when he had four new tires installed on his SUV for which he had to wait more than two hours. His frustration at having to wait so long for the tire installa- tion perhaps inspired his realization that if windshields could be replaced any time of the year, the same could be said for changing tires at a customer's home or where they worked. He also found that many small mobile tire companies in Florida and California were beginning to sell franchises of their operations. This indicated to him that these companies were experiencing enough growth to warrant the decision to franchise their operations. agent for this company so he decided in 2001 to leave his job and become an antiques dealer. At first, he bought space at antiques flea markets, also continuing to collect and buy wherever he found an opportunity. Estate sales, auctions, and flea markets were his best sources of finding quality antiques. His specialty was carpets and furniture, which took up too much space in his converted garage and basement, so he eventually opened his own retail store in an upscale Boston suburb His success with the one shop eventually led him to open a second antiques store in another community. After eight successful years of business and significant changes in his personal life with the birth of two chil dren, Jack became tired of the constant traveling to auc tions, sales, and shows and thus decided to sell his business. This was about the time that he realized that there might be an opportunity to start a mobile tire changing company. Welch decided to launch his version of a mobile tire company during the spring. He started with one truck that was purchased used from a large truck rental com- pany. He also found machinery for changing, repairing, and balancing tires from a GMC dealership that was closing down. He was thus able to buy the truck and then outfit the truck with all the necessary equipment for less than $40,000. Convenience and time savings at a reasonable cost would be the central selling points for In January, Welch started testing the idea, driving around to office buildings, walking in to companies at random, and offering to do tire changes for the employ- ees who worked there. He'd remove a customer's wheels, throw them into his SUV, take them to a nearby. service station to have the tires replaced, and bring them back. "I tested the market demand that way for two months before I decided to buy the truck," he explains. It was at this time he noted that there were other compa- nies like this in other parts of the country but none in the Northeast. He also wondered why none of the major national auto-service chains such as Goodyear, National Tire and Battery, and Sears had attempted to enter this market. He thought that perhaps the major resistance was because of the climate in the Northeast. Most of the existing firms providing this service were located in warmer climates such as Florida, Arizona, and California. As mentioned, he reflected that many of them were also beginning to sell franchises, which indi cated to him that the opportunities were great. He fel that if the glass replacement companies could provide their services year round despite the cold climate, why not mobile tire changing? the Tire Valet. Welch's is a classic example of an entrepreneur's having been successful as well as a failure in previous entrepreneurial endeavors. As a high school student, he had sold T-shirts and had his own landscaping company with two other friends. His landscaping business was Welch's marketing pitch is simple and focuses on very successful in his sophomore and junior years of the fact that most people are busy and do not enjoy high school but during his senior year his friends spending precious time at a tire store waiting around became more involved in other activities and lost inter- for the service to be performed. His initial marketing est in the business forcing him to end the endeavor. communications strategy was to print fliers that After graduating from college in 1995, he started col- stressed the time saving and convenience of his ser lecting antiques while working for an industrial clean- vice. He would come to your home or where you ing products company. He found that antiques were worked and would perform the service. The fliers were much more interesting than his job as a purchasing left in coffee shops and anywhere else that Welch could persuade to display his fliers. He recently devel- too, which would enable the company to charge oped a Web site with the assistance of one of his col- another $400 or so. Welch claims that each job he does ad (1/8 of a page in size). He was willing to make cold significantly by offering the same customer more than calls and even visit local companies during his free just tire service. time. At this time, he has utilized no other marketing strategy but plans on budgeting more money for pro- motion in the future. Most customers aren't particular about the brand of tires that he supplies; Welch buys tires for each job from a local distributor. Most people just want tires that are reliable but there are occasions where a cus- tomer specifies a brand of tire which Welch can satisfy by a special order from his distributor. The average invoice for service on passenger cars and SUVs for the tires and labor has been about $600 (this reflects an average service call, which may include 1-4 tires). He has been averaging about six service calls per week in the first two months of operation. However, he proj- ects that he will average about 10 service calls per week in month three of operation. Eventually, Welch says, he may offer brake pad and rotor replacement, Percent with children under 18 EXHIBIT 1 Demographic Profile of Present Market Demographics Waltham Population 59,226 Households 23,207 20.3 41.3 Percent with married couples Percent with single parent Percent nonfamily Median income-households Median income-family Registered vehicles per capita is 0.56 Registered vehicles- Massachusetts Private and commercial Registered trucks, Massachusetts Private and commercial CASE 17 TIRE VALET: A MOBILE TIRE COMPANY 559 Includes taxis 8.9 46.3 $60,434 $79,877 33,100 marketing to this point but he realizes that he needs to Welch estimates that he has spent about $10,000 on other more effective strategies to grow the business. refine his marketing strategy as well as come up with He has considered offering discounts or a one-time payment to customers who would provide him with referrals. However, he is not sure how this would be accepted. It is important to consider a more structured strategy at this point if he wants to grow his business. His goal is to add trucks and continue to expand his geographic coverage of his market. Right now he focuses on three communities (households and busi- nesses): Waltham, Wellesley, and Framingham (see Exhibit 1 for demographics of these communities). His office right now is in his home but he sees the need to find office space by the beginning of the second quarter. Wellesley 26,613 8,594 39.9 67.2 7.1 23.9 $125.814 $155.539 14,900 Framingham 66,910 26,153 29.1 50.0 10.2 36.6 $54,288 $67,420 37,400 Total State 6.4 million 2.44 million $50,502 3.58 million 3.6 million 1.8 million 560 PART 6 CASES Salaries Insurance Utilities Rent Travel costs EXHIBIT 2 Sales Projections for Year 1: Number of Customers per Month Month 1 2 of Customers 5 7 Second trick added for $40,000 investment Taxes Misc. EXHIBIT 3 Financial Projections for Next 12 Months QUARTER SALES REVENUE COGS (40%) GROSS PROFIT Advertising Office Supplies Legal Fees Maintenance Depreciation TOTAL EXPENSES NET PROFIT BEFORE TAXES TAXES (30%) NET PROFIT 3 4 10 13 Q1 $52,000 20,800 31,200 00 4,500 1,000 5 6 17 21 00 1,200 10,000 500 10,000 1,000 2,600 00 1,500 32,300 (1,100) 000 (1,100) Q2 $120,400 48,160 72,240 OPERATING EXPENSES 26,400 5,500 3,000 4,500 1,600 3,000 1,200 1,000 1,000 2.600 2,600 1,500 $3,900 18,340 5,500 12,838 7 8 25 Exhibit 2 presents the sales projections for year 1. Welch feels that in the first month he will average about one customer per day. The average invoice per customer has been about $600. In the second month and subse- quent months, he has projected increases in the number of customers. In the eighth month, he expects to add a second truck with a similar cost of $40,000. In the first three months, Welch will perform the entire tire chang- ing services himself but he is planning on hiring a driver/mechanic at the beginning of the fourth month at Q3 $205,200 82,080 123,120 Second truck and part-time driver added "Add full-time driver at $20/ht, secretary at $2,400mo, and Welch begins drawing a salary of $3,200/m 30 33 37 31,200 9,000 3,500 4,500 2,200 3,000 1,500 5,000 1,600 5,200 3,100 1,500 71.300 51,820 15,560 36,260 9 10 11 12 42 48 Q4 $300,000 120,000 180,000 36,000 9,000 3,500 4,500 2,800 3,500 1,700 1,000 2,000 5,600 3,600 1,500 74,700 105,300 31,590 73,710 Total $677,600 271,040 406,560 93,600 28,000 11,000 13,500 7,800 19,500 3,900 17,000 5,600 16,000 9,300 6,000 232,200 174,360 52,650 121,710 a salary of $20/hour. He also will hire a secretary at the same time so that he can focus more of his time on mat keting and strategies for future growth. Welch also feels he could draw a salary beginning the fourth month given the revenue that he has been able to generate so far. Exhibit 3 illustrates the projected revenues and Given his prediction of success in the next 12 months. expenses for the operation over the next 12 months. Welch feels that he will need to seek investment monies to continue to grow the company. He will also need to CASE 17 TIRE VALET: A MOBILE TIRE COMPANY 561 EXHIBIT 4 Pricing and Cost Information. Labor $60/hr (minimum charge is one hour). Tire prices for passenger cars at wholesale range from $45 to $150 for BF Goodrich, Cooper, or Falken tires to over $350 for certain truck tires. Large SUV tires ranged from $120 to $200 per tire depending on the brand. Bridgestone, Firestone, and Michelin tires were about 10 to 20 percent higher in price. An average price for tires for a passenger car was about $75 to $80 per tire. Markup typically for these tires was to double the wholesale price to cover overhead and profit. Truck drivers and mechanics earned about $18 to $20/hour for an 8-hour day or 40-hour week. (See Exhibit 3 for more financial projections.) prepare a more comprehensive business plan to submit to potential investors. Exhibit 4 presents some of the costs of tires as well as the labor rate that he will charge his customers with a minimum of one hour of labor for every job. In addition to needing assistance with the preparation of a business plan. Welch also needs to address some of the following issues: Is there a growing need for this ser- vice? What conditions in the economy and market would support growth for this service? Who are his major com- petitors? What would be their major strengths and weaknesses? What changes in the environment could negatively affect any future opportunities for this ven- ture? What should be the target market for this venture? Are there other specific markets besides people at work or at home that might need this service? What additional information do you think you would need in order to complete a quality business plan? How. can he grow his business? Is this a business that he should think about franchising? Why or why not? Do you think that it is possible to add other services to the tire service? Why or why not? This case can be found on page 557 of your textbook Is there a growing need for this service? What conditions in the economy would support growth of this service? Who are the major competitors? What should be the target market for this service? 1. 2. 3. (Ctrl)-