The acceleration in the number of mergers and acquisitions (M&A) is putting pressure on paint jobbers to increase the coverage and depth of their training programs.
Consolidators in the collision repair industry and the growth of independent multi-shop operators (MSOs) are impacting the paint jobbers local customer base of previously independent body shops. At the same time, consolidators in the paint refinish distribution category itself also are pursuing their own stream of M&A transactions.
According to industry estimates, eight years ago there were some 9,500 paint jobbers in the U.S., and now that number amounts to about 5,400 outlets.
Some jobbers may be eager to leverage an acquisition offer as an exit strategy, of course. Yet if that prospect is not what you desire, effective efforts to resist the impacts of consolidation in either the body shop or jobber segment can be augmented through an atmosphere of cooperation and education that assists in strengthening the operations, financial outcomes and balance sheets of the independent jobber.
“The jobbers have to figure out how to help the independent collision repair shops to survive so they can survive,” says consultant David Luehr of Elite Body Shop Solutions, which additionally provides industry educational services through the Refinish Distributors Alliance (RDA).
“Distributors need to find ways to add value besides delivering a can of paint,” says Keith Bell, U.S. sales manager for AkzoNobel and chairman of the Auto Care Association’s Paint, Body and Equipment Specialists (PBES) segment.
“We offer them education for their own business, but we also ‘train the trainers’ so they can go back to the end-user” to impart technical and business management training for their body shop customers. “People are seeking this kind of consolidation knowledge because it may be coming to their trading area,” Bell points out.
“Consolidation is a problem for jobbers and a problem for independent body shops,” says Luehr. “For jobbers it’s horrible,” recounting a particular collision center’s purchase by an MSO that implemented its own paint supplying procedures. “It cost the jobber dearly” in lost sales.
“My company is a resource for jobbers to help them educate independent body shops,” Luehr explains. He is currently working on an RDA pilot program that will function like a 20 Group to implement jobber-produced sessions for their collision repairer customers feeling threatened by the MSO onslaught.
“This is not a pity party – this is high performance,” he asserts. “The independents can say, ‘We can compete with this; maybe we don’t have to sell out.’ The jobbers would be using the program to facilitate meetings with the body shops.”
Luehr and his staff are like “coaches and personal trainers” for shops, providing technological repair process efficiencies along with business leadership instruction for management. “The jobbers are out in the shops every day and they have a trusted relationship with their partners, and they’ll say, ‘Can you go in and talk to the shops?’” about the details of bettering their operations. “We can improve their performance so they can compete with the consolidators.”
Following its founding in 2008, RDA rolled out a line of materials and educational programs under the IMPACT Performance Products proprietary label.
Accelerated consolidation
“The consolidation factor is not going away,” says Paul Fiori, the Auto Care Association’s industry liaison to PBES. “There are profits to be made in this business,” which is why private equity investors continue to venture into the collision repair marketplace.
“We haven’t seen a decline in membership,” Fiori says, “but we’ve had to reconfigure membership on the committee” because of M&A-induced business shifts.
Why is consolidation accelerating? “There are multiple buyers, many willing sellers, cheap capital and attractive prices,” according to Focus Investment Banking’s David Roberts, an advisor to collision repair MSOs and paint jobbers. He is also author of a proprietary refinish distribution business report that has been brought to the industry’s attention by John Huetter at the Society of Collision Repair Specialists (SCRS). The Focus automotive division tracks most of the larger jobbers in the industry as well as many midsize and smaller ones in a comprehensive database. A frequent speaker at industry events and 20 Groups, Roberts has sold three mid-size jobbers in the past nine months and expects to represent another six to eight operations this year as the market continues to heat up.
Estimating the top 2015 jobber consolidators as FinishMaster, LKQ, Single Source, NCS and WESCO, Roberts says that the “big refinish consolidators are getting bigger,” and that over the upcoming two or three years you can expect an “increasing acceleration” of their activities.
The parallel consolidation of jobber customers by large collision repair consolidators like Caliber Collision, Service King, Gerber and ABRA is dramatically impacting both the jobber customer base and the jobber margins at the same time.
But Roberts also observes that successful jobbers today are directing more attention to single-shop and dealer locations with an emphasis on “rapid communication and response as much as other value added expertise. Using their available purchase discounts and incentives from paint companies, jobbers can still realize healthy margins by focusing on that side of their businesses.”
Where a jobber’s previously independent shop customer may have been generating a 28 percent margin for the jobber, if that shop subsequently becomes part of a consolidator the margin can fall to 12 percent, “and you’re just stocking and delivering paint and providing very little extra services,” he says. An even worse scenario unfolds when the acquiring consolidator switches paint suppliers. “Then you’ve lost all those margins because you’ve lost that client – and that’s pretty devastating,” says Roberts.
Roberts goes on to explain that “gross margins vary by customer type with the highest margins generated by independent shops and dealers who have more need for the jobber’s value added services. With margins in an inexorable decline, jobbers have to deliver your services more efficiently or just deliver fewer services.
“As for the education that jobbers need, the short answer is outside help,” he continues. “It’s a bit late in the game to try to self-educate without outside help because things are moving so very quickly. Consolidation is running so fast that smaller jobbers who are just now trying to get up to speed are at a great disadvantage. But better late than never.”
Committing to industry best practices and working with consultants to help streamline your operations can be effective strategies along with networking among industry colleagues. “Jobbers who are feeling vulnerable need to share ideas – and resources – with other jobbers who are doing a better job. Pick one another’s brains, share your marketing strategies, best practices.” says Roberts.
Onus of responsibility
Aftermarket Business World columnist Brad Mewes observed in a June 2015 analysis that “as the industry continues to evolve, changes on the supplier side are adding increasing pressures. Many paint manufacturers are aware that paint is becoming much more commoditized than in the past and price is playing an increasingly significant role in negotiating large nationwide purchase agreements.
“In an attempt to compete on price, many manufacturers are cutting back on value added services they traditionally provided, such as new client acquisition support, installation support, back office credit and accounting functions, and ongoing technical support,” says Mewes, managing partner at the Supplement! consultancy. “Whereas only a few years ago many jobbers and collision repair facilities leaned on manufacturers to provide such support, now the onus of responsibility rests on the jobber to provide such support.”
Fiori encourages jobbers to increase their involvement with PBES and take advantage of its helpful educational programs. Participation also allows you to “mix with people who go through what you do on a daily basis.”
The membership is comprised of business owners and executives representing jobbers, warehouse distributors, manufacturers, business services, program groups and manufacturers’ representatives. Available resources include a Leadership Committee that meets twice a year, an annual conference for networking with industry peers outside of the usual industry meetings and free webinars on a variety of topics.
It is important “to get over the difficulty of leaving your business for a day or two” while attending the various sessions. It is likely that your paint supplier would be willing to provide some assistance – and motivation – to help you overcome the being-away-from-the-business issue, Fiori advises.
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