Future of the Quick Lube Industry – Business Q&A #8 Transcript

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The Future of the Quick Lube Industry – Business Q&A

Speaker1: [00:00:02] So thanks for joining us. I’ve been doing this call for about a year and a half now. We’ve been franchising for coming on. Two years soon, March of March of 2021 is when we launched March of 2021 is when we were legally able to sell franchises. So we will be coming on our two year anniversary from the date that we were able to launch as a brand relatively soon. We’ve really subscribed to the oil change only model and that’s resonated. So we’ve done a really good job of of selling units because the model, I think everybody typically has an oil change story. And so when we talk about our brand and what we’re trying to do, it does speak to our candidates and and we feel as though we’re filling a void in the consumer space. And that typically is how great businesses are built. So I’ll just start it off a little bit about me. I grew up in Portland, Maine. I lived my whole life there. I moved to Maryland for I had a baseball scholarship and then met my wife at college. And that’s typically how you get anchored somewhere. I’m right outside of Gettysburg. So we’re we’re on the border of Pennsylvania in a in a suburb of of Baltimore. And. And I grew this business out of want to build something out of need to have my own thing. I have a background in finance, so I went through a few different institutions, starting off in retail banking with TD Bank and then moved to TD Ameritrade and Brokerage and then Merrill Lynch Asset Management.

Speaker1: [00:01:41] And then the last company I was with before I did this full time was PT Rowe Price, which is a one of the largest asset management firms and mutual fund companies in the world. And the whole time I was moving from place to place, what I what I didn’t realize at the time was that I was a, you know, a born and bred entrepreneur, and that the thing that was causing me to have discontent at these jobs was not having my own business. And so I felt that if I started a business or took over a business, that kind of would scratch that itch and I would stop moving from place to place. And while I was at T Rowe Price, which was a really good job that I really liked, and I had invested quite a bit of my time and resources into. I had several securities licenses at that point, including a series six, seven, 63 and 66, as well as the insurance licenses to be able to sell variable annuities and manage them. I didn’t have any intention of actually leaving my job at T Rowe Price, but I thought let me let me get a business that can be run by a manager and that might scratch that itch. And I’ll I’ll stop having that that wandering eye. And so I started looking at businesses that I felt were manager centric but not skilled manager centric. If you’ve ever listened to any of these previous calls, that’s kind of the terminology I’ve adopted for this, because what I found was coming from a family of immigrants that have owned small businesses where it’s important for every family member to be a part of the business in order for it to run right.

Speaker1: [00:03:24] That wasn’t something that was really viable for me. I couldn’t be there because I had a 50 plus hour a week job at T Rowe Price, and so something like a pizzeria would not be something that would be viable because if your head pizza maker goes down, then you’ve got to close the place down. And so I wanted to look at businesses where there was continuity, whether the manager was calling off sick or taking his regular days off. And so I looked at a few different concepts and the quick loop space filled that as long as it was run as a traditional quick loop. And so if you’re not doing all these other services that require higher qualifications and skilled services, you could run the business using a just manager centered facility and you wouldn’t have to worry about if the manager quits. Do you have to shut the store down? Do you have to go in and run the place, etc., etc.? So I took over a mom and Pop Quik Lube in Harrisburg, Pennsylvania that was most likely going to be out of business if someone didn’t step in. And and I kind of was able to implement my my worldview on the business and make it my own and change the way things were being done.

Speaker1: [00:04:42] And it turned around relatively quickly and we were able to open a second location. At that point, I had left T Rowe Price because I had a lot of fun building the business and kind of putting my view on how things should be run. I spent a lot of time in those days at T Rowe Price. I probably wasn’t as productive as I could have been those last days at T Price. I spent a lot of time on Yelp, kind of reverse engineering the reviews because at the time in 2014, 20 1314, Yelp was still fairly relevant as a as a source of information for consumers. And so I would take those reviews of our competitors and see, okay, what, what is not working? What is working, what do people like and what do they don’t like, which was more common in our industry, was figuring out what they don’t like. And so by honing in on those things and really creating a model that allowed me to remain absentee and not have to be there actually changing oil, we were able to scale. The third location we opened was in Prospect Illinois, and so that really solidified our brand as an absentee brand because I could not be in Illinois on a regular basis. It was, you know, it’s an 8 to 10 hour drive to get from Baltimore to Chicago. And so I would fly in once a month in those early days, but.

Speaker1: [00:06:07] Relatively quickly. I was able to to not have to be there at all. And especially during COVID. You know, we were four years into the store at that point, and I didn’t go to Chicago at all in 2020. I mean, a lot of people didn’t go anywhere in 2020. So that really wove into the DNA of the business, the absentee model, and and really emphasized our use of sops and checklists and and procedures to make sure there was a smooth running business. And so that really is how we started opening up stores in different markets. We then went to Pittsburgh and Youngstown, Ohio. We filled out the footprint in eastern Ohio, western Pennsylvania. And then when we got to store number ten, I started thinking about what is the best way to scale this, because obviously there’s a consumer demand for this type of service. And it seems as though the larger players are getting away from this service. So what is the best way to scale quickly? And the answer to that was franchising. And so we teamed up with Fran Devco because they have experience in the space. A lot of the people that work with driven brands in Meineke, when Meineke was not a national brand and sometimes it’s tough to remember that all these national brands at one point were small businesses, you know, and so teaming up with people who have been able to allow us to avoid some of the pitfalls of emerging brands and people who brashly rush into franchising, that was a huge that was a huge boon for us to have these people in our corner, people like Michael, people like Chris, and then sung the head of that office.

Speaker1: [00:07:50] And so we’ve very smoothly transitioned into being a multi unit franchise operation, with stores opening nearly on a monthly basis at this point while avoiding a lot of the growing pains that some brands seem to have. So we’ve got 20 minutes of questions. I’m going to cut my story short there. There’s a lot more. I have some videos on YouTube of earlier calls that are much longer that if you’re more interested in the back story, in my back story, you can go in and listen to them. But I do want to get to questions because we have a handful of people on the call today, and it’s the best way to really talk about the business model and. And get those questions answered. We have Discovery days every third Thursday of the month that you can join us virtually, or if you’re so inclined, you can come to our headquarters and sit in on it. So we don’t really want to you know, that’s where we talk about the secret sauce per se versus the questions on here. We want to try to keep them as high level as possible. But, you know, feel feel free to ask pointed questions. But we do have Discovery Day, which is geared towards those more specific pointed questions, and I’ll let Michael curate.

Speaker2: [00:09:04] Right. Costa Thank you. And I believe Rob and Jeremy are already committed to coming in person to December. Rob just joined us as well. He is from Minneapolis. And so we represented all around the country. And Kevin, certainly I know I think we’ve talked about it already. You’re welcome to join us. And Jonathan, I wanted to welcome you from Virginia. Thank you for joining us. In the event you missed the beginning, the calls are recorded on on YouTube. Anyway, let’s let’s start with a round robin just so everyone gets a chance to ask a question. And by the way, the K in the screen, if you see a K in blue or I think it’s blue or purple, that’s Chris Longmore. He’s an associate of mine, and he also works with candidates as well. So he’s on the call. I’m Jeremy. Why don’t we start with you if you have a question for Costa.

Speaker3: [00:10:00] Yeah, sure. Thank you. Michael Costa So more questions perhaps to keep it short. And do you have any plan to right now, I know you’ve talked about obviously oil changes and such, but any plans in the future to add any additional services?

Speaker1: [00:10:19] No, we our core tenants are going to always revolve around the oil change service, are we? We have trademarked the phrase the oil change only store. We’re really committed to that as a service. And if if you really if you really look at the brands and startups that have happened in the last couple of years and COVID really amplified this. But any brand that reduces the friction between a consumer and a product or the consumer and a service, those are the brands that have been winning. And you know, who would have ever thought that fast food could get faster? You know, when when Ray Kroc had people walk up to the counter and then drive up to the counter and then drive up to the menu board, and then you say a number and used to have to say the whole meal. And then you say, give me a number one. And now we have mobile ordering where you place the order. Then you show up, they throw the order through your window and you drive away. Like that’s just kind of the natural progression of everything, it seems like in our society. And so the oil change industry was really before its time. And so we think that moving back to the original model that created the industry in the first place is what’s going to be especially as electric vehicles start penetrating the market on a on a bigger scale.

Speaker1: [00:11:40] You know, that’s what’s going to be what is left behind the sleeker, smaller, more streamlined, less overhead, less employees version. You’re still going to need oil changes. There’s 350 million internal combustion engines registered in the United States. And even if that number gets cut in half, there surely are industries made up of less than 170 plus thousand million of that consumer. And so our main KPIs are car count, ticket average and bay time. And as long as we stick to those things, we feel as though the business model will have a very long runway. That’s not to say we don’t have ancillary products. We you know, I mentioned Bay Times specifically to talk about ancillary products. We have what are called pop and ports in our industry, and they’re just additives that can be added for fuel injector cleaners and things like that. And some of these things are required. So you have Volkswagen and Audi GDI engines that per their owner’s manual. In order to be compliant, you need to do a fuel system cleaner every 7500 miles. And so these are very high margin items. And then you have things like wiper blades and air filters and other services that don’t add on to bay time. And so for us, as long as it doesn’t add on to Bay time, we’re going to be open to it. However, we want our core business to remain the oil change only.

Speaker3: [00:13:08] Okay. Thank you. And one more question. If we have time. Quickly, I would like to hear from you. I mean, obviously, I haven’t been to a coastal location yet, but if I take a place like Tech Fire or any other competitor, I would say what are some of the key differentiator? I guess why would I coast on any other brand, for instance?

Speaker1: [00:13:34] Yeah, So a lot of our differentiators are are internally realized versus external to the consumer. So, you know, we don’t we don’t have employees that are looking over their shoulder for their job because their compensation is based on high pressure sales tactics, which then means that translates to the tenure of our employees being a little bit longer. We don’t have the sales goals that are that create the bonus structure for the management. And so these things in the long tail lead to us not being susceptible to some of these quote unquote labor issues and that some of the other brands are having at the moment where they’re understaffed or unable to staff and closing stores down because no one showed up to work. We’ve created a culture within our system that our employees feel empowered by knowing that the only thing they’re doing is something they’re really good at. They don’t feel like they’re doing something that is they shouldn’t be doing. You know, a lot of these other brands, they have two alternatives. They either overcompensate to get someone qualified to do these extra services that they’re offering, and then you then you’re overpaying and then or you roll the dice with someone who’s not qualified to do these services, and then you have high liability services being performed with people who really shouldn’t be doing them.

Speaker1: [00:15:02] And so that’s that’s first and foremost. When people ask me what our mode is and Moat is just kind of an informal business way of asking what separates you from everyone else? You know, for me, it’s it’s the dedication. So the oil change only model. Take five. Definitely their media surrounds that that narrative. But you know I don’t think that they do as good of a job sticking to that. So, you know, our differentiator is always going to be putting putting a retail first focus on our business, automotive second. And and also, you know, we have a proprietary flow chart which we share at Discovery Day. And this flow chart allows us to do volume that other service centers would need double the amount of employees to do the same work. And so that’s our biggest mode is our our proprietary flow chart. And Michael has seen it and you can see it as well if you join us for Discovery Day or if you want to shoot me an email, I can send it as well.

Speaker3: [00:16:20] Absolutely. Thank you. I appreciate that.

Speaker2: [00:16:23] Costa Thanks, Jeremy. I think I don’t think I did a good job when you ask the question working with you so far, I’m just teasing. But know, I think three other things I wanted to mention that I see talking to other individuals like yourselves on the phone that have looked at other brands is the cost. You know, you look into some of these bigger brands, take five Greece Monkey, etc., a million bucks to to get into it. And I think what I see with Costa personally, this is a shout out to him as the relationships that he’s built with his vendors, his suppliers, and based on my information, input costs are lower, both the oil and the filters. I think, you know, as you start doing two or 300 cars a week, that certainly plays into an advantage. And then I think the innovative play, you know, on some different options for real estate, you’ve got the kiosk, you have conversions of single bay car washes. And then we also have, which Costa has been very successful on these conversions of traditional locations. So anyway.

Speaker3: [00:17:30] I just wanted to add that it. Kevin Michael, I just wanted to hear from the founder that’s done a great job. No.

Speaker2: [00:17:42] I missed that. I’m sorry.

Speaker3: [00:17:45] Now I and you have done a great job. I just wanted to hear.

Speaker2: [00:17:49] I know I was teasing you. Kevin, you’re up next. If you have a question. What costume?

Speaker3: [00:17:57] Yeah. Thanks for having me. I appreciate the time, gentlemen. So my my big issue in Houston here is is market saturation. There are it’s very segregated in regards to where all of the traffic is. I mean, you guys are familiar with looking at the maps of where to put locations and whatnot and the traffic plans and heat maps and all that good stuff. But, you know, typically when you find some of those areas, the saturation and the oil business is pretty high. You know, the company I’m not going to go through your competitors, but, you know, there’s one street that I drive down here and I’m not exaggerating. Within a mile, there are five different oil change locations. Of course, that also includes some some mechanic shops as well. But can you talk through market saturation? And I realize this is kind of on top of Mr. Benz. Benz and I’m mispronouncing your last name. Mr. B His question, but I think you understand where I’m going, and if you could talk through that, that’d be great.

Speaker1: [00:19:09] Yeah. So the the data shows from the insurance companies that Houston has the highest per capita car registration in the entire country. So it’s no surprise when you see in Houston take five dropping tens of millions of dollars. Valvoline Oil Change Express tire engineers. You know, there is a lot of saturation in the Houston market, but there’s also the amount of cars to sustain that. So as you look at different markets and you see why these things are happening, it’s all data driven. They would not be pouring the kind of money that they’re pouring if it weren’t for that. So our approach has traditionally been to not you know, this is counter counterintuitive to our industry a lot of the time. Valvoline stayed away from where Jiffy Lube was and and a lot of the brands don’t like being near Jiffy Lube, but I see the Jiffy Lube move into the multi care space as an opportunity because these people are being exposed to a service that is different from their their dad’s Jiffy Lube. It’s more geared towards other services, higher ticket average, longer wait times, longer Bay times. And so I have had a lot of success being near competitors because, one, those consumers are already educated on the service model. That’s not something like they’re expecting to have to set an appointment there. They’re like waiting to go into the drop their car off and walk away like that with your with your quick, lube educated consumer, it’s there’s a easier transition.

Speaker1: [00:20:51] So then it’s just about, you know, getting them to get in the door. And so people typically choose their consumer behavior on three things in my opinion. And and you may view it differently, but in my opinion, people would pick any business for three reasons, and that’s atmosphere, experience and price. And so atmosphere pretty self-explanatory. Does the facility look nice as the lot clean as the presentation of the service is a good experience, and that experience is the service itself. Well, I know that we’re winning that battle, so getting them in the door is the first hurdle because once they’re in the door, we have a high retention rate and we feel as though we provide a superior service because of our flow chart, because of our actual attention to the consumer trying to connect on a personal level with every single consumer, rather than being robotic about the service and just listing off an iPad, you know, the intervals for the different services and not really interacting with that consumer on an individual basis. And then the third thing is price. And there’s really no way around that, especially these days. Everything’s more expensive and and you guys can do your own independent research. Jiffy Lube and Valvoline have already started toying with 9999 full synthetic oil changes. And I think the consumer is really worn out by inflation at this moment.

Speaker1: [00:22:18] And there’s going to be some push back, especially once that dollar amount goes up over 100, if there’s going to be some people who just on principle are not going to change their oil for $100 and they might be more willing to sit in the waiting room of a meineke or even do it themselves in their driveway. So we’re yet to see what that holds. But we’ve been able to price under that because we have an ethos of brand doesn’t matter to the consumer. So we’re using a. Soil that meets all the spec and and we don’t really see any disruptions to numbers by using house oil because we believe that the average quick lube consumer doesn’t care about brand. Otherwise Mobil one would be the largest quick lube in the country and it’s not. And so for us in markets like Houston where there is a lot of saturation, what our biggest concern internally is making sure that the territories are mapped properly so no one’s stepping on anyone’s toes. So we don’t really we haven’t really gotten into worrying about competitors at this moment in time. The Spring Texas store will be the first location to get open in Houston, but we’ve sold quite a few territories there already, so we’re going to be going through that process and making sure we keep the question that you asked in mind as we go through that process.

Speaker3: [00:23:38] Okay. Thank you.

Speaker2: [00:23:43] Jonathan, thanks for joining us. Welcome. Do you have a question for Costa? He may be on.

Speaker3: [00:23:57] I have a follow up question while he’s while he’s pulling up. One of one of the things that Michael and I were speaking about is the scaling and the economics of, you know. At what point are you putting a manager into run multiple locations versus single locations as an example? If I had three or four locations in a 15 minute radius, could one manager run all four of those? And how do you see that looking?

Speaker1: [00:24:30] Yeah, so that’s a great point because when we get to three stores, that’s usually when we hire a territory manager and we typically we’ve deviated from the standard model in the quick lube space. Typically for Jiffy Lubes, Valvoline as you have, you have a manager who sits in an office at the store. You have an assistant manager who stands at the floor and then you have your upper Bay techs, lower bay techs, and even sometimes what they call a picker and a customer service rep who checks people out. So at any given time at one of our competitors, you could have 7 to 10 people in the shop with only two people doing the actual work. So our each of our stores has a manager, and the manager is it’s a market that only has one location. The manager has more powers. However, if it’s a market that has multiple stores, take Central Pennsylvania, for example. We have five stores and our territory manager, he spends two days at each store. And so traditionally the way that our competitors do that is their territory manager typically is four days in an office and then one day on the road going store to store for 10 minutes at a time. Our territory managers participate in the actual service. They’re doing oil changes. They’re actually in the store for a full workday, so they have their ear to the floor on what’s going on.

Speaker1: [00:26:01] And at three stores, that’s when it’s most valuable, because then they can do two days in one store, two days in another store in two days and another store. And then they really have an idea of what’s happening at each location. So you can kind of pinpoint, okay, why is this store not growing in car count? Is it because one of the employees is smoking cigarettes in the bay? Is it because, you know things that you could probably hide if someone’s not checking in on a regular basis? Those things, you know, they get checked very quickly with that model. So three stores is kind of the sweet spot. If you have under three stores or you only have one store, then you need to have a strong manager or you need to be active yourself. And there’s ways to do it. We have ways to do it. Obviously, we ran single stores and single markets for quite some time, so we know different procedures for how to best do it. But it does expose you to additional liability, especially if you’re far away from the site. But there’s still ways to manage it. I think we can continue on a little bit. I just overheard Brandon in the next room. The franchisees are taking a break from their lessons, so I don’t have to go out there at this moment.

Speaker2: [00:27:10] Oh, great. That’s super. Okay. Jonathan.

Speaker3: [00:27:15] Can you hear me? Oh, yeah. Yeah, we can.

Speaker2: [00:27:17] Morning.

Speaker4: [00:27:20] I mean, good question so far. And just piggyback on what they just said. I’m currently in an industry. Where industry? Staffing is just an absolute nightmare. So it’s something I don’t want to get back into a situation like that. But it just seems to me with the one manager, one tech and then a. Another associate. I mean, if someone has to go on vacation or get sick or whatever, I mean. It just seems like it could all fall apart. What is that? I mean, truly, you don’t have three stores up and you don’t have that floating person. I mean, do you need do you need two part time people instead? I mean, especially if you’re not not there if it’s truly absentee. I just you know, again, after what I’ve gone through the past three years and continue to continually have issues, I just it’s just something where I don’t want to work. That’s an issue. Again. Does that make sense?

Speaker1: [00:28:27] Yeah. Staffing is a huge concern in any retail level business at this point in time. There’s a lot of leverage. These employees have a lot of leverage, and if they’ve only been in the workforce the past basically ten years, they’ve only ever known a market where they have ultimate power, where they can leave without getting two weeks notice and have a job lined up that day. You know, a lot of these people have not been through 2008 through 2012 where there was 100 applicants for every job. And so they don’t really have a huge respect for the job itself and will leave on a dime. We’ve built a culture internally, corporately, that we’ve been able to manifest a staffing model where we don’t have that kind of turnover. But even so, for our franchisees that are open and I and these are the questions I feel from them, especially the absentee ones, the key here is making sure there’s a steady pipeline of applicants and making sure that you have a manager in place who. Doesn’t foster an environment where the employees feel the need to leave immediately. We have a lot of things on our side that so I take take five, for example, or Valvoline. When someone comes to us from them, they breathe a sigh of relief because they’re not worried about losing their job because they’re not being yelled at for not selling enough air filters.

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