MARKET FEATURE: Filter Business: New Opportunities, New Categories

Selling filters profitably in a hyper-competitive market requires an approach that targets the fast-turning segment and the more lucrative niche markets separately.

Canadian jobbers coast to coast know that the rapidly moving oil filter numbers have come under increasing price pressure from car dealers, wagon peddlers and other jobbers.

“It’s become quite price-competitive,” says Stan Boyd, manager, UAP Associate Rotary Auto Parts in Dartmouth, N.S. “A lot of garages tie in an oil filter change as a free service or a loss leader, which makes it hard to sell the dealer on quality.” Boyd says that there are exceptions, newer applications for example, but as a rule, the oil filter market is a service item for his market.

Westward, in Montreal, Que., the situation is similar, though the approach of Richard Lavigne has its own distinct flavor. Managing the four-branch jobbing operations of Pieces D’auto Paul Lavigne has required some very detailed line evaluations.

“It’s a good business and we’re dong very well in it,” says Lavigne, “but we need a couple of lines of different quality. If you have a first quality line and a second quality line, then you can do a job with oil filters. There are many peddlers and even the OEs have a second line.” He says that he has been forced to carry a white box short line as a result, and he simply mirrors the numbers and pricing of the most price-competitive oil filter offering in his market. “More and more (shops) are asking for price. Now the guys shop around. Maybe they have too much time not working to shop around,” he says, only half joking. “Still, if you offer two lines, you can compete.”

In addition to this more or less standard approach, Lavigne has found it helpful on some of the less popular numbers to try to pick apart the offerings of his full line supplier for certain numbers that he can source elsewhere. This is usually on the slower moving, higher priced import filters, but it has allowed him some price advantages in the marketplace, while still being able to retain strong profits on some specific numbers.

Profit and price go hand in hand wherever you are selling, but in Ashern, Man., a premium is placed on availability. Lyle Hornby, owner of Northern Lites Auto & Farm Supply, says that being the only auto parts outlet in town–there is only one tractor dealer and no car dealerships–allows him some latitude on pricing. Ashern is a good hike from the nearest town and two hours from the nearest city, which puts a premium on service. It also, naturally, puts a premium on inventory.

“We carry a really big line of farm tractor oil filters and fuel filters. We have by far the best selection in a 50-mile radius.” Overall, says Hornby, the company inventories 460 numbers, including oil, fuel and air filters, being sure to stock enough filters for applications that require multiple filters.

“We get caught occasionally on some of the new stuff, but for anything 10 years old or older, we probably have it in stock.”

Service is, of course, a relative term, and stocking levels depend on your proximity to additional supply, and even Northern Lites has to resort to the occasional overnight order. “We’re far enough out from the city that if I don’t have a filter on hand, (the customers) are happy enough to not have to go running around looking for it.”

For Jeff Hackney, owner of Carquest Associate Watford Auto Parts in Watford Ont., price competition is so severe that it has curtailed the oil filter volume he can do. That, he says, is partly because he has chosen not to engage the enemy. “We don’t do big numbers because we don’t discount.” While he has elected not to fight over pennies in the five or six high volume numbers, he still carries a full line and still gets the call when the application is less popular or the local short line supplier can’t fill the order. “We can get good dollars for them because we have them. The car’s up on the hoist and the technician wants one right away.”

Hackney says that the air filter market is more lucrative, because of the multitude of designs and the related fact that garages seldom stock them anymore. The downside is that air filter volume is not what it once was. “They don’t look plugged up; they must be sucking the air up differently in these new cars.”

Gardiner Dye’s experience on the West Coast is, not surprisingly, similar on the fast moving numbers: price competition has created the necessity for a short line.

“The oil filter market is one that hasn’t changed much in the last few years in my estimation,” says Dye, who owns Auto Sense member Central Auto Parts. “The popular numbers are still very price sensitive, and always will be. Dual lining seems to be getting more and more important all the time. Now with the advent of specialty stores, the regular garage is trying to keep in line.” Dye explains that the import market is so important in B.C.’s Lower Mainland that even Wal-Mart stocks the import filters that other markets might consider rare. “Some of these filters are wholesaling at $10-12 compared to $1.99,” says Dye.

One man’s niche, it seems, is another man’s mass market. He says that, nonetheless, there is room to profit from a strong inventory.

“We sold an MGB filter, with a $28.46 suggested list.” Sure the price raised an eyebrow, says Dye, “but that one you can’t get at the drugstore.”

In a sense, dealing with the filter category means dealing with two very distinct segments: the high volume filters that may make up the majority of your sales in the category and turn quickly, which you need to carry to show you’re serious about the business; and the slower moving numbers that can still command a decent price point in the marketplace, which you need to carry to show you’re more serious than the short-line peddlers out there.

While the specifics of price sensitivity and slow movers’ margins may vary from location to location, it is clear that jobbers who ignore either part of the filter market do so at their own peril.