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Writing against franchised quick lubes

July 17, 2006
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Writing against franchised quick lubes
Larry Read

The debate over whether to franchise or remain independent is a discussion we have had internally within our company for over 20 years. Most of our discussions were based on offering franchisee agreements to the many people that would call inquiring about opportunities, as we have 37 stores and have been very visible in the San Francisco Bay area. The following is an outline of our thoughts and ideas.

Is the quick lube industry franchisable? Our company considered the rising cost of oil, the increasing cost of goods, and the steady decrease in car counts among fast lubes over the past few years. We asked ourselves, does the quick lube industry have the profit margins sufficient to pay franchisee fees, national advertising and still retain enough earnings to reward the owner/operator for his investment/risk capital?

We weighed the benefits to our company and to the potential franchisors and compared them to the risks and costs associated with this venture. We've determined that for those investors interested in a franchise, the better decision would be to own and operate an independent site.

Association benefits

Another factor was the community within the industry. With the growth of the Automobile Oil Changers Association (AOCA), what can a franchisor provide in training that you cannot receive more cost effectively from our international association?

More importantly, will the information provided by the franchise include quality materials?

The information and training from AOCA comes from operators in the field, as opposed to oil company executives that have limited experience and have never seen the inside of a quick lube. The information is constantly being readjusted and reformulated, improved and updated.

In the best case scenario, a franchise can bring you a customer only once, given their marketing capabilities. Making that customer return is contingent upon your ability to service the car and the customer. If the service is not completed correctly, or it lacks professionalism sought by the consumer, they will seek other options for future service.

The cost of franchising

Watch for the hidden fees charged by franchisors. Four percent of your gross sales is a high fee to pay, but that is only the beginning. Often times the oil brand is $1.50-$2 higher per car than other products within your market. Specialty chemicals and paper supplies are also marked up, along with countless other business expenses.

Is a four percent royalty on your gross sales a fair price for what you receive? The quick lube market has changed and is continuing to change. Have the franchisors changed their fees to reflect their real value?

How much are you really paying per car, and what percent of your gross revenues are you paying for those results?

Across the border

This debate is also interesting given the differences in markets between Canada and the United States. Canada has the approximate population of California, but since it is more rural, brand plays a more important role there than in the states.

The quick lube industry grew more quickly in the U.S. and as such, became built-out, whereas the Canadian market is still growing in stores and in car counts.

Car count has declined nationwide in the U.S. for the last three years, illustrating a mature market. U.S. operators are in a market share driven business, whereas the Canadian market is still in its entrepreneurial phase.

Independent operators have created their own brands, and enjoy the freedom of selecting products for resale that enhance both the quality and profitability of their stores. This is particularly noticeable in the United States, where fast lube operators must dominate their market shares to be successful.

The biggest problem with any franchisee program is that the "best operators" always wind up subsidizing the mediocre. Taking on a franchise operation most certainly does not ensure success, and most likely means you will have to work harder to make a name for yourself.

My advice: don't franchise. Take your money and invest it in yourself and in your own brand. You'll start making your name from the get-go, and that is truly an advantage.

Larry Read is the chairman CEO, and founder of Oil Changers, Inc., a 37-store chain located in San Francisco, CA and founded in 1985.