Quick Lube History: 1987 – JIFFY LUBE GROWS QUICKLY FOR BROTHERS

It’s no surprise that brothers Howard and Peter Graeffe have joined forces to form their own business, albeit a franchise. After all, their stepfather, Leonard Poole, founded Air Products & Chemicals Inc. of Allentown.

The Graeffes own Jiffy Lube of Pennsylvania Inc., the quick-lube and oil- change franchise for eastern Pennsylvania. Jiffy Lube garages with their red “J” insignia are rapidly sprouting throughout the brothers’ territory – from the Philadelphia suburbs, north of the Schuylkill River to Lehigh, Northampton and Berks counties.

The first garage went up in 1985. The 10th will be opened in July. The 20th is slated for opening in the end of 1988.

At least that’s the game plan of the Graeffes, who bought out an original partner in the franchise in December and are already counting $3 million in gross annual revenues and $4 million in assets – all from a cash outlay to them of $50,000 apiece in 1984.

They paid an initial $180,000 franchise fee for the territory that will hold up to 20 stores, but most of that fee was leveraged in the form of a loan from Jiffy Lube International back to Jiffy Lube of Pennsylvania.

Total franchise fees work out to about $40,000 per store in the 20-store market territory.

“We’re highly leveraged,” noted Peter, 35, who learned about leverage at the Wharton School of the University of Pennsylvania and a stint at deal- making with Peat Marwick Mitchell & Co. in Philadelphia.

The Graeffes’ growth pales compared to the geometric expansion of Jiffy Lube International Inc. of Baltimore, the McDonald’s of fast oil changes and grease jobs. In 10 years, the company has sold franchises – at initial territorial fees and startup costs of about $119,000 – for more than 575 outlets. By fiscal year-end March 1988, the nation’s No. 1 lube service chain plans to have more than 800 locations in the United States.

None of this growth has gone unnoticed on Wall Street. After an initial public offering of more than 2 million shares of common stock at $15 per share, Jiffy Lube used the net proceeds of $28 million to pay off old debts and finance future expansion. The stock sale also made a millionaire out of founder W.J. “Jim” Hindman, who owns or controls 45 percent of the common stock, which split 2-for-one in March.

America’s penchant for convenience is the driving force behind Jiffy Lube and its ubiquitous competitors like Grease Monkey Holding Corp., a stock-held company traded over the counter, Quaker State’s Minit-Lube division, Ashland Oil Inc.’s Rapid Oil Change, and Laser Lube, an independent.

People now find that with two breadwinners in the home – nearly half the families in the U.S. – couples have enough money to buy time. Why should auto owners kill a Saturday morning changing their oil when they can zip into a Jiffy Lube and have the car serviced in 10 to 15 minutes for $21.95.?

The Graeffe brothers, however, aren’t relying solely on the dual-income trend for their success. More precise demographics underly their decision on where to build, own or lease a Jiffy Lube.

“We want a population of 60,000 within three miles of a site,” said Howard Graeffe, 34, franchise president, who had been in commercial real estate before joining his brother and attending a two-week training course at “Jiffy Lube U” in Baltimore.

“We also need a minimum traffic count of 20,000 vehicles.”

The brothers stick to their plan: They turned down the chance for a site in Quakertown along the fast-developing Route 309 in favor of a site in Doylestown. A Jiffy Lube recently opened at the Quakertown site, but it is operated by another franchisee.

“Quakertown had the traffic count all right, but not the heavy population density we need,” explained Howard. Their target is the middle market: metropolitan suburbs and small cities.

But they harbor thoughts of going beyond lube and oil changes and developing full-service automalls where tires, mufflers, transmissions, batteries and other auto-aftermarket products and services such as car washes could be provided in one location.

For the near future, though, the Graeffes are building a mini-empire of profitable Jiffy Lubes even though the franchise agreement means 6 percent of gross sales profit is shipped to Jiffy Lube International. In addition, the Graeffes must pay 5 percent for co-op advertising, a campaign that includes endorsements by retired Philadelphia 76ers star Julius “Dr. J” Erving.

Their Jiffy Lube of Pennsylvania now has a payroll of about 100 full-and part-timers, with each garage requiring nine to 12 workers. A lube technician starts at about $3.75 an hour, but the brightest are encouraged to take on more responsibility and rise to manager.

“Five of our nine current stores are managed by former lube technicians,” said Howard.

Each outlet represents an investment of $500,000 to $650,000 on the balance sheet.

To break even, a store must service 35 to 40 cars a day, said Howard. It generally takes six to nine months to reach profitability, although the Jiffy Lube on Lehigh Street in Allentown “opened to break-even business,” said Howard.

The brothers own only two of the nine existing stores. The others are financed generally through a series of sale and leaseback arrangements with companies and individual investors. Pennzoil Inc., which supplies motor oil and lubricants to about 80 percent of all Jiffy Lubes, finances the equipment in the individual garages. In fact, Pennzoil helped finance Jiffy Lube International in the start-up days, but has since sold its preferred stock worth $2.5 million back to the company.

As for the Graeffes, they are looking for sales revenue of $10 million by 1990 and considerable real estate ownership.

“We started out with the intention of owning all of the real estate, but then we decided to build and lease most of the stores,” said Howard. “We had to decide whether we were going to be in real estate business or in the Jiffy Lube business initially. It required too much capital to do both. But now we’re in a position to own more of the stores we build.”

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