Monro Muffler Brake, Inc.

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Monro Muffler Brake, Inc.

200 Hollender Parkway
Rochester, New York 14615
U.S.A.
(716) 647-6400
Fax: (716) 647-0945
Web site: http://www.monro.com

Public Company
Incorporated: 1971
Employees: 2,600
Sales: $154.3 million (1998)
Stock Exchanges: NASDAQ
Ticker Symbol: MNRO
SICs: 7533 Auto Exhaust System Repair Shops; 7539 Automotive Repair Shops, Not Elsewhere Classified

Monro Muffler Brake, Inc. is one of the largest chains of shops offering undercar services in the United States and the only chain whose stores are 100 percent company-owned and operated. Monro stores are part of the “do-it-for-me” segment of the automotive aftermarket and offer a full range of repair services for muffler, exhaust systems, brake systems, steering and suspension systems, and many vehicle maintenance services. As of April 1998, Monro owned and operated 350 outlets in New York, Pennsylvania, Ohio, Connecticut, Massachusetts, West Virginia, Virginia, Maryland, Vermont, New Hampshire, New Jersey, North Carolina, South Carolina, and Indiana. The announced acquisition in 1998 of Speedy Muffler King’s U.S. locations would bring that number to 500. The company serviced approximately 1.42 million vehicles during fiscal 1997.

From Franchise to Private Operation: 1957-71

Cars were sporting big tail fins and Dwight D. Eisenhower was president when Charles J. August opened his first store in 1957, a Midas Muffler franchise in Rochester, New York. It was a novel idea, having a shop that did nothing but install and repair exhaust systems, and August’s was the only one in the region. Car owners had either done the work themselves or turned to the mechanic at their neighborhood garage or repair shop when they had trouble with a muffler.

But the concept proved popular, as corrosion and rust meant that exhaust systems and pipes had to be replaced frequently, and August began opening more Midas franchises. In 1959, he incorporated his company. By the mid-1960s August was running four Midas franchises and had expanded into the brake business, building and operating four franchised Nationwide Safety Brake Centers. He thought the brake and muffler combination was a winner, particularly as early exhaust emission control systems lengthened the life of a muffler. August wanted to provide both types of undercar service at the same location, but the Midas organization would not let him use the Midas name. In 1966, August decided to end his affiliation with Midas, and he established his own chain of four Monro Muffler stores, naming the company after Rochester’s county, Monroe, but leaving off the “e” to save money on his signs. In 1971, he converted his brake franchises to Monro shops as well and renamed the company Monro Muffler Brake, Inc.

Growing Monro Muffler Brake: 1972-84

August expanded his company gradually, opening about three new stores a year, and by 1977 the chain had 20 locations in the Rochester area. That year, August changed his growth strategy and bought two New York chains. The purchase of Kar Service Centers in Buffalo and Barker Service Centers with locations in Albany and the southern part of New York state doubled the size of Monro Muffler Brake, moved the company into new territory in the western and eastern parts of the state, and established Monro as a major player in the region.

To manage the bigger operation, August instituted several organizational changes. He divided the stores into regions and appointed regional supervisors. He bought his own tractor trailers to deliver parts to the stores and created two new departments: a building and maintenance division and an in-house advertising operation.

Over the next several years, August continued to open new stores, but concentrated on keeping his business up-to-date. Stores received state-of-the art equipment and older locations were remodeled. The auto service business was growing and competition was stiff.

The company’s beliefs, codified as “The Monro Doctrine,” set it apart from its competitors. August established this ten-point company policy early in Monro’s history and did not alter it as the years passed. The policy was the company’s pledge to provide each of its customers with: a no-obligation inspection of brakes, shocks, front end and exhaust systems; a review of the inspection with the customer; to sell only needed products and repairs; a free written estimate; customer approval before any other work is performed; a written guarantee of the work and parts; no appointments required; fair and reasonable prices; no advertising gimmicks; and work done by professionally trained specialists. With all the stores being company-owned and operated, it was fairly easy to ensure that each conformed to the company policy.

Monro continued to open a few stores each year. By 1984, the company owned and operated 59 stores, mostly in upstate New York, and had recently moved into a new 90,000-square-foot office and distribution center in anticipation of more growth. Sales for the fiscal year ending March 1984 were approximately $21 million. Monro’s growth reflected the growth of automotive specialty services as a whole. While specialty service represented only about 14 percent of the $61 billion automotive service market, with sales of about $8.5 million in 1984, the specialty chains were growing faster than the aftermarket segment as a whole, and had higher profits than others (garages, car dealers, or independent shops) providing tune-ups, transmission work, and muffler or brake repairs.

Expansion required money, however. In July 1984, to raise the capital Monro needed, August sold a controlling interest in the company to an investor group led by Peter J. Solomon and Donald Glickman.

Years of Expansion: 1985-89

Specialty repair shops grew significantly during the last half of the decade, gaining a 40 percent share of the car and truck service market by 1989, up from 20 percent in 1986. Such growth could be attributed to several developments. First, cars were becoming more complex. As a result, fewer people had the technical knowledge or equipment to perform the repairs themselves. Garage owners and independent general repair shops had to invest in training their technicians and in buying diagnostic equipment; many did not and lost business.

Second, car parts were lasting longer. This meant that specialists had to expand into other areas if they were to survive. As they did, they took that business from the garages and auto stores. Tire stores, for example, increasingly widened their undercar services.

Finally, convenience had become an important issue. There were more families with both parents working as well as more single-parent families, and they needed their transportation. The logistics of getting repairs done became more complicated, as consumers wondered who would take the car in and how would that person get to work from the garage and then back to pick up the car after work, as well as who would get the kids to school. These customers found specialty outlets, providing a quick turnaround time, evening and weekend hours, and quality work, very attractive. The fastest-growing service between 1985 and 1990 was the quick lube, offering an affordable oil change in ten to 20 minutes.

In 1987, with the company’s annual sales nearing $40 million and a chain of some 90 stores in five states, August was ready to retire. Jack M. Gallagher, a seasoned aftermarket executive, was selected to replace him as president and CEO. The company was looking for someone to manage faster growth. Gallagher had done that with Covairs Auto Parts, transforming a ten-store army surplus chain into a 50-store auto parts operation. Prior to that he had worked for Firestone Tire & Rubber Company, moving from store manager to division manager at headquarters before heading up and turning around Firestone’s unprofitable Fidesta division.

As Gallagher explained several years later in a 1994 Rochester Business Journal article, “What I did was bring system organization. They had no point-of-sale (inventory system) and the warehouse was a sore spot. They had no financial people, and the cash flow was very, very tight.” He also saw some problems with the way Monro made its acquisitions, often not giving enough consideration to marketing opportunities. Gallagher got things organized, computerizing the warehouse and initiating the development of a site-selection computer model.

Going Public and Still Growing: 1990-94

By the end of fiscal 1991, the company had grown to 143 outlets in eight states, with sales of over $60 million. Gallagher took Monro public later that year to raise money for more growth. In what was considered an unusual move for Wall Street investors, the Solomon group did not sell its shares. The offering placed about 30 percent of the company in public hands, with the August family, Solomon and his partners, and Monro employees holding the remaining 70 percent.

Company Perspectives

Monro Muffler Brake desires to be America’s leading chain of company owned and operated undercar care stores, and to be recognized by consumers, employees, vendors and investors as providing: exceptional value and integrity, friendly and professional service, total customer satisfaction, the industry’s best trained employees, unparalleled employee opportunity, win/win vendor partnerships, superior investor return. The company further desires to be the number one choice of consumers, employees and investors by consistently exceeding their respective expectations. These objectives will be achieved through innovation, spirited execution and an unwavering employee commitment to excellence.

The typical Monro Muffler Brake store, with its bright yellow and blue signs, was a free-standing building located near a mall or other high-visibility site in a suburban area. Being near a mall helped address the convenience issue; a customer could drop off the car and get in some shopping while the work was being done, accomplishing two things at the same time. A typical shop’s 4,500 square feet provided space for a sales area, a parts storage space, six fully equipped service bays, plus parking.

Thirty-five percent of Monro’s service sales were for exhaust work. Brake work accounted for 33 percent of sales, and suspension and alignment work for another 21 percent. State inspections, lube, oil and filter work, and similar miscellaneous services made up the remaining 11 percent.

In 1993, the company formed Monro Service Corporation as a wholly owned subsidiary, responsible for warehousing, purchasing, advertising, accounting, office services, payroll, cash management, and semi-truck maintenance wholly performed within New York state. In 1994, Monro opened its 200th store and moved into its 11th state, New Jersey. It also finalized a deal with the city of Rochester to build a new headquarters and warehouse on a 13-acre site in the Hollender Industrial Park.

A large part of its success, according to the company, was due to the fact that all its stores were company-owned. This allowed for better overall control of programs and policies on everything from how customers were treated to running special promotions.

New Leadership/New Initiatives: 1995-97

In April 1995, Jack Gallagher retired as CEO, retaining a seat on the company’s board of directors. Under his leadership, the company had grown from 90 to 232 stores, with sales of $109 million and net profits of $9 million. His successor, Lawrence Day, had joined the company in 1993 as chief operating officer, having moved to Monro from the Auto Express division of Montgomery Ward.

Day began a rapid expansion program, adding over 100 stores in three years. During his first year, Monro acquired five auto repair companies for a total of $2.8 million, adding 14 stores to the chain. The largest of these was the seven-store Muffler Xpress division of North Carolina-based Xpress Automotive Group, Inc. That purchase moved Monro into the southeast region of the United States, with stores in North and South Carolina and Virginia.

Day also introduced several initiatives aimed at reaching customers in new areas and increasing brand recognition by linking up with companies offering complimentary services. To reach customers where the only competition came from small independent garages, Day developed his “small town” concept store. Targeted at towns with a population of 15,000 or fewer, the stores had four or five service bays instead of the typical six bays. The first opened in Saranac Lake, New York, in September 1995, and was followed by several more.

Also in 1995, the company reached an agreement with Q-Lube, a division of Quaker State Corp., to jointly develop sites offering both fast lube and undercar services. After some delay, the first four of these joint operations opened in the spring of 1997.

The company also bought three Goodyear Tire dealers in Pennsylvania. Operated as Monro/Goodyear stores, the outlets offered the full complement of both undercar and tire services of both parties. That experience proved successful in attracting brand-loyal tire customers and led Monro to introduce Bridge-stone/Firestone tires at most of its outlets, replacing a private label tire. The company instituted promotional offers with national fast-food, video rental, and gas station chains, as well as with regional supermarkets. It also got the Monro name and blue-and-yellow logo onto the NASCAR circuit as a title sponsor for driver Andy Santerre.

In 1997, Monro went after manufacturers’warranty-required maintenance business. Acknowledging that most new-car owners would still go to their dealers for the services, the company still hoped to reach those who tended to ignore manufacturers’ recommendations. Outlets were already offering, and the company promoting, more maintenance services, such as flushing radiators, repairing steering systems, and changing oil. According to the company, unperformed maintenance and repairs exceeded $53 billion in 1996.

To reflect its broader offerings, Monro added the words “& Service” to its corporate logo and to the signage at all its new stores as well as some of the existing shops. Throughout the fiscal year, the company’s marketing and advertising focused on informing customers of all the services available from Monro.

1998 and Beyond

In February 1998, Day announced his resignation as president and CEO to become chief operating officer of TBC Corporation, a large marketer and distributor of auto replacement products. Jack Gallagher returned as acting CEO while an executive search was undertaken for a new chief.

In April, the company announced an agreement to acquire the U.S. company-owned and franchised shops of Canadian-based Speedy Muffler King, one of Monro’s direct competitors. The purchase involved 205 stores in 11 northeastern States and Washington, D.C., with locations concentrated in the metropolitan areas of Boston, Baltimore, Detroit, Cleveland, and the District of Columbia. The company paid $52 million in cash for the operations and assumed about $6 million of liabilities. When completed in the summer of 1998, the purchase would bring Monro’s store base to some 550 locations.

In a very competitive business, the leaders of Monro focused on keeping their existing customers (with a 70 percent return rate) by emphasizing customer service and responsiveness, as well as on attracting more customers by providing more services and developing cross-branding programs. Absorbing some 200 stores from the Speedy Muffler King acquisition would be a formidable task for a CEO familiar with the company. Also throwing one of the company’s current initiatives into question was the announcement in April 1998 that Pennzoil planned to spin off its Jiffy Lube into a new consumer products company that would acquire Quaker State and its Q-Lube car centers. Whomever was chosen as Monro’s new president and CEO faced these immediate challenges as well as a generally soft market in the auto repair industry, as people bought new cars when the economy was going well rather than keep their old ones.