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Franchising fan Featured

6:35am EDT May 25, 2004
Steve Sanner knew nothing about the automotive service industry when, in July 1985, at the age of 25, he and his partners, Jay Greenfield and Jack Niggeman, purchased nine Jiffy Lube locations.

Sanner, now president and CEO of Indiana Lubricants Inc., says the stores' 60 employees were more knowledgeable about the business than he was, but he didn't let that intimidate him.

"I'm 6'4" and weigh 230 pounds," Sanner says. "No one would mess with me."

But it was more than Sanner's size that helped him grow those original nine locations to nearly 50 today. It was his belief in franchising and his determination to learn about the business as quickly as possible. The three partners' original plan was to start with one location. But when the opportunity arose to purchase nine stores, the partners didn't hesitate.

"The seller didn't want to wait for bank financing," Sanner says.

So Sanner called Jiffy Lube's corporate office, and within hours, the company sent him $1 million for the transaction via private jet. That, he says, is one of the advantages of franchising.

Sanner and his partners were no strangers to franchising when they partnered with Jiffy Lube. Each had some experience with McDonald's and was successful. But Sanner and his partners wanted to try a franchise that offered more entrepreneurial freedom.

"With McDonald's, you sign a 20-year lease," says Sanner.

He says this doesn't allow the franchisee to own anything or build an asset base. With Jiffy Lube, the franchisee owns the stores, and has more flexibility and a lot of corporate support.

"You don't have to reinvent the wheel," he adds, saying that the mistakes have already been made and corrected. But he cautions that not all franchises are as worthwhile as Jiffy Lube and advises potential franchisees to only go with companies that are operationally strong and have been in business for some time.

Smart Business spoke with Sanner about the benefits, drawbacks and challenges of franchising.

 

Why did you choose Jiffy Lube as a franchise?

 

We bought nine locations when I was 25 years old in July 1985. We built three more, which opened in April, May and June of 1986. The original plan we -- my two partners and I -- had started when we went to Jiffy Lube's headquarters in Baltimore (the corporate headquarters is now in Houston) was to find out what territories were available. We planned to eventually have hundreds of locations and take the company public.

We were looking for large territory in Michigan, Indiana and Kentucky. In 1985, I moved to Indiana to find locations. I was to run the first location in that state, find a second and train an assistant. I planned to learn the business from the ground up, and we hoped to expand as fast as we could.

Then we learned about nine 10 Minute Oil Change stores that were available, five in Fort Wayne, the rest in Lafayette, Kokomo and Lexington, Ky., and we felt it was a great opportunity. The owner didn't want to wait for bank financing, so I called Jiffy Lube and explained the situation.

I was told to go to the airport, that they were sending a jet and I would have a check for $1 million in my hands. We consummated the deal in 45 days, got our bank financing and sent back the money to Jiffy Lube. That's one of the reasons we are extremely loyal to Jiffy Lube; they got us into the business.

But it shifted from me managing one location to having nine locations and 60 employees. All of them had been in the business for some time, and I walked in and changed the way they were doing everything. We offered more services and did things differently.

They were all better than me at the mechanics -- I had no mechanical background. They all knew more than me. But my size helped me.

My two partners were older than me and were McDonald's franchisees. In 1983, I made a concerted effort to go after some McDonald's locations. There are a lot of similarities in the two businesses. They basically use the same work force and have the same challenges. It's a joy to take those young kids and move them up, watching them start their lives.

Both businesses offer fast service, a clean store and are service-oriented. Really, they're not that different. The big difference, however, is in building equity. With McDonald's, you're not building an asset base. McDonald's owns the building.

With Jiffy Lube, you own the real estate. And the other thing that is appealing is that you enjoy a real entrepreneurial spirit with Jiffy Lube. With McDonald's, over time, they really lost that entrepreneurial spirit.

 

In your opinion, what are the pros and cons of franchising versus starting a new company?

 

There's some safety with a franchising system in place. We know if we follow the plan, we'll be successful. Others have already made mistakes learning the business. And there's a network of franchisees as resources.

At Jiffy Lube, we are a very active group, meet regularly and share information and ideas. Everyone I talk to values the relationship we have with Jiffy Lube International. We work together with International on marketing, training and procedural issues.

I've heard horror stories of good people franchising with a company that only has five locations and in business two years. They couldn't possibly have learned an effective formula. The franchisor has got to be operationally strong and in business for awhile, or it won't have the needed financial or operational strengths.

The con is that, financially, you pay a royalty. We're paying $1 million a year in royalties to have the Jiffy Lube name and services. Sometimes I say to myself, 'Hey, I spent $1 million, do I get that money's worth from them?'

That's a huge amount of money. But we'd never have gotten where we are without them, and that's just 4 percent of sales. Some franchisors get 10 to 12 percent in royalties right off the top, so the Jiffy Lube situation is much better. And franchising can be like having Big Brother watching you.

I've heard that some franchisees have had ideas and didn't get support from the franchisor or even were penalized. For the true entrepreneur, franchising can be restraining, but from my experience, it's been a good thing.

 

Do you feel you are given enough freedom to effectively operate the business?

 

One of the things we purposely did was buy a large geographic area so as not to be part of a co-op but call our own shots and be fairly autonomous. There can be conflicts with other franchisees. We're not allowed to be within three miles of each other, and in a lot of markets, there are stores within three-and-a-half miles of each other, and they are competing with each other.

Before Pennzoil -- the parent company of Jiffy Lube -- merged with Quaker State, we were the only franchisor in the state of Indiana. After the merger, several Quaker States opted to operate as Jiffy Lubes, so that is not the case now.

 

What makes Jiffy Lube different from its competition?

 

What's made us successful is we've developed a real passion for the business. We take pride in developing our people, and we have a family environment. We work hard to satisfy customers.

I once counted 760 places to get an oil change in the Indianapolis market. Most of those places charge far less money. No one can do it faster or use better products. We have to be better, quicker and take care of the little things, like vacuuming the interior and washing the windows. That has been the key to our success for 19 years.

 

Has the negative Primetime episode, which aired Feb. 19, impacted your business? Have customers voiced concerns?

 

You know you've become a strong brand when the national media are out to make an example of you with hidden cameras. The show was about a Jiffy Lube location in North Carolina. They [Primetime's staff] went to quite a few locations. They didn't report how many were doing it right.

One guy sold a fuel filter but never actually replaced the filter on the car. Our annual award banquet took place two days after the show aired, and we watched it before the banquet. We were appalled. We are putting procedures in place to make sure it can't happen at our stores.

But across the country, sales went up; it didn't have a big impact. What we're going to approve in Indiana is we will take some black plastic trays and everything we take off the car will be placed on the tray and shown to the customer.

 

What are the biggest challenges of managing so many locations?

 

We have good people. We have a director for every seven locations and a vice president of operations. I believe in regular meetings. And I e-mail all the time. If anything, I'm guilty of overcommunicating.

The frustrating thing for me is that when we had 20 stores, I knew every manager, his wife and kids, and most of the technicians. I can't be in all the stores anymore, so that is not the case now.

Communication is the key. We try to keep it fun and keep everyone pumped up. We take a lot of pride in our people.

It's not easy to get a job here. We're tough -- we have high standards. We drug-test everybody. The message is, you need to be serious when you work here. We want you to come here serious about building a career.

What areas/processes are you working to improve?

We have instituted a change in procedures designed to give us better definition of duty and more focus on our guests. Prior to the change, our technicians interacted with the guests. Now, some employees work strictly on the car, others spend more time with each guest.

The guests have a better understanding of our services and feel they are taken better care of. This change increased labor costs because we had to hire additional staff but speeds up the service and gives our guests better experiences. We started this new procedure in all 49 locations.

This will take us to the next level if we can speed up service. Nineteen years ago, if we had three cars in the bays and six cars outside waiting, when the 10th car pulled up, we'd run outside and let him know he had an hour-and-a-half wait. The guest was OK with that then because the alternative was to drop it off at a dealer for a day.

Now, if there isn't an open bay within five to seven minutes, the guest doesn't wait. We created our own monster. How to reach: Indiana Lubricants Inc., (260) 483-8518 or www.jiflube.com