After more than 50 years in the tire industry, Joe Tomarchio has accumulated a lot of nicknames.
And even though it’s been 20 years since he and his brother sold their Mr. Tire stores to Monro Inc., one of the names that continues to stick is “Mr. Tire.”
Over the years, his employees learned to call him by another name: “Mr. 1-800-Get-It-Free.”
That one comes from his penchant of giving an unhappy customer whatever he or she wanted in exchange for becoming a Mr. Tire customer for life.
“I’m doing $51 million in revenue in 2004 out of 26 retail stores. I’m spending $2 million on marketing and I’m going to make a customer mad for $100? Are you insane? That’s not happening.”
He’s blunt and sees things as black and white, all the way from the front counter to the technician clocking in for a day of work in the service bay.
Tomarchio fine-tuned his retail strategy while leading more than 1,100 tire and automotive service locations in 27 states for Monro and he recently shared his operational expertise on two episodes of The Modern Tire Dealer Show. Here are some excerpts from our exclusive
conversation.
MTD: What is it about this industry that keeps you fired up 50-plus years later?
Tomarchio: I started as a very young man in this business. I was 14 years old and I
was selling tires before I could even drive — legally. I always loved cars and automobiles. I think when I really started falling in love with cars, as crazy as it sounds, was in 1963. I was seven years old. I saw my first ‘63 Corvette split window coupe.
We entered the business in the early- ‘70’s, when tires only lasted anywhere from 10,000 to 15,000 or 17,000 miles. And this was before radial tires.
So that’s why I think I have an enthusiasm for it. My brother and I started with zero — less than zero — in our first store and the industry has been extremely gracious to us. We had some tough times, but we grew the business from one store to 26 full-service tire and auto service centers that we sold to Monro in 2004. At that time, in 2004, we were doing $51 million in revenue, which today would be around $80 to $100-plus million — probably even more because tires went up exponentially and have exceeded the typical inflation rates.
Then I spent 19 years of my career with Monro. The majority of that was running their stores.
It was not only the business, but it was the people. A lot of people in the automotive business are not given the dignity and respect that I think they deserve.
There are a lot of great people in the business and it probably took me a good five years of being in the industry to realize how important human capital and hiring good people (was for business).
And I found when you paid peanuts, you got monkeys, and I didn’t want them working for me. I wanted the creme de la creme working for me.
MTD: You’ve touched on a big issue for tire dealers today: hiring and retaining workers can be such a struggle. What are your thoughts on this?
Tomarchio: Well, I can tell you what worked for my brother and (me) and I will give you a few examples. What I found is when you paid people well, you respected them, you treated them with dignity and respect — you got the most out of them.
Right before my brother and I sold our business in 2004, in the Baltimore, Md., area, where we had the bulk of our stores, we were the employer of choice (in automotive). We really didn’t have the issue of hiring good people because we paid better than anyone else, we treated our people better than anyone else and because we were a growing company, we were able to offer a career path instead of just a job.
If you ask me, ‘How are you able to pay more, Joe?’ I will say our industry has a guilt complex. We do not charge enough money for our services. I just visited a couple of stores and I was looking at (the owner’s) prices and I told him, ‘You’re insane. You’re not charging enough money.’
If you’re not charging the consumer enough money, you’re not collecting enough money (and) therefore you can’t pay (employees) enough money.
What irks me is that people are willing to pay full price for a Starbucks coffee, Nike tennis shoes, Oakley sunglasses and an iPhone.
And I looked this up: Microsoft’s net profit was nearly 36% — not gross profit, net profit. Apple had 26.44% net profit. Oracle (had) 19.76%. Oh, you want automotive? Ferrari: 22% net profit. Harley-Davidson, on the low side, 9% net profit. I bet most tire dealers would salivate to make 9%. These numbers are after paying taxes.
So why can they demand the price, but yet you won’t demand the price? Why aren’t you selling the value of your company? If you can charge more — and you should be charging more — then you can pay your people more. And if your competition is not smart enough to do the same, they are ‘NFL,’ which, in my book, means ‘Not For Long,’ because you will clobber them.
The average consumer does not rank price as the most important (priority). It’s trust. It’s convenience. I think price is No. 3, maybe No. 4. What I find is a lot of tire dealers are guilty of knowing the price of everything and the value of nothing.
They don’t even value their own business. If you can charge the right price ... and I’m not saying you have to be charging car dealer pricing, but you shouldn’t be much lower than them. Why should they be able to collect more money than you? Their technicians aren’t any better than yours.
Back in the day, I found that my technicians were as good or better than the car dealers’ technicians because my guys worked on every vehicle from an Audi to a Yugo and the car dealer technicians only worked on Mazda or Toyota or Chevrolet or Mercedes. So who has the better tech? I have the better tech.
That being said, I am not a pushover. I paid top dollar, but I demanded top performance. I was not a guy who tolerated people being late. I did not tolerate an employee giving poor customer service or being indifferent to a customer.
To me, the number-one asset is the customer and we focused on the customer. Number two is your employees. If you can take care of number one, you can take care of number two because number two takes care of number one. It’s a victorious cycle if you do it right.
Let me flip that on you. It’s a vicious cycle if you want to pay the lowest price you can pay for your employees, not charge enough money for your products and services and have filthy locations —and then you wonder why you can’t hire anybody. Well, you have a horrible working environment. You have a horrible environment for your customer base, so you can’t charge the proper price, so you can’t pay your people. That’s called a vicious cycle.
MTD: What do you look for in employees to ensure you maintain a victorious cycle?
Tomarchio: There were four things that my brother and I looked for (when hiring people). Two of them, I could pick up in an interview. The other two I had to find out after you worked for me.
By the way, this is my opinion, but you can’t teach these four things. You’re either born with them or you’re not.
The first thing we looked for was attitude and enthusiasm. I could tell in an interview if you had a great attitude and enthusiasm, which are not the same. They’re similar, they’re in the same church, but they sit at a different pew.
The second two were work ethic and moral compass. I didn’t know whether you had a good work ethic, but I knew in probably the first week or two. The most critical to me, —and there was no exception to this — and that’s a moral compass. Don’t lie. Don’t cheat. Don’t steal and tell the truth even if it hurts. And that I can respect because you’re a human being. You’re going to make mistakes. I can tolerate that. However, making the same mistake twice means you’re telling me something. You don’t understand, you don’t care or you did it with malice and forethought.
(Confirming) the moral compass took a little while, but not long. People are who they are. To me, you’re born with it. With that being said, your environment will either dial it up or dial it down because (of) peer pressure. The five people that you associate with most have the most influence on you. So if you’re soaring with the eagles, you’re going to be an eagle. If you want to be in the gutter, you will be like (those people).
What I found is when I got people with those four attributes, they were my superstars. They were my rainmakers, my money makers.
MTD: Has this always appeared as black and white to you or is this a skill you had to hone over time?
Tomarchio: I had to hone this skill over time. But it’s also just my personality. My
friends and family have a saying: ‘If you want to know, ask Joe.’ Because I will tell you and I am brutally honest. I paid people extraordinarily well, but I demanded better than average.
(Speaking of average…) anytime I would look at a company, I would always take the bottom 10% (of employees) and I would take them out of the mix when calculating the average of that store. (His theory was that 10% needed to either be retrained or replaced) because they don’t have a great attitude, they don’t have enthusiasm, a good work ethic and their moral compass is corrupted.
If you find the people with these four attributes and you pay them well and treat them with dignity and respect and take care of them like family, you will win. It’s almost impossible to lose.
When I hear people telling me they can’t hire people, I’m not saying it’s not a problem, but I think you need to look inward — (at) yourself, your company and how you are running it. How are you pricing products? How are you taking care of your people? You have to inspect what you expect, because you get what you accept. If you accept mediocracy, that’s what you get. If you strive for perfection, you can settle for excellence.
I have a mantra — and I’ve said this thousands of times and it’s really simple: when it comes to business — you’ve got to be consistent, persistent (and) relentless, with perseverance — each time, every time, all the time. To beat me, you have to eat me. If I haven’t won, the war isn’t over. Winners find a way and losers find an excuse — or hire a lawyer to have one for them. Be a winner.
MTD: At Monro, you eventually transitioned from operations to mergers and acquisitions. What’s your take on the atmosphere for deals today and specifically the role private equity is playing in the market?
Tomarchio: Well, I’ve been doing consultations with several large private equity firms that have entered our sector and (are) looking to enter our sector. I know some dealers, even some larger ones, fear the acquisition or fear private equity. Don’t fear them at all. If anything, I think they’re great for the industry. They’re giving people an exit strategy.
They have a discipline that they’re going to bring to the industry that hasn’t existed for most tire dealers. They’re going to raise the price. They’re going to get paid for the value that they’re offering. That’s one thing they’re going to do that’s positive. They’re going to do some negative things, but it’s going to be positive to the independent tire dealer.
These large firms that are gobbling up these tire stores are having cultural issues. They’re not as personable with their employees, so you’re able to pick off their people. And they’re not as personable with the customer, so you’re going to be able to pick them off, providing you’re running your business properly (and) you’re focused on the customer,
the number one asset.
So don’t fear private equity or these large firms (that are) coming in acquiring your competitors in your marketplace. It’s going to give you an ability to make more money. It’s going to give you the ability to pick off top talent. It’s going to give you the ability to usurp their customers that they don’t treat as personably, providing you are focused on the number one asset, the customer. If you’re not, then you’re not going to be able to take advantage of what these firms are leaving on the table, because there are a lot of scraps on the table. Those scraps can be significant to a company that’s already profitable. That gross profit turns into net profit for the most part, if you’re able to take advantage of it.
MTD: It’s interesting to think that the insertion of private equity into tire dealerships may finally remove the hesitation to increase prices. Coaches and 20 groups have been talking about the need to raises prices and labor rates for years.
Tomarchio: If you have the mindset to take advantage of it — meaning, if you’re focused on the customer and your employees — you will absolutely take advantage of these monsters coming into your market, whether it’s Monro or Icahn (Automotive) or Mavis (Tire Express Services Corp.) or, you know, Percheron (Capital) or Sun (Auto Tire & Service Inc.) — whoever. They’re all owned by private equity.
Let me tell you about private equity. They’re all about making money. They like to buy things for one multiple of EBITDA. Their exit strategy is usually somewhere between three and seven years, with five being the sweet spot.
We just saw that Les Schwab is up for sale. (Its owner has) owned it for four years. They’re looking for an exit strategy. And they’re looking, I think they paid $4 billion for it. They want $7 billion. It looks like they’re probably going to look for something north of 15 times their EBITDA.
So when these private equity firms come in, they’re looking to make money. I mean, they gotta - to pay their investors. And they got to put that money to work.
And what most people don’t realize about private equity is, roughly speaking, about one-third of private equities’ investments fail, one-third are mediocre and one-third are a home run. Their home run rate is about one-third. They don’t talk about the (other) 66% because they don’t have to.
