Polished and Ready to Roll
Rollie Benjamin, president and CEO of ABRA Auto Body and Glass, likes to monitor the weather, but not because he’s planning a 9 a.m. tee time. He wants to know how much work to plan for over the next few days. Rain, snow, sleet, and hail are all sure to bump up business as motorists skid into ditches, tailgaters misjudge their braking ability, and slippery roads send vehicles crashing into guardrails, street signs, and each other.
As one of the largest multiple-unit collision and repair shops in the country, Brooklyn Center–based ABRA repairs dented, scraped, and smashed cars through its corporate-owned stores in six markets: the Twin Cities, Milwaukee (including Madison), Atlanta, Memphis, Denver (including Colorado Springs), and Salt Lake City. The company’s mobile glass division replaces and repairs cracked and chipped windshields in the same markets, and its franchised shops in midsize markets offer auto and glass repair.
ABRA is weathering the steepest economic downturn since World War II while positioning itself for growth in the same way it rose to the top: through careful expansion and deliberative positioning. The firm has shown steady growth over its 25-year history, and it knows how to read the market as well as the weather—and grow in spurts when opportunities arise. When the economy improves, ABRA’s top managers expect their careful planning to provide big opportunities as they expand into new markets, scooping up smaller multi-unit shops, many of which weren’t as fortunate in the downturn.
“We are very confident that we have the ability to integrate acquisition or franchise units to a degree we never have in the past—and that’s huge,” says Benjamin, who cofounded the company in 1984. When the next expansion phase is complete, about five years from now, Benjamin expects his company to have doubled its annual revenues, from nearly $250 million to $500 million.
That expansion will be driven in large part by some profound changes in ABRA’s industry. There’s consolidation occurring in what many would assume to be a kind of cottage industry (or garage industry, if you prefer), and business models in the collision- and windshield-repair industry, as in so many others, are experiencing big changes.
Zero to 50 in 12
ABRA is one of the four largest multiple-unit collision repair shops in the country. Benjamin estimates that California-based Caliber Collision Centers, which operates in California and Texas, is slightly larger on a revenue basis. The Boyd Group, headquartered in Winnipeg, is of comparable size: It operates Gerber Collision and Glass in the United States and overlaps with ABRA in some markets. Carstar Collision Centers, based in Kansas City, owns more than 200 franchises nationwide, none in Minnesota.
Jason Stahl, editor of BodyShop Business, estimates there are between 42,000 and 45,000 collision repair shops in the U.S. Two years ago, the number was closer to 50,000. Stahl believes that shop numbers could decline to fewer than 30,000 within 15 years. “Industry experts say 20,000 shops could handle all of the work there is today,” Stahl says.
A vast majority of multiple-unit collision repair shops operate in a single market. National operators like ABRA with shops in two or more major markets account for only 10 percent of U.S. market share, according to CCC Information Services, a Chicago-based software and service provider to the auto body and auto insurance industries. “And there are still a lot of single-unit operators,” Benjamin says. “The industry is fragmented, but shrinking.”
ABRA started modestly. Before opening the first ABRA, Benjamin owned Northtown Nissan in Fridley. He would send cars needing bodywork to a nearby shop managed by Randy McPherson. In 1984, learning of their shared desire to open a collision repair shop, Benjamin and McPherson opened the first ABRA (for Auto Body Refinishers of America, a name the company no longer uses). The shop, at that time only a few blocks from Northtown Nissan, still operates in Fridley, though at a different location.
In 1985, Benjamin and McPherson brought in another shareholder, Tim Adelmann, who managed ABRA’s second shop in Maplewood. In 1990, Benjamin sold his dealership and joined ABRA full time. Six years later, Benjamin and Adelmann bought out McPherson, who had a different vision of the company’s growth strategy. By that time, ABRA had 20 company-owned stores and 34 franchises with total revenue near $50 million.
That same year, ABRA brought in Duane Rouse as a shareholder and chief financial officer. A CPA and former audit manager with PricewaterhouseCoopers who had extensive CFO experience, Rouse developed a plan to raise money to fund McPherson’s buyout and ABRA’s next phase of growth.
The timing was just about perfect. “In the 1990s, insurance companies started expanding preferred-provider relationships. In our industry, they call them direct repair programs, or DRPs,” Benjamin says. “The insurance companies were looking for opportunities to do business with larger multi-unit operators with the goal being to reduce the number of individually owned vendor-operators they had to deal with. Private equity started to look at the changes in the market and that’s when the money started coming into the industry.”
Direct repair programs have given multi-unit shops a definite advantage. According to BodyShop Business, shops with these programs averaged $867,803 in annual revenue in 2008. Shops without them averaged only $362,788. By comparison, ABRA’s company-owned shops averaged $2.5 million last year.
The new management team raised its first round of private equity in June 1997. Ever since, Rouse says, ABRA has followed the same steady strategy: raising money, buying and building stores. Because the company can capture 100 percent of revenue generated by its corporate-owned shops, compared with royalties that average 4 percent from its franchises, it decided to first buy back its franchises in the Twin Cities and Memphis, a strategy that led to substantial revenue growth. Growth also occurred through acquisition and expansion of stores in both Memphis and the Twin Cities, and through expanding into new major markets. In 2004, the team applied the brakes to growth and focused on filling in capacity. In other words, ABRA executives believe that their shops could be taking on more work.
“For the past year and a half, we have been working on implementation of an operational excellence initiative to become more efficient in our production throughput,” Benjamin says. “As we get better at that initiative, we are realizing we probably have more capacity than we had in the past.”
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Currently, ABRA operates at about 70 percent of capacity, but is shooting for 80 percent. “It’s a moving target for us,” Benjamin says. “What is the best capacity?”
One measure of efficiency is “work in process,” which calculates how fast inventory is turned. This is where most of ABRA’s capacity efficiencies have come from and where it expects to see future efficiencies.
“If you get technicians a very thorough repair plan, and all the parts they need to fix the car, they don’t have to stop in the middle, put the car aside, start working on another car, and wait for more parts,” Benjamin says. “In the old days, we used to think to move 100 cars through a month, we needed 50 in process. Now we’ll hit the 100 cars delivered with only 20 or 25 cars in process. If you have 50 cars in process, you also have 50 customers to deal with. It creates inefficiency.”
The company nearly doubled the number of total shops it has from 54 in 1997 to 96 in 2008. At the same time, it reduced its franchised stores from 34 in 1997 to only 23 in 2008. Revenue over the same period soared from nearly $50 million to roughly $247 million. Of ABRA’s 96 shops, 23 are in the Twin Cities; all but a couple, whose owners have chosen not to sell, are corporate owned.
After logging its most profitable year ever in 2008, ABRA prepared for a slowdown.
Roadworthy Despite the Crash
The company’s same-store sales fell 2 percent in the first quarter of 2009. The second quarter was even tougher: down 10 percent. “We think that might carry through the balance of the year, with maybe some recovery in fourth quarter,” Benjamin says.
The slowdown can be attributed in part to cautious underemployed or unemployed consumers who, when faced with the choice of fixing a smashed fender or simply cashing the insurance check, opt for the latter. Appraisal data gathered by CCC Information Services suggest that between July 2008 and July 2009, 2 percent fewer consumers are opting to get their vehicles fixed when the repair isn’t critical to its operation.
That’s not all. The number of multiple-vehicle families who sell or park a car and cancel the insurance and the number of people who drop collision insurance also increase. Typically, four out of five cars are covered by collision, says Susanna Gotsch, industry analyst for CCC Information Services. “When unemployment goes up, that number drops,” she says. “More people opt out of non-mandatory coverage, and if they are in an accident, they are unlikely to get the car fixed if they don’t have insurance.”
As the recession eases, ABRA plans to pursue a twofold growth strategy. In midsize markets, it will grow its franchise business through conversions—it’s actually more profitable for ABRA to operate smaller-market shops as franchises rather than to own them outright. Meanwhile, the company will move into new major markets with corporate-owned acquisitions. The volume in these markets makes corporate ownership sensible financially.
“We’ve had company-owned growth to new markets virtually on hold the past five years, while we’ve been growing in our six major markets established prior to 2004,” Benjamin says. “The bigger opportunity over the next five years will be going to new markets and acquiring multi-unit operators as a platform. For example, we might go in and buy an operator with five or six units when we think the market could have 10, 15, or 20 units, then we start expanding with add-on acquisitions and maybe some new locations.”
ABRA is just starting to evaluate other markets, but they likely will be contiguous to existing markets, which would allow the firm to leverage the regional relationships it has established with insurance providers and parts suppliers. “We might look at Arizona; we might look at Texas, Florida, the Carolinas,” Benjamin says. The company has already identified 50 midsize markets to enter, including Sioux Falls and Fargo, as well as Greeley in Colorado and the Georgia cities of Athens and Macon. Nashville, Louisville, and Charlotte are also prospects.
Prudential Capital, one of the firm’s private equity shareholders, purchased the shares of ABRA’s other institutional shareholders as well as some shares owned by the management team to become the majority stakeholder in 2006. (Prudential lets ABRA operate with a great degree of autonomy.) That same year, Scott Krohn was promoted to senior vice president of operations and brought in as a shareholder, while Adelmann took over as executive vice president of business development.
“ABRA has done an excellent job of entering different markets, defining where its best opportunity is, and knowing what mix of business makes the most sense,” Gotsch says. Critics could argue that a firm moving at the speed of ABRA could be headed for a wreck. But ABRA’s management team has been through rapid growth before and believes the firm is polished up for a long, smooth ride. And they see the road hazards clearly. They’ve pinpointed the optimally sized shop at 12,000 to 15,000 square feet doing $3.5 million in annual revenue.
Other competing firms may just find themselves in ABRA’s road dust. Unless, of course, they climb aboard for the ride.