2002 Program Distribution Report

Jan. 1, 2020
The program groups have virtually eliminated the independents with their marketing prowess, which can only mean one thing.

As competitive pressure from all sides pushes program distribution groups, these volume-buying associations are staying in tune with the marketplace by adapting the latest technological innovations and introducing an increased array of member services. However, the segment remains likely to see additional consolidation as the aftermarket itself continues to compact.

Meanwhile, the jobbers and warehouse distributors who belong to these groups are being encouraged to keep providing superior service and advice in addition to cranking up the amount of readily available SKUs.

Also, many program group members can improve their competitive situation by simply taking better advantage of the programs being offered by their respective organizations. This advice comes amid an industry push to induce more program group participation in Automotive Aftermarket Industry Week (AAIW) in Las Vegas.

And independent jobbers — what few are still left in the marketplace — are being urged to get with a program quickly if they wish to survive.

“You need the signage and you need the bells and whistles to compete,” says Jack Creamer, president of Distribution Marketing Services in Phoenix, Ariz. and president emeritus of the Automotive Aftermarket Industry Association (AWDA).

“Most jobbers, even if they’re ‘independent,’ belong to some group,” observes Jim Osgood, owner of Osgood’s of Ossipee in New Hampshire. He is with the Aftermarket Auto Parts Alliance Inc., although in his rural region most of Osgood’s sales come through his affiliation with a John Deere program for agricultural equipment.

A friend of Osgood’s in the aftermarket belonged to the Big A, and that program seemed a good fit as Osgood pondered the available options. “We thought it would be a good combination of auto parts and John Deere equipment,” he explains.

All three of the jobber/retail stores under the wing of Auto Parts and Machine, Inc. in California make active use of the services provided by Parts Plus. “They’re our major WD,” reports Vickie Faust, assistant manager of the Long Beach location.

“They’re very good at providing technical advice when we need it,” she says, adding that providing superior customer service is her store’s primary goal. The seminars offered by Parts Plus are yet another plus, and Faust notes that several upper-level management personnel within the chain, including general manager Steve Villa, have made productive use of the executive training programs.

Seminars provided by CARQUEST have been especially beneficial for Prairie Grove Auto in Arkansas. Owner Larry Crawley notes that over the years he’s been associated with four program distribution groups, and adds that CARQUEST is by far the best answer for his jobber/retailer operation. Soon he’ll be attending a nationwide exposition sponsored by CARQUEST, and his wife is scheduled for additional training on the program’s sophisticated computer technology. “They’ve been very useful,” he says.

A rising tide

In conjunction with AAIW in Las Vegas (this year it’s Nov. 4-8), the Automotive Aftermarket Industry Association (AAIA), the Motor and Equipment Manufacturers Association (MEMA) and AWDA are combining their efforts in a new initiative designed to induce more participation by program group members. “Our hope is to get a broader cross-section” of the program channel to take part in assorted seminars currently in the planning stages, says Chris Bates, MEMA’s president and chief executive officer. “There are some training sessions (being proposed) that can be run for jobbers. Maybe this can take some cost out (of operating a jobber enterprise) and add additional value.”

The goal is “to pull the supply chain together” by offering new opportunities. Some program groups do hold annual meetings in Las Vegas during AAIW, but the AAIA, AWDA and MEMA desire a stronger presence for the channel. “A rising tide raises all boats,” says Bates. “Everyone’s looking for more bang for their buck, and this seems like a good way to do this.”

The initiative is particularly important, says Bates, as industry compaction continues to loom over this channel.

“I think the mergers and consolidations have subsided — versus five to ten years ago — but you’re still going to have acquisitions,” says Jim Eady, AWDA’s president. “You’re going to continue to see WDs have their own stores — that element of the jobber base will continue to get stronger.”

But increasing numbers of jobbers, especially those of the independent variety, are finding themselves out of work. Between 1990 and 2000 the number of jobber stores in the United States declined about 21 percent, according to Jim Lang, president of Lang Marketing Resources Inc. of Wyckoff, N.J. The research and consulting firm has recently published its Distribution Evolution report.

In 1981 there were just over 31,000 jobber enterprises. This year expect that number to dip to below 19,000, according to Lang.

“Even so, jobbers will remain significant players in both the retail and wholesale sectors of the aftermarket,” he reports, although their numbers could be down to 15,500 by 2005. 

“A number of factors are combining to grind down the number of jobber locations,” Lang explains. Intense aftermarket competition in both the retail and wholesale sectors has been the most significant factor leading to the jobber decline, he says. The emergence of e-commerce, particularly e-commerce procurement programs at the service outlet level, will “accelerate aftermarket evolution and increase the rate of jobber store decline.”

Geography is yet another element in this scenario. “The jobber store population west of the Mississippi has declined at a faster rate than the jobber population in eastern states, reflecting the dynamic growth of retail auto parts chains in western regions,” according to Lang.

“Recognizing the slowing growth of DIY (do-it-yourself) replacement parts volume, retail chains have turned their attention to professional installers, which have long comprised the core of jobber volume,” he notes.

For example, CSK Auto’s wholesale division, called CSK Proshop, “has grown at an unprecedented rate” of more than 25-percent per year since its inception in the mid-1990s, and now it makes up about 20 percent of the company’s total sales, says Chairman and Chief Executive Officer Maynard Jenkins.

AutoZone, Advance, O’Reilly and Pep Boys are among other large retailers taking a bite out of the traditional jobber marketplace.

Citing Pep Boys’ 6,500 service bays among 628 stores, company spokesman Bill Furtkevic points out that “we install what we sell, so nobody understands the installers’ needs as best as we do.” Each outlet has at least one counterperson specially trained to service the professional accounts, he adds.

“The decline in jobbers results from retailers and WDs adding delivery service, thus competing directly with jobbers,” according to Joerg Dittmer, a senior industry analyst with Frost & Sullivan in Ontario, Canada. “By taking one step out of the distribution process, efficiency is increased and lower prices can be offered.”

Running with the big dogs

“It’s clear that the major retail chains are after the installer business,” says a key industry expert. “They intend to compete against — and beat — that jobber in every way.”

This “blurring of the lines” will continue. Within five to ten years “this nation will be served by eight to ten major marketers selling to both installers and retail customers,” the source contends. “We’re in a survivor game, and we’re winnowing away the weak parts of the marketplace.”

The source observes also “the terminology tends to get fuzzy depending on who you’re talking to.” Therefore “you see program groups today starting to think like retail chains — they may have the moniker ‘program group,’ but they’re acting as a chain” with widespread branding campaigns and other features.

Over time the groups have been getting ground-up amid a rapidly churning marketplace. Just 15 years ago there were close to 30 viable program groups in the industry, and now that number has shrunk to about 15. “You could see the channel crunching before your eyes, but the strong players aren’t going to go away,” reports an aftermarket industry executive who is close to the issue.

Look for more compaction within this segment, the source predicts. “There are four or five groups of substance: The others will have to merge or find partnerships to absorb them,” declares this aftermarket expert, pointing out that “in each of these (substantial) program groups you have a lead player who is the big dog.”

This refers to NAPA’s Genuine Parts Co. connection and CARQUEST’s involvement with General Parts Inc. The large membership base enjoyed by the Big A, and its connection to European suppliers, make it a contender also. In addition, IAPA (Independent Auto Parts of America) and Federated also enjoy high membership roles; Fisher Auto Parts, which is 75-percent commercial, is Federated’s largest member, operating 18 distribution centers and serving more than 45,000 accounts.

The shifting dynamics within this segment in turn puts pressure on individual program members to offer more SKUs while supplying accurate installation advice. “Retailers targeting professional installers increases competition for program distribution groups, compelling them to be more efficient in delivery, pricing and customer service,” says Dittmer. He also notes that training programs specifically aimed at serving professional mechanics can reduce parts returns due to incorrect diagnosis or faulty installation.

The widespread computerization that comes along with e-commerce can make a jobber’s operation much more efficient for serving commercial customers, according to Dittmer. He adds that the computer presence is likely to have little impact within the DIY realm. “The Internet is ideal for transmitting information, but not for delivering products,” Dittmer notes. “Logistics means that e-commerce can offer next-day delivery at best. Delivery and packaging of large parts is also a challenge for e-commerce.”

Jobbers can gain a competitive advantage by injecting a welcome human element in any auto parts transaction, says Creamer at Distribution Marketing Services. “There’s technical expertise involved” in serving mechanics that goes beyond offering either the best price or fanciest technology. “The people who install parts and work on automobiles are not the most computer literate.”

A jobber can thus utilize a program group’s technology to help bridge that gap. “The Internet can certainly come into play in helping with the inventory issues and forecasting issues,” he explains.

“An emphasis on technology is especially important for our group. The economies of supply chain management are especially attractive to both our members and vendors,” says RPM Group Executive Director Michael Mitchell.

“It allows me to connect with the members of the group so much easier,” muses consultant Derek Kaufman of Kaufman-Peters in Grand Rapids, Mich. The end result of connecting with a group’s technology is that “I’ve got less inventory in the field but more coverage. We have a lot more power to put our hands on where inventory is and then getting it there on time.”

For example, a single part can, in essence, be shared among several group locations within a limited geographic area. When the demand for that part arises, it can be quickly found and delivered. “That part is on a shelf a half-mile away, but the customer doesn’t have to go to that store. I can sell more parts using fewer assets,” he adds.

Kaufman assures computer-shy jobbers that the technology nowadays is cheaper and easier to use — and a necessity. “In just a two-year period we’ve closed the gap between the digital ‘haves’ and the digital ‘have-nots,’” he explains. “You’re buying more technology for less money. The people who aren’t as computer literate as they ought to be can take a quantum leap now,”

If one is still reluctant to go with the latest technology, Kaufman suggests seeking industry consultants for specialized training; computer training in general can be achieved through community colleges or other local programs.

Kaufman also mentions a “reverse mentoring program” instituted by General Electric in which older, more experienced executives were tutored by young 20-somethings in the art of computer competency. That concept can be applied to the aftermarket, he says.

Working the program(s)

For commercial accounts, a jobber or WD with a professional, knowledgeable staff and a full inventory can indeed compete with the big discounters coming into town, according to Eady at the AWDA. “Locally it’s really hard to unseat someone who already has a share of the market,” he says. “If you try to penetrate a market on price only, you won’t get very far. If they don’t stock the depth, it’s particularly hard for them to become ‘first call.’”

Quality is another area where program groups can assist a member’s bottom line, according to the proprietor of two jobber/retail operations. He moved from Federated to Parts Plus when his favorite warehouse switched. His resort town is well stored with discounters, but this merchant declares that “we’re more knowledgeable and we get higher quality parts.”

Retail customers recognize familiar signage from their hometowns, and the commercial customers prefer the quality. “People come here when they don’t want the junk” being marketed at the larger stores, he notes.

Service is king for the manager of a chain operation associated with CARQUEST. This executive bought direct from the manufacturer before signing on with a different group several years ago. He dumped that one to go with CARQUEST. “We joined the (previous) group to get additional discounts, but there was not the full-service,” he recounts. “The service CARQUEST provides far outweighs any discounts I was getting with the other group. They ship to us every night freight-free. It’s a lot more convenient to depend on their warehouse for overnight deliveries instead of having to pre-order things.”

Federated is firmly entrenched among the nine stores and a distribution center operated by Bradshaw Auto Parts of Utah. In business since 1929, the company was a charter member when Federated was formed more than a decade ago. “We’ve been with it since Day One,” says Terry Morgan, purchasing agent. “They keep us in the ballgame where can actually compete.”

The competition is tough, as there are several big discounters in the region. Bradshaw compensates by offering lightning quick delivery. A typical store has five delivery vehicles ready to roll. “We have a lot of trucks and drivers waiting to go out, and we deliver within 10 to 15 minutes,” he reports.

If anyone wants to remain independent, says Morgan, make sure you have a unique service to offer in your marketplace, such as custom machining. “Unless you have your own niche you’re not likely to survive,” he advises, referring to an independent merchant he’s familiar with: “Without his machine shop, he would have been gone years ago.”

“We’re still independent,” declares Al Bowden, president of Bowden Auto Parts in Yakima, Wash. “We closed our warehouse and are back to being a retailer,” he says. The company still does jobber work, too, and Bowden says things are going well despite a down economy.

“We still get most of the discounts from the suppliers,” he says, “and we don’t have to beat them up to get them.”

Discounters are in the area, but Bowden’s remains in the hunt. “Most of them can buy parts by the carload, and we have to get parts in small shipments — but we overcome that with service and by having the parts,” Bowden explains. “My customers keep telling me they can get the parts for half the price (at the discount stores), but most of the time they buy from us anyway because we have the merchandise here; they don’t have to wait until tomorrow to get it.”

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