Automotive Retailing Takes to Salsa, Tommy Bahamas and Tacos
By Rupa Ranganathan, Ethnic Strategist, Strategic Research Institute
(www.srinstitute.com)
At a time when automotive manufacturers are all jumping onto the bandwagon of “employee discounts,” automotive dealers are also vying with each other to make their outlets unique and the preferred choice.
The New York Times of July 27, 2005 highlights the efforts of “Z” Frank Chevrolet, named after Zollie Frank, who founded the Chicago dealership in 1936.
A year and a half ago, the current owner of the dealership and son of the founder, Chuck Frank, had difficult decisions to make. The dealership had been losing money (nearly every month for a year leading up to June 2004).
To “rescue his family’s legacy” as the Times piece written by Alexei Barrionuevo put it, Mr. Frank cut costs by firing one-third of the dealership’s employees and refocused his marketing by targeting the Hispanic population that was growing up around the dealership.
Customers who walk into “Z” Frank Chevrolet today may find themselves greeted by Spanish-speaking sales staff wearing Tommy Bahama shirts with salsa music as a backdrop. Kids and others waiting in the showroom can watch Telemundo. Once a week, customers are treated to free tacos from a local Taco salesman.
Between 1990 and 2000, the Hispanic population accounted for 67 percent of the Chicago market’s population growth. And between 2000 and 2012, “Hispanics are projected to account for 100% of the growth in Chicago,” according to a market profile published by Marketing y Medios in December 2004.
Moderator’s Comment: Do “Z” Frank Chevrolet’s efforts to create an atmosphere within its dealership that speaks to Latinos give it an advantage in
attracting these consumers versus other dealerships sticking with a broader market approach?
– Rupa Ranganathan – Moderator
“Hispanics are projected to account for 100% of the growth in Chicago” between ’02 and ’12.” Yes, Dr. Banks, that is a head scratcher. What is probably happening is that the area is declining in population. For every 10 people leaving a defined area, such as the Chicago city limits, there might be 5-9 Latinos moving in and only 1-2 “others.” There may be no real growth; it’s just demographics changing. It’s just a numbers game the reporter is using to make a point. The Latino population might even be 200% of the growth.
If a dealership was going to open in Puerto Rico, Mexico or even Laredo, Texas, what would be its format? Instead of going to Puerto Rico or Mexico, it’s like Puerto Rico or Mexico has come to Chicago. So the dealer was simply adjusting his format.
My guess is the product mix will change and be more skewed towards used cars and financing. Sales might even go down but gross margins will go up. I see the same thing happening with supermarkets. I did a study for an operator who nearly doubled his perishables offerings within the same size box. Overall sales stayed the same but he was selling more items with bigger markups and a lot fewer low margin center store items.
I’m guessing they’re really guayabera shirts, Al (they have those vertical pleats in various places and often some decorative stitching). What I’m having trouble understanding is the statement that “Hispanics are projected to account for 100% of the growth in Chicago” between ’02 and ’12. That’s a head-scratcher.
In the auto business, it’s difficult for unproductive employees to hide because most positions are based on measurable production and/or commissions. To fire a third of the employees means that “Z” Frank had to cut productive employees and the revenue they produced.
The most profitable areas of new car dealerships are, in order of priority, Financing, Used Cars, Service, and Parts. Profit on new cars is well down on the list. (However, dealers all over the nation who wish to create volume and make money on new cars are doing so online.) I saw no mention of the four most important profit generators or online marketing in the article, leading me to believe that after Chevy’s employee discount promotion is terminated, “Z” Frank will revisit its financial problems.
Without stepping into any stereotypes, what would a Hispanic festival of autos and trucks look like? Seems to me it would be lively, entertaining for the entire family, and very colorful. Most car dealerships are austere and intimidating, just the opposite of what this target group is expecting. Add to the mix fast talking salesmen and you can see why changing the image of a dealership might be ripe for the picking. I’d like to shop at that kind of place.
First, I am very familiar with the demographics of Tommy Bahama, and Latino is not right. There are fashion labels that are, in fact, aligned with that demographic.
My initial thought is that there’s much positive in seeing yourself as a true retailer. True retailers put attention into the shopping environment they create, aware that this is an aspect of the destination decision. Auto dealerships are retail outlets. There is risk associated with niche shopping environments, but significant upside if the niche is large enough and poorly served.
The larger issue, like most retailers know, is the management of the assortment. If I were consulting for this company, I would urge them to look at the accessories they are ordering for their stock, at the colors, the treatments, and the packaging. Are these aligned with the customer segment they are going after? I can’t pretend anything beyond poorly informed stereotypes for specifics, so I won’t try. But I know in every single other area of retail where lifestyle image is involved (and you better believe it is in a car), paying attention to the assortment pays significant dividends.
The light truck note made by someone else in this space may be a very good example. If this customer segment buys light trucks, and you are focusing on meeting their needs, then why don’t you have light trucks? And it’s not just light trucks…it’s what colors, with which factory loaded extras at what pricing.
Retail is retail. Apply the fundamentals and you’ll be successful.
While it may be true that most auto purchases are based on price, learning about and understanding the Latino market in an area where more and more of your customers are, in fact, Latino is simply smart marketing. Latinos tend to shop on price and trust. How do you keep them from making the trip outside of their neighborhood? The more inviting the dealership, the more comfortable that you can make your customers, the better chance that they’ll stay and shop in their neighborhoods. The Tommy Bahama shirts? That’s easy. Tommy Bahama screams quality and the tropics and a casual setting. Business in Latin America is about relationships. It’s conducted in “Guayaberas,” in Spanish and on a handshake. No this model might not work everywhere but, in my old neighborhood…..definitely. Good job “Z” Frank.
The NYT article noted that “Z” Frank does not sell light trucks. Everyone knows that Chevy does a huge volume in trucks, particularly pickups. “Z” Frank’s refusal to “just give the lady what she wants” (allegedly a quote from John Wanamaker) qualifies the dealer for recognition from the Sales Prevention Institute.
“Z” Frank noted in the article that customers were asking for hybrid cars. I noticed in a recent article in Business Week that hybrid parts cost the auto manufacturer about $400/car. Hybrids are often priced at least $3,000 more than gas-only equivalents. So the margin for the manufacturer and dealer seems substantial. If the BW article info is accurate, then GM certainly deserves a Sales Prevention Award, too.
If “Z” Frank had trucks and/or hybrids, I bet the sales increase would beat the living daylights out of the taco stand strategy. And when “Z” Frank goes out of business, perhaps the whole showroom could be converted to a restaurant.
This sounds like a decent effort by an auto dealer to create a better shopping environment. Still, as the article indicates, most auto purchases ultimately come down to price, quality, and value. It’s great to create a better shopping atmosphere, but the bottom line is what you’re selling. Side note: Anyone else having trouble figuring out what having salespeople wear Tommy Bahama shirts has to do with the Hispanic market?