What’s next for discount tires and tire carriers?

Discount Tire’s acquisition of Tire Rack “is upsetting for a few companies that focus (only) on tires, but do it in different ways,” says Michael McGregor, tire dealer mergers and acquisitions expert and partner at Focus Investment bank.

“Discount Tire is location based. Tire Rack is direct to the consumer. And Tire Rack also has a mobile installation element in its direct-to-consumer model.

John Healy, managing director and analyst at Northcoast Research Holdings LLC, said the Tire Rack acquisition – which is expected to close on Dec. 31 – “is pretty bold for Discount Tire.” National Hockey League star “Wayne Gretzky used to say, “You skate to where the puck will be, not where it is. And I think that’s what they’re doing here. “

Consumers still primarily use the Internet to research tire and price information, according to Healy, who also writes MTD’s monthly column, Your Marketplace.

“But I still think they want to (deal with) someone at the counter. Tire Rack is one of the main stops for (research) – if not the biggest.

“At some point more consumers will buy (online) and by integrating its retail outlets with Tire Rack,” Discount Tire becomes what Healy calls “the installer of choice for the largest online retailer. It’s a natural, symbiotic, and very intelligent relationship.

“If I were one of the other bigger regional tire chains, I would be like, ‘Should we do the same? “”

McGregor – who writes MTD’s monthly M&A column – sees “synergies” between Tire Rack and Discount Tire’s US tire e-commerce arm.

“Instead of having two separate organizations doing the same thing, there’s a good chance they’ll find a way to synergize the two. “

Healy expects Tire Rack and America’s Tire to remain separate entities. “I think at the end of the day if you’re the folks at Discount Tire, you determine which of your ecommerce platforms has the most traction, but that doesn’t mean you stop exploiting both,” says -he.

“I think there will be synergies by managing the two e-commerce platforms separately. We have seen this with online travel. Many online travel sites are owned by one company, booking.com. I can imagine that would be a parallel with what may happen here over the next few years. “

The deal also opens the door to other possibilities, says Dennis McCarron, partner at Cardinal Brokers Inc. and author of MTD’s monthly Business Insight column.

“Discount Tire’s intentions are not yet clear, but they could expand to a model similar to American Tire and TireHub distributors or continue to dominate the online sales category – or both.

“You can also see Discount Tire integrate their tire line into Tire Rack or operate as a separate entity for a while and strategize. (Discount Tire markets its own line of private labels in Arizona.)

“We’ll have to see what Discount Tire shows us. However, it looks like a similar move to TireHub. (TireHub, which has 71 locations, is jointly owned by Bridgestone Americas Inc. and Goodyear Tire & Rubber Co.)

“It remains to be seen whether Discount Tire will become aggressive with (its) ‘preferred installer’ being primarily or only Discount Tire stores or if they leave Tire Rack’s current algorithm and methodologies in place.”

The transaction also “validates” the direct-to-consumer business model, according to McGregor. And that could accelerate interest in installing mobile tires. (Tire Rack has a mobile service division.)

“I think the folks at Discount Tire are seeing very intelligently (opportunities) with ‘direct-to-consumer business models’ that aren’t real estate heavy,” McGregor said.

“It wasn’t that long ago that Bridgestone invested in the mobile tire business. Who else wants to jump on the bandwagon and how are they going to do it? Maybe (mobile) will now take off because other people will want to overtake?

“Discount Tire has new ideas here. “

What will be the impact of the agreement on other market players? “Smaller dealerships have to think about how they differentiate themselves and it probably comes down to a full auto service,” says McGregor.

“One of the advantages they have is that traditional (tire) dealers offer a wider range of services than Discount Tire. “

There could also be “ripple effects” on the supply side, according to McCarron. But the deal “is not a clearance sale, where Tire Rack struggled for many years or failed. It’s definitely a smart move on Discount Tire’s part to go from pure brick and mortar to adding a distribution channel. “

McGregor adds that more transactions involving direct-to-consumer models are not out of the question in 2022.

Direct-to-consumer businesses in the M&A world “are just much more valued than traditional model businesses. It has to do with the margins, at the end of the day.

Acquiring Tire Rack “is really a smart thing that Discount Tire is doing,” says Healy. “A property like Tire Rack doesn’t come around very often. Whenever a market leader and another market leader meet, you need to pay attention to it.

Click here to read MTD’s December 3 report on the acquisition announcement.