MTD 100 exclusive! Monro Chairman Gross talks plans for Autotire, further expansion

Throughout the month of July, www.moderntiredealer.com will present exclusive interviews with executives from some of the "top five" independent tire store chains on the 2009 Modern Tire Dealer 100.

At the cut-off date for the 2009 Modern Tire Dealer 100, May 1, Rochester, N.Y.-based Monro Muffler Brake Inc. had 154 tire stores. In June, the company added 26 outlets by acquiring St. Louis, Mo.-based Autotire Car Care Center from American Tire Distributors Inc. (ATD) for $10 million.

The acquisition was a great deal for Monro, says company Chairman and CEO Rob Gross, who adds that his company remains on the look-out for more dealerships to purchase. In this exclusive interview, Gross discusses how the Autotire deal happened, Monro's plans for the chain, how the recession has impacted Monro's operating strategy, and other topics.

Monro is the fourth largest independent tire store chain in the U.S., according to the 2009 Modern Tire Dealer 100.

MTD: In June, Monro acquired 26 Autotire stores in St. Louis from ATD for $10 million. Can you tell me how that deal came about?

Gross: Obviously, ATD is a very big wholesale distribution market and AM-PAC was attractive for that segment of their business. AM-PAC also had 37 retail locations – 26 in Missouri and a little bit in Illinois, and 11 in California.

It’s ATD’s philosophy not to compete with their customers, so they were looking to get rid of a non-strategic asset. We were certainly interested in the 26 (St. Louis) stores and started discussions with them.

MTD: What made those stores attractive to you?

Gross: They have the number three store density in the St. Louis market without us doing anything. The stores are doing $1.2 million in sales per unit, which is a very attractive sales rate that we would hope to build on. The chain also had a realistic and motivated seller, and we are always a realistic and motivated buyer. We’re certainly pleased with the transaction.

MTD: Is St. Louis as far west as Monro currently goes?

Gross: That’s as far west as we currently go, and probably as far west as anyone should expect us to go. We’re very interested in filling in (the St. Louis) market, and that also opens up the possibility of more stores in Indiana and Illinois.

MTD: Will you keep the Autotire brand name or switch over to the Mr. Tire name?

Gross: We’ll keep the Autotire name. It’s a well-established brand with a lot of equity. These stores are operating well with a lot of good people. Our intention will be to keep the brand.

MTD: Has your acquisition strategy changed in relation to the economy? Are you still looking for the same type of dealerships?

Gross: Absolutely nothing has changed. We’re looking to buy reasonably priced assets that either fill in our markets or are in contiguous markets where we can have significant store density and can get some leverage off of our business model with distribution, advertising and store operations. Our balance sheet is really strong. We’ll have $80 million available for acquisitions.

If you look at our results from last year, we have a lot of free cash flow, our comparable store sales are leading the industry, and we expect to move forward from there.

MTD: To what do you credit your comparable store increases?

Gross: Traffic was up. I think we were more aggressive than a lot of the industry last year in raising our prices to off-set the significant increases in cost of goods for tires and oil. We increased our advertising. We tried to drive more customers and new customers in the door.

Remember, we are a need purchase. People are holding onto their cars longer and are repairing them. We, like a lot of our competitors, should be seeing the benefits of that into this year.

MTD: Many tire retailers are reporting that a lot of customers are flocking to lower-priced tires. Are you seeing this phenomenon at your stores?

Gross: In a bad economy, people trade down. Within categories, our customers are trading down. Maybe they were a high-end, major brand customer…now they may be moving from a branded tire to a private label tire. They’re trying to save money where they can.

MTD: Have you readjusted your internal product mix to meet this trading-down?

Gross:  We’re making adjustments constantly. What we stock and stocking levels have been adjusted.

MTD: Has your ratio of auto service to new tire sales changed at all?

Gross: Not really. Tires and maintenance services have led the way in our comp store sales increases. People are keeping their cars longer, so they want them maintained… getting their scheduled maintenance and oil changes done. On the tire side, we’ve had unit increases. Our comp store sales on tires were up 8.4% for the year. This past year was the first year that we had significant positive momentum in all of our categories, and that includes brakes, which were up 5%.

MTD: What’s the biggest challenge facing Monro and Mr. Tire?

Gross: It will be the same for all of us: the economy, consumer confidence and ultimately how this marketplace affects the consumer. All we can do is try to provide a value-driven proposition that has us winning with the consumers every day. But if they stop spending, it really doesn’t matter what we do.

So far, things have been encouraging, says Gross. “However, at any point in time, it’s up to the consumer and how far they pull in the reins. We’ll have to see what occurs with the consumer, and that’s something none of us have control over.”

Stay tuned to www.moderntiredealer.com this week for the last interview in our exclusive Modern Tire Dealer 100 series, a no-holds-barred Q&A with Bill Caulin, president of Somerset Tire Service Inc.