We recently sat down with the top brass at the Automotive Distribution Network to talk about big plans underway for 2018. The Network’s President David Prater invited his team to join us for the conversation, which spanned such topics as the return of traditional distribution, the Amazon threat, marketing initiatives for the coming year at more. In addition to Prater, in today’s AMN Executive Interview we hear from Steve Tucker, vice president of sales and marketing, Jeff Hobson, vice president of product, and Tom Frey, vice president of Information/Technology.
Let’s start off with the state of program distribution groups today. There have been a ton of changes over the years – quite an evolution within the distribution space when you consider all of the consolidation and technology advancements that have taken place. What are your overall thoughts on distribution as a whole today?
We think the traditional market is still strong. In fact, we think the market is shifting back away from retail and more in favor of the wholesale distributor. When I took over The Network, it was a chance to take a fresh look at everything. Program groups have gotten a little stagnant in the way they approach things. I truly couldn’t see the differences. We took a step back and started evaluating what we were doing. Buying groups originally were formed to aggregate volume to help the members buy better. That was the mission statement at the time, and that seems to still be at the forefront.
“Buy better” used to mean a couple points additional discount, and now “buy better” has a whole new connotation, which is why we made the changes we made. Program groups are going to have to evolve. We have to become more service-oriented. We have to be partners with our membership, in both category management, technology, sales and marketing. That’s our future
You said you get the sense we’re moving back toward traditional distribution and away from retail. Why do you think that is?
The cars are more and more complex. The retailers are focused more and more on the wholesale customer. It’s the inability of a consumer to work on their own car. So, you see the retail side trying to get in on the wholesale market. You see the Amazon and Rock Auto folks aiming more and more at the wholesale side. Our product lineup, where we carry the national brands, is really an advantage on our side. We’ve got deployed inventory in every market, the ability to deliver in the short time frame to the professional installer. It gives us a leg up. The other folks are trying to get into that space, as well, so it’ll be competitive.
Steve Tucker, vice president of marketing, will comment on that, as well, because he does a lot of the market research on this.
One of the things that David did was combine the marketing and sales functions into one department. There is an awful lot of overlap. To expand on what he’s saying, as far as we see, there is some push back from a retail focus to more on the wholesale distributor side, primarily with the commercial customer, the DIFM business. Obviously the vehicle complexity isn’t a secret to anyone. It’s getting even more difficult to change oil in a lot of cars today, and with the advent of electric brakes and electric steering, there are fewer and fewer repairs that the average DIYer can perform.
We think our position is to be a primary supplier to the professional installer and that is the direction we will continue to take, and that will make us ultimately successful. One of the other things we do that I think differentiates us from some of the others is that we have a very strong national account program. We provide a central billing, not just a central reporting, functionality which allows us to go to the major shop chains out there and provide continuity of price throughout the country – a central billing point. It makes us look a lot more like one company, even though we are a collection of entrepreneurs.
The position we take with the customer is that we have a local owner who has skin in the game because he owns the business, and he’s much more likely to take a vested interest in what goes on, but we still give him a national presence, continuity of brand and continuity of price – all the things that they look for from a national and global player.
David, you also mentioned Amazon. What are your thoughts on the Amazon threat, if you even want to call it a threat?
It’s an interesting thing to watch. You watch them in every other category, and the impact that they have. We tend to think on the front side, the impact will be more on the retail segment. I don’t know that they have the delivery mechanism at this point to enter that wholesale trade and be able to deliver in a timely fashion. We’re pressed more and more. It used to be 30 minutes or less. Now it seems like it’s 20 minutes or less for an installer delivery. Do they have that mechanism to be able to do that?
It’s an evolution, and I think some markets are better suited for an Amazon entry than the auto parts business, but it’s more of a wait and see. I’ve been in this business for 32 years, and we’ve been told numerous times that our demise was coming, and we’re still here.
You said you felt like program groups have gotten a bit stagnant. In what way, would you say?
I have to be careful on this one. I think we all started with the same mission, and we’ve all developed some of the same programs. We negotiate programs with the suppliers, and we start with a mission to aggregate the volume to try to push the discounts out a little bit farther. We offer marketing programs, and we all copy each other to some extent, but we offer marketing programs. We’ve offered some light IT stuff. I don’t know that it’s the same. The market has changed. I just think it requires us to make some shifts. We added our Auto Pride division a few years ago to recognize that distributors don’t all look alike.
When I started, you had a very easy definition of who could be a member. It’s a full-line warehouse distributor who sold to the independent jobber. That market evolved to where you would start allowing people in that had company stores. Then we allowed in two-step WDs. It just continued to evolve. The Auto Pride division allows us to have a much more diverse membership. We have performance WDs. We have marine WDs. We tend to think that our job is the title of the company – it’s automotive distribution. We sell auto parts. A distributor is a distributor. Certain places fit better. We offer certain services to our shareholders, our full-line distributors, but the other distributors have access to the toolbox on an a la cart basis, but it is a little bit of a change.
We like to say that we ARE the aftermarket. We represent everybody, and we participate in the industry. I’m going to ask Jeff Hobson, our vice president of product, to speak to this, but as I was talking before about the change that we’re doing in the product area, in the old days it was just trying to negotiate a better deal, but buying better now has a completely different connotation. It’s all the other things we need to do for our members to make sure they’re buying better as category management. That’s where the groups, if they’re going to continue to provide services for the members, are going to have to move to
I think one of the things The Network does well is provide all the services that a WD potentially needs. It’s exciting that, as David talked about, from sales and marketing, to IT, to a product standpoint, we provide real in-depth solutions to fill members’ needs, and one of the things we’ve been focusing on is a category management piece.
You see a lot of the large retailers provide that information. That’s one of the big aspects we’re going to be driving for our team in the future – bringing all the category management insight to support and drive home what we’re needing to get to and what we’re trying to get done. A good portion of that is the IT function. Having the data to be able to pull that in, utilize it and drive that out, be that from a regional standpoint or from more of a national standpoint.
The exciting part is our ability to use our own Network DC (Network Products Warehouse), as well. Our DC provides the potential to utilize local product partnerships, but it also gives us a global partnership opportunity where if we need to direct product, we have the potential to do that through Network Products today, and drive that out to our membership as well.
From an IT solution standpoint, one of the key features we’ve been driving home is our ability to provide product inventory support. That is helping someone, whether they are in the Northeast, the Southeast, the West or even the Central part of the United States, build their inventory to fit their customer needs. That really gives us a leg up on any of the competition out there. We get the right product at the right place at the right time. That’s one of the key components we’re looking at to drive home product long-term.
Are you partnering with an IHS/Polk type of outlet to gather your research and data, or is that all done in house?
We built a data warehouse. It’s getting transactional information from the membership, and it’s very well-deployed. More than 100 of our wholesale distributor members are online. We are acquiring the data from IHS, and we can relate the historical demand information to the vehicles that the part fits, and then IHS tells us what vehicles are in a given trading area, all the way down to the ZIP code level. We call it Network Intelligence (NetIntell). It is an Epicor-hosted product and is very customized, but we definitely built that with Epicor.
What’s new is just having a product team engage to help the members use it. We deploy that as a self-service. The members were given the keys, if you will, to do it on their own, and what Jeff and his product team are bringing to the table is recognition that their members are generalists, and they have a lot of hats to wear, and a lot of things to do. They just don’t have the necessary resources to fully take advantage of that tool, so our product team is jumping in and helping the members take advantage of that tool. This is a big step for us.
It’s like anything. It’s an education process, so we’re doing more and more training. I think again, to the evolving issues of the office, the group’s going to have to provide the staff specialist to help those people who don’t have the resources internally. We will wind up offering that as a service out of here so that we will begin to model inventories for the members and provide that service. It’s a great tool. We get nothing but accolades from the membership on it. In some cases, it’s about resources at the local level.
It is a plan for the 2018 budget to focus on the inventory management piece and provide some resources to the membership. We’re still in our planning stages on that, so I’m not sure exactly what that project will look like when it’s finished, but I will expect it’ll be some time mid-year. Technology is the department we’ve invested in the most over the past three years. It was a one-man department, only one part, and now it is our largest department. The investment is heavy because everything used to start with product. You started with your deal, your cut your deal and then you market it – what you were buying. You processed rebates and information off of that. Now it starts with the data.
So, we’re collecting the data, and then the product team analyzes that data, interprets it and then provides that information back out to the membership with recommended stocking. The next step in that is to add the actual inventory modeling service internally to assist those members who don’t have somebody on staff. You have to be a little tech-savvy to use the tool. Sometimes it’s easier to put an expert in a chair here. It’s more cost efficient for everyone
What other initiatives do you have planned for 2018 that you would like AMN readers to know about?
We are moving into a couple different areas. We’re launching our own system, Stratus, which Tom will talk about. We’re moving heavy into training, which is a joint project between the product and the marketing teams. That is a big, big piece for us. Continuing to focus on our expansion into Mexico. Then we’re tying in our relationship with the Nexus group, which is our international buying group, with our Network Products DC, which is our central warehouse. We will begin to SKU by specific import product lines to make those available to our membership. It’s going to be a busy year in 2018. Let Tom tell you a little bit about Stratus, just a high overview, and then I’ll let Jeff chat a little bit about the training piece.
Stratus is a full-blown enterprise management system. It includes a very robust point of sale warehouse management, distribution management – even the accounting package. What we’re deploying is scalable. We can build a better price point. It’s affordable for them. That’s everything they need, but the solution will scale up to the largest distributors in the group. In fact, it can handle a large company the size of The Network as a single enterprise, so it’s a really scalable product that can meet the needs of all our wholesale distributors. It’s much more affordable to them.
We’re providing hosting services. We’ll provide Tier 1 support. We feel that reducing the cost of doing business for our WDs has been part of our mission over the past several years, and building up an IT department is the next major step in that regard.
We’ve actually converted our Network DC over to this product, and given the response rate from the membership, I want to say we probably underestimated the adoption rate. We added a person to manage the project, and we’re already looking at an expansion on staff to manage the demand.
It’s a big deal. It’s not an area we anticipated getting into a year ago, but you see again that groups are adapting. You see the request and you see the need from your membership, and you try to fill those voids.
Another place where we’re seeing a need is the aggregation of the training information. Our suppliers are creating a lot of training information. The Network has always been known as a leader for business training. It gets to the point where there’s just so much out there that you have to try to make it easy for your membership to access the data and use it for their staff and for their customers. Jeff, you want to chat a little bit about that initiative?
Parts Plus has always been known as a strong brand when it comes to training and support of consumers, but also installers. We have three key areas that we’re going to focus on. One of them is the consumer, taking all the information and training pieces that are available, and putting it into a professional manner that a consumer can find from our Parts Plus YouTube channel and other arenas. You’ve got forward facing there. Then, you’ve got back facing that will be focused on our team members, all types of trade, be it counter people, inside sales, outside sales, even warehouse employees. What we want to do is help everyone understand what’s going on in the marketplace with products specifically.
As Steve said earlier, as product gets more dynamic, it’s more difficult to deal with and interact with everyone. We want our people to feel engaged, excited, but also to feel empowered when they’re working with the customer. Finally, we have the installer piece. We’ve got a whole training piece that we’re putting together with the marketing team to further enhance and assist the installer to better understand what’s going on in the marketplace, and to understand what’s going on for the product side.
We want to make sure that anyone we work with has an enhanced insight of what’s going on from a product standpoint. We believe this empowerment will help take our team and everyone we work with to the next level.
I’m curious about the consumer-facing aspect of that. Is the goal just to bring more attention to your brands, then?
I think it’s two sides within that. It does help to bring some attention to the brands that we support. We have many national brands that we partner with and have a strong conviction behind, but we have some private-label brands, as well, where we hold a strong conviction. At the end of the day, what we want is for anyone that has the need to understanding a car can understand the basis of what they’re working with. That way they can go to an installer and say, “Hey, I need my battery replaced, or I need some help here, or I need some insight from this standpoint.”
You’re trying to educate the consumer a little bit on how the car works so that they’ll go in to the shop, and when the technician is explaining why the brake job requires rotors and calipers and hardware, and they’re looking at the newspaper to see the pad-only installation, you want them to understand why it’s important for the entire brake job to be performed, or how they’re not going to be happy if it’s not. There will be a consumer section, but then behind the scenes, there will be a professional section for our technician customers and shop owners. The plan is big, like most things we do. When it launches, it will be comprehensive and it’ll be exciting. I want Steve to chat a little bit about what we’re doing from the business standpoint, because that’s a big piece of this, as well.
From a marketing sales perspective for ’18, I think the first thing you’re going to see is that we have renewed our sponsorship of Clay Millican and our involvement with NHRA, the drag racing series, for the eighth year. The important thing there is not so much that they run, as it is that it provides us a valuable tool to market our products and services directly to our customers. We run hospitality events at 22 NHRA races. We bring around 4,000 customers to our events as a reward for their business, so it certainly gives us some credence with those folks. Our Network National Convention is coming up soon in Orlando in March. We’ll have approximately 1,200 people attending that venue. Training, as Jeff mentioned will continue to be a big focus at the Convention.
We are planning to present a huge number of seminars. Currently, we are planning 10 different speakers across 60 different sessions, so that’s a huge focus in addition to the vendor booth show. Then of course there’s always time for fun, and team building can go on there as well, so this will be a prime event for us. We’ve invested a lot of time and effort to upgrade our Parts Plus Car Care Center and Auto Service Experts shop programs. One of the things we kept hearing from the field is that the members wanted a two-level program, one for an entry-level program for our smaller customers, and then an enhanced program with additional training, promotional opportunities and increased warranty coverages for the larger customers, and so we have included that for 2018.
In addition, our WebShop initiatives continue to grow. WebShop is our electric catalog and ordering tool that a many of our customers use to access our members’ inventories to place orders, stock check and review pricing. We currently have about 40,000 customers using WebShop, so it continues to be an ever-growing part of our business, and we’re excited about the marketing opportunities that it brings us as well. As we mentioned earlier, we are making a huge move forward on our business services. Again, it’s just not about buying better and selling better. It’s about all the steps that take place in the middle, whether it be uniform rental, car rentals for customers who have to leave their cars overnight in the shop, pest control, buying paper products, insurance, etc.
All those things that go into making a business successful, we want to provide an avenue for members to leverage their volume as a group. We also have an advisory council of shop owners in addition to our marketing program managers. The council meets several times during the year to discuss how we’re doing and what they want to see different in our programs. We also are continuing to support both print and online trade advertising. Print is not dead. It’s still a very viable communication avenue. When we meet with our advisory council, they still see a lot of value in having things in print, and so we will continue to focus heavily on that aspect.
Finally, there is AWDA. The Network is a huge supporter of AWDA. We will continue to be so. We think there’s a lot of valuable information that gets disseminated out of the annual AWDA Conference, and we encourage our members to attend.
To keep touching on that, we’ve increased our presence with AWDA. We are also a lifetime sponsor with the University of the Aftermarket. We’re very active with the ACPAC (Auto Care Political Action Committee) organization with its lobbying efforts. The programs groups are especially needed to help bring their membership together to understand those issues that may not enter their daily life, but you have to keep your eye on as a distributor company. You see the Amazons of the world, you see your day-to-day competition, but you don’t see are the things like telematics that impact our business, the changes in tech standards that are out there.
We’ve got to stay very involved. Tom Frey sits on that committee with the Auto Care Association, and is very active. We’re bringing our staff more and more to those meetings to be active on all the different committees. It’s a necessary evil for us, because the threats come from a lot of places. Sometimes it’s your direct competition. Sometimes it’s the government. We have to keep ourselves very active, and that’s one of the services that we provide.
I definitely get the sense that this coming year is going to be really critically important for the aftermarket from a political aspect. What would you say you find to be the most important legislative issue for you and your members?
It’s right to repair. It’s the telematics efforts and copyright deal. The Auto Care Association and ACPAC do a great job lobbying for the legislation for us. They represent us in Washington – Aaron Lowe and his team. They do a fantastic job of that, but you’ve got some other people on the other side lobbying the other way. The carmakers are doing their best to lock us out, and it’s a struggle. You’ve got to get in there. You got to take some of the proceeds that we make our living on to contribute back to the organizations that are up there doing the lobbying so that our industry continues. You got to invest back, and that’s part of what we’re doing with our membership. We are proud to say that our staff is very active in the ACPAC organization, and will continue to do so.
Amy Antenora: Is there anything that we haven’t touched upon yet that is important for you to get out to my readers?
We love talking about our company because we love what we do, and we think we’re being innovative, and we think we’re on the front lines of changing the way that program groups operate.
We will continue to be a leader in the technology area. We’re obviously going to reshape the way groups execute product, and frankly we’re having a lot of fun with the new marketing team just peeling the layers back and refreshing all the market programs. It’s going to be a great year. 2018 is going to be fantastic for us. We think our membership is going to love what we do and we expect people to take notice.