Diamond in the Rough

What’s that old saying? “Fool me once, shame on you, fool me twice, shame on me?”

Well, shame on me. In fact, shame on all of us, shame on the whole entire auto glass aftermarket industry.

I didn’t quite get it the first time round in 2000, but I see it crystal-clearly now. In fact, let me raise my can of Bud in honor of Diamond Auto Glass. They have put forth, and will profit by, an amazing strategy, similar to the one Safelite used eight years ago.

Now, to most of the world, it seems like both companies laden with debt like a teenager with acne, had decided to shed it through a process known as Chapter 11. It’s a brilliant strategy and it goes like this:

Keep your prices artificially low. Charge too little or pay too much for product. When the rest of the industry screams out that “you can’t do it for that,” smirk and say “yes, we can and we are.” Imply liberally that those other companies are just not run by savvy businessmen, or just aren’t as good at business as you, the big national corporate boy.

And don’t forget to pound into the heads of your insurance customers that the rest of the industry is woefully inefficient, just small mom-and-pops hanging on to a business model that has long since ceased to work. Pretend you feel sorry for them.

Hang on to your secret, the one that Diamond (and Safelite before it) don’t ever mention: that it turns out those screaming independents were right. They couldn’t do it for that—and neither could you. You were losing money at the prices you charged. And, despite being able to one of the largest volume buyers in this country presumably having some of the lowest material costs, you were too. Diamond was barely profitable EBITDA and wasn’t profitable after.

But none of that matters really, because Diamond is a big company and filed for Chapter 11. It will shed all that debt and will be bought eventually. Even Safelite’s owner Belron has expressed interest, probably just to keep it out of the hands of anyone else.

But here’s why I’ve been fooled again. I have to ask: how many smaller companies went out of business during Diamond’s reign? How many mid-sized ones had to sell out because they couldn’t compete? How many of them get a second chance Diamond does? How come they get to take others down while they can rise again?Maybe Diamond’s strategy (and Safelite’s before it) had little to do with making money and more to do with eliminating competition. If so, it’s brilliant. It just shouldn’t be legal.

Where's the Beef?

Come with me on a ride. Let’s head out early one Sunday morning for a trip down I-95 from Dillon, South Carolina to Orlando, Florida. That should be about nine hours or so of driving. It’s going to be a long day on the road, but we will make a few rest stops and break for an hour or so for lunch.

I-95 has pretty good signage (except in Connecticut, but that’s another story) and at every exit it tells us what food, gas and lodging is available.

It’s 1:15 in the afternoon and now we are hungry. We could go for some really good All-American hamburgers for lunch. So we start reading exit signs. One exit near Jacksonville has Taco Bell, a McDonalds, a Pizza Hut and a Joe’s Beef and Burgers. Great, we think, two choices of hamburgers.

So which should we choose? We know McDonald’s; heck, we see them advertised every day. We don’t know anything about Joe’s but the word “burger” is in his name. Is Joe’s a really good local place or one of those just-get-a-sign-on-95-and-it-doesn’t-matter-how-the-food-tastes place? Would Joe’s be a great burger experience (and we fancy ourselves connoisseurs of great burgers) or a salmonella shack?

We hem and haw, but we really just don’t know, so we end up choosing McDonald’s. The food may not be great, but it’s never really bad and we know that the staff there is trained and retrained on sanitation and safety. So in we go and each have a burger and fries that could be defined as, well, adequate. In fact the whole experience is just satisfactory. Joe’s may have been great, but we’ll never know. We chose mediocrity over the potential for greatness because we knew what we’d be getting and it wouldn’t be great, but it wouldn’t be bad.

I’ve used a hamburger analogy before, but it’s never been more timely than now as Safelite has just hired a new executive who comes from … you guessed … the hamburger business (CLICK HERE for related story). Matthew Johnson is the company’s new media director and he comes from Wendy’s International. He also has worked for Lenscrafters and a number of companies with a strong national presence. Couple this with Safelite’s announcement last week it is going to use a number of its employees in upcoming advertising and you can see where this is going.

I’d expect to see a series of commercials, both print and radio, in the company’s associates’ words about how much they care, how important quality is and how calling Safelite is like calling the neighbor down the block. I’d expect these advertisements to be the rollout effort in building a national brand.

So are those who compete against Safelite doomed? Hardly. A number of Safelite’s senior executives have been quoted saying how difficult it is for the company to compete against local companies that have a strong brand and presence in that location.

Let’s go back to our I-95 journey again. Suppose that I’ve stayed in Jacksonville before and seen “Joe’s Beef and Burger” in local advertising and sponsoring community activity. Suppose I hear them on the radio as I pass through. Suppose I have a friend who lives in Jacksonville who has eaten at Joe’s for years and mentions the restaurant to me. Do you suppose I’d try Joe’s then? Of course, I would.

So the goal for companies that compete with Safelite is to create a pond that you can dominate. This is easier for a small company than a regional player. Choose a market size that you can dominate, and then get to work doing just that. Even if it’s a small part of just one town, make it yours. Create an experience for the customer that is so superior to what a national chain can provide that you will build loyalty that lasts for generations. Right now, I’d be preparing some advertising talking about how locally grown my company is, how much I care about safety and what a superior installation job I can provide. I’d explain carefully that my company is not a big conglomerate or chain, nor is it really a British or South African one. If I was AGRSS-registered, I’d mention that. “I’m your hometown, homegrown auto safety guy,” I’d be telling potential customers.

And, whether I’m selling burgers or windshields, they’d be great, safe All-American ones.Pass the ketchup.