Dave

Are the burger makers taking their lead from the farm equipment makers?

Probably not, but it’s interesting to read about both sides of the debate when it comes to multi-store locations.

In the April 17 issue of this newsletter, we reported on the growth of big farm equipment dealers in North America. Ag Equipment Intelligence had just released its “2012 Big Dealer Report” that showed that 187 dealership groups own five or more ag equipment stores. That’s up from 151 in 2009.

Based on research by Ag Equipment Intelligence and Currie Management Consultants:

  • 59% of John Deere dealerships are operated by groups with five or more stores
  • 37% of Case IH dealerships are operated by “Big Dealers”
  • 24% of AGCO dealerships are owned by dealer-principals with five or more locations
  • 14% of New Holland dealerships operate five or more stores
  • 9% of Kubota dealers fall into our “Big Dealers” group

This past year, we also counted 16 dealership groups that operate at least 15 locations. Together, these 16 dealers owned 499 total locations (both Ag and CE) and 368 farm equipment stores, or an average of 23 per dealer group.

The reason the burger makers are mentioned at the top of this column is because a May 21 report in the Wall Street Journal focused on how McDonald’s, Burger King and other food franchisers are pushing for their franchisees to get bigger. Sound familiar?

Here are some of the facts about multi-unit restaurants according the WSJ report:

 

# of Franchises

% of Total Franchises

# of Units Owned

% of Total Units

Food single-store owners

38,390

64.1%

38,390

23.8%

Food multi-unit owners

21,515

35.9%

122,882

76.2%

It doesn’t take a mathematician to see the dealer segment of the farm equipment industry is on the same path.

Today, the average McDonald’s franchise owns more than six locations, up from three 15 years ago. Regarding its smaller operators, McDonald’s says, “We will always have operators that own one and two restaurants. They are a very important part of our business. We always strive to grow our existing owner/operators into larger organizations.”

The report goes on to say, “Still, most chains say they’re actively seeking big players.”

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The arguments for and against multi-store food franchises are very similar to the ones we’ve heard in the farm equipment business such as customer service suffers as dealerships grow in the number of stores they operate vs. single-store, and smaller dealerships don’t have the resources to provide the services that farmers need today. And, of course, the list on both sides of the arguments go on and on.

Both sides have convincing arguments, I suppose, and there’s no comparison when it comes to choosing a dealership to work with or what burger you’re having for lunch.

But it seems to me regardless of how big a business gets, there’s always an opportunity for the smaller guy if he can set himself apart from the chain stores he’s competing against.

For example, except for an occasional breakfast sandwich when I’m on the road or to use the restroom, I haven’t stopped at a McDonald’s or a Burger King for several years. It seems to me the quality of their food, service and facilities has diminished as these chains got bigger.

There’s another chain called Culver’s that offers a better menu, better service and much nicer facilities. They’re much smaller than the national chains and their food costs a little more. Given the choice, guess where I’m stopping?

From my experience, getting bigger seldom equates with getting better. I hope our growing farm equipment dealerships can counter that trend and eliminate the perception created by their burger chain colleagues.