Which? found that you might well do better than a Kwik-Fit fitter and shares blipped, but briefly. Founder Tom Farmer got the message and took remedial action. Annabella Gabb reports.
The year started with a jolt for fast-fit car parts retailer Kwik-Fit. The New Year celebrations were scarcely over when the Consumers' Association's Which? magazine published a report on advice given on the condition of car exhausts by 204 Britain's fast-fit garage chains. Of the 43 Kwik-Fit outlets visited by the inspector, as many as 12 advised expensive, unnecessary work. For the industry's largest operator, it was a bad start to the year. The share price took a knock, falling 8p, but recovered within the day, thanks to the underlying strength of the company. Results to end-February 1991 showed pre-tax profits up a spanking 62% to £24.5 million on turnover up 21% to £216.8 million. Analysts expect figures for 1992, due later this month, to take profits well over £30 million.
But for an organisation which has predicated its marketing on the promise "You can't get better than a Kwik-Fit fitter" as made by the famous all-singing, all-dancing mechanics, the Which? report held serious implications. As competition in the car repair industry becomes ever fiercer in the 1990s, the service given to customers will be what counts in the battle for business. Recent in-house surveys indicate that Kwik-Fit is achieving 99.8% customer satisfaction. But evidence such as Which? revealed may suggest to the consumer that he might well better a Kwik-Fit fitter elsewhere.
It is a prospect that would upset Kwik-Fit's 51-year-old founder, Tom Farmer, who maintains that a small minority let down the whole company by ignoring basic procedures. Employees were called to crisis meetings nationwide and a code of practice that requires a fitter's diagnosis to be checked by another has been reaffirmed, to redress the balance.
Farmer is the personification of Kwik-Fit and proud of it. His ordinary face smiles out from all publicity material, pledging commitment to service and inviting customers to write to him directly with any complaints. A short, down-to-earth Scotsman, who still lives in his native Edinburgh - Kwik-Fit's base - Farmer patently loves his work. Set him off on the subject and he talks almost without stopping and with sustained enthusiasm. He has been in the parts replacement business since he left school at 15. A millionaire at the age of 29, he retired to San Francisco in 1969 on the profits from the sale of his first business, Tyre and Accessory Supplies, which took advantage of the abolition of resale price maintenance to carve a niche in discount tyres.
But Farmer missed the excitement of working life. "I think it was Hoagy Carmichael who said, "The trouble with retirement is that you, can never take a day off." That's how I felt," says Farmer. He returned to the UK with the germ of an idea. He had noted the success of "muffler" shops in the US and thought they would do well back here. Using former fitters he set up Kwik-Fit in 1971, initially in car exhausts but later in tyres, too, on the basis that each manager ran his depot as his own and shared in the profits. Three years later, when the business had grown to 14 centres, he sold out to GA Robinson for £750,000 and a seat on the board. Within a year, Robinson ran into difficulties, largely as a result of the Heath government's three-day week. Farmer's response was typically decisive; he bought out his fellow directors, sold off the loss-making elements and changed the company name back to Kwik-Fit. As Robinson had been a quoted company, in the process he acquired a stock market listing.
Growth was steady in the early years. By 1980, there were 52 UK outlets, plus a handful of centres in the Netherlands which had been part of Robinson. That year, however, two major acquisitions changed the company radically. The £10-million purchase of Euro Exhausts raised the number of outlets to 112. Months later, when Firestone announced its withdrawal from the UK market, Farmer picked up its 180 depots for £3.5 million, pipping Dunlop to the post. In a tidy deal, he then resold 82 unsuitable depots to Dunlop for £3.5 million.
Despite that boost, the sudden expansion to over 200 centres in one year took its toll on Kwik-Fit. Profits dipped for the first of only two times in the company's history. With hindsight, Farmer admits he had bitten off a lot. But he is unrepentant: "Two acquisitions in a year would put a strain on any company of that size. But you've got to take the opportunities as they come along. If we hadn't done it, we wouldn't be where we are today."
Key to the future success of the enlarged business was the introduction of computers. An initial investment of £2 million has since grown to a total of £7 million. Each fitting centre has a "management action terminal", a microcomputer which handles all administrative functions including stock movements, customer quotations and sales receipts, employee time and attendance records, and banking and cash reconciliation. This leaves the depot manager, known as a master manager, free to concentrate on the customer, and on managing his team of fitters, whom Farmer refers to as the "highest of the high".
With outlets now numbering over 600, including 121 in Holland and Belgium plus a score in Eire and Northern Ireland, administrative backup is crucial. But the basic formula has remained simple. The location must be convenience for home , shopping or work and highly visible on a main traffic route. Marketing director Peter Holmes explains why: "People do not travel far for "distress purchases". Each of our centres has a distinctive retail identity in fascia, colour scheme and design. They must look efficient and clean and are open 8 till 8, 363 days a year." Tall and slim, Holmes was managing director of Kwik-Fit's advertising agency until 1982. A "naturalised Scot", he was one of a handful of specialists brought in to the expanding fast-fit operation to give strength to its management.
From the start, the idea was to differentiate Kwik-Fit centres from the traditional perception of car repair businesses - the grubby workshop - and to make the customer's visit as painless as possible. As Holmes say, "We sell Michelin tyres as do our competitors; we sell exhaust systems as do our competitors; the differentiating factor must be service." With this in mind, Kwik-Fit's oft-stated aim of "100% customer satisfaction" - plastered liberally on the walls of every centre - was upgraded last year to read "100% customer delight".
Such slogans are as important in getting the message across to Kwik-Fit employees as for the customer. The group operates a clear career structure and spends over £2 million a year on training for all its 3,380 employees. As well as an apprenticeship scheme run in conjunction with City and Guilds, it introduced a graduate trainee programme in 1991. Something of a pioneer in an industry not renowned for training, Kwik-Fit has tailored its courses to meet its strict customer service aims. "What we look for in a Kwik-Fit employee is a can-do attitude, high energy and an ability to communicate," explains Farmer. "If they've got the right attitude but no qualifications, it's OK. We can train them." For those who have got what it takes, advancement is rapid. After apprenticeship, a fitter moves through one-star to four-star fitter, supervisor, trainee depot manager and master manager to "partner" - a manager with responsibility for a group of three depots, who may earn £25,000 or more by his mid-to late-20s. Each manager is encouraged to run his centre as his own and all employees qualify for profit sharing - paid in the third week of each month. Says Farmer, "The people who make or break our success are those in the centres. I've always believed it was good business practice that people should share in the profits. If they're profit conscious, they're cost conscious."
As the company has taken on the characteristics of a mature company, so the product offering has also been developed. Tyres and exhausts have been joined by shock absorbers, batteries and safety equipment, all fitted on a while-you-wait basis. In 1986/87, the company experimented with larger outlets, called autocentres, which could handle a broader range including brakes, engine tuning and oil changing. But, says Farmer, "they were not very successful. What we were doing was turning the clock back. So we decided to go back to basics." To maintain growth, however, another strong element was required. The market for exhaust systems levelled out in the late 1980s and another product was needed to take up the slack. The solution was brakes. These now account for 6-7% of sales, compared to tyres (50%) and exhaust systems (31%). Higher margin but lower volume brakes are now available in 370 centres and are being rolled out across the UK. Obviously, Kwik-Fit will have to find some additional offerings, but, says Farmer, "There is a very limited range of products we want to sell through Kwik-Fit".
The pace of expansion in the late 1980s and fielding a potential bid from German tyre giant, Continental, took its toll on profits. Results to February 1990 registered the second of the two profit dips in Kwik-Fit's history. Pre-tax figures were down 18% to £15.1 million. Farmer identified a need for action on three fronts: he curtailed expansion, reduced borrowings and set in motion a comprehensive cost-cutting exercise. The first was easy and simply involved being more selective of new sites. The second covered greater efficiency in stockholding, the sale and leaseback of some properties and the disposal of a loss-making French venture. Together these steps reduced borrowings from £43 million to £19 million. (They are now down to £15 million).
The third area, costs, was more demanding. "We could have slashed advertising, reduced training or cut labour costs. Each would have had an immediate impact," says Farmer. But in hard times, maintaining customer awareness is crucial, as is training - if prices become competitive, service (based on continuous training) is what makes the difference, drums out Farmer. "So we increased the training spend by £500,000 a year." Then there were labour costs. That option, too, involving the loss of 20 or so jobs, was dismissed, on the grounds that it would be too destructive of morale to be justified.
That left day-to-day costs. A team of eight was set up to monitor the centres, with the aim of saving £10-20 a day per centre. "We took 10 items and used the computer system to monitor them. If a centre got out of kilter, we got on the phone." The result was a saving of some £2 million a year. Together with the success of the newly introduced high margin brake replacement business and tightening up on suppliers, the exercise added up to a considerable improvement on the bottom line.
Despite its impressive results, Kwik-Fit has seen the effects of the recession from both sides. Farmer says that outlets, particularly in the South, have noted smaller job values, with people wanting less done on a visit. But the drop in new car sales could bring Kwik-Fit a fillip at Easter, traditionally a busy time, as people are hanging on to their cars for longer. The new legislation on tyre tread depth should also lift demand by some 5%. Now the company is gearing up for when the economy picks up. There are 20-odd new sites in the pipeline plus another 50 "very good" sites due to open in the next 18 months.
Outside the UK, Farmer expects measured growth. In Holland, the number of outlets was almost doubled two years ago with the acquisition of Jan Van den Broek's 40 centres and there are opportunities to increase market share. In Belgium, the current three outlets are set to rise to 40 in the next three to five years. Elsewhere on the Continent, Farmer would consider some form of joint venture. He got his fingers burnt in France last year when Kwik-Fit opened a number of centres on its own account. They never made a profit. Farmer admits that, "We did not spend enough time on planning or on understanding the market. If we had, we would have made sure we had French management in place."
Kwik-Fit closed its French depots early last year and has no immediate plans to penetrate new Continental markets. However, says Farmer, "If we found a partner in Spain, for example, we would go in. But we want nothing to do with the day-to-day management. We would bring the name, the relationship with suppliers, the experience in marketing the Kwik-Fit system." Meanwhile, Farmer is optimitsic about the opportunities in the UK. "There are plenty of profits to come here through increased efficiency and expansion," he says. With the national "car park" expected to continue growing, the future looks as bright as the past - as long as those Kwik-Fit fitters are kept on their toes.