RER: Why is Volvo launching a worldwide rental network?
Mike Farley: We make small compact equipment, and we are trying to figure out a way to get that to the marketplace. So Volvo hired me to see if we could figure out a way to get them to the rental market. They had been testing franchising in Germany, we had four pilot stores that had been running for about a year prior to me getting there.
First let me talk about the package. Here are the four cornerstones of the package: There's the Volvo name first. Second, we offer a financing package that's pretty complete, covering everything from fleet to buildings to service trucks to signage and branding.
We then offer an IT system, which we give to the franchisee lock, stock and barrel, it's called V-Rents, a customized system made by Texada out of Toronto. It's Windows-based, we like it a lot, it's easy for us to use, we can do anything we want to do with it. Because it's Web-enabled we have the ability to help our franchisees with everything from benchmarking to utilization issues to sale of equipment.
Then we offer the Volvo product line. We have the mini-excavator line and a small compactor line. We have since bought some additional products specifically for this program — the Scat Trak product and the UpRight telehandler. We're building our own backhoe, so now we've got basically backhoe and below.
So we've consolidated the buying power of Volvo and we're negotiating best pricing based on our credit, so that's worked out very well for us. We have nearly 100 contracts in place today with manufacturers and the pricing discounts are substantial and so we offer that to the franchisee. When someone signs on with us, he gets our name and our ability to buy fleet, and we help mentor him into the business. We're looking for people with rental experience; we're not looking for a McDonald's franchisee to buy a Volvo franchise.
What kind of owners are you looking for?
Farley: We think there are basically four categories of franchisees: we offer the package to Volvo dealers first. We think some of the ‘mom and pop’ owners will be interested and there will be people on the ex-owner side whose non-competes are ending and may have an appetite to get back into the business. Then we have a sweat equity group package for guys that are currently in the business but want to open their own business. So that's the four groupings we're going after.
Probably 70-75 percent of the requests we're getting so far are from independents. This program levels the playing field. It gives the independents a chance to play on that level playing field with the big guys for the first time. So it has created some excitement within that group.
There's a franchise fee?
Farley: It's about $25,000 up front and then we charge 4 percent of revenue, and there's an additional 1 percent for cooperative advertising for our dealers or franchisees to advertise. There's a big pool of advertising dollars available.
What's been the reaction of the manufacturers?
Keffer: Very enthusiastic. Some manufacturers have lost some self-respect. Consolidation will do that to a vendor. They think of their product in terms of features and benefits and all of a sudden it's commodotized right before their very eyes. So we offer them an opportunity to have another outlet for their product.
Can franchisees choose the allied products they want to rent in their business?
Farley: Our role becomes more of a mentoring role, rather than telling them “you've got to do it this way.” That's what the independents like about it, they still have their own business, as long as they can work within the parameters of the program and quite frankly they have accessibility to more product. If he has a successful business and is making money with a different product segment, certainly it makes sense for him to continue with it and just build his customer base around our products.
In product categories that we build, they can only buy Volvo products, but in other areas, we try to come up with two or three vendors to support. We try to consolidate buying power so they'll have better pricing, but they do have some options.
I can't sit in Brussels and Del in Nashville and dictate to a guy in Alabama what product will serve best in his market. Obviously we do from a Volvo perspective, but with other products we try to work with them. We are concerned about quality of products, that's a big issue to us because of the Volvo name. And we're concerned about re-sale value and the financial strength of that manufacturer and the pieces that go with it. We have a whole series of things that we look at when we select vendors and it's not just price.
How small will you go in equipment?
Keffer: Floor sanders, wallpaper steamers. It depends on the company. We want to give the top-line expertise, but when it comes right down to the local business, and knowledge of that local business community and homeowner community, that guy is the expert. He's dependent on our expertise from the high end, but we're depending on his local expertise. We want him to get all that business. That's what we think is missing today. A lot of companies try the cookie-cutter approach and it doesn't work.
Will franchisees keep their original name?
Farley: No. There are a couple of things we won't deviate on. One is you have to use our computer system and, two, you have to use our name, Volvo Rents, even though each franchise is independently owned.
How fast will you open more stores?
Farley: We're targeting somewhere close to 100 stores in North America this year, pretty much the same in Europe and probably follow that pace for the next four or five years. We look for franchisees that can do five, six, 10 or more stores.
Will you only convert Volvo Rents stores from existing rental centers or will you open new stores as well?
Farley: We have a concept on start-ups, using prefabs, that are all pre-wired, pre-branded, the furniture is in them, we drop them in, put up a fence around it, put a wash rack in and service bays. Then you bring in the fleet and you're ready to go. The franchisee can test it, if it's a bad location, it's moveable. Which is a big plus to some people.
We think the days of the big Taj Mahal rental stores are over, it doesn't make any sense with the rental rates we're getting today in the rental industry to tie your capital up in big buildings.
If an existing rental company becomes a franchisee, won't there be significant issues of culture and style of doing business?
Farley: It's been an issue for us, but it's been a good issue. We like the guys who are out there being creative. We just want to give the support and level the playing field for him. What we're really looking for are companies that are really good at service because that's what we think is missing in the industry today. We want to supply them with good quality products and add the service to that to become the best in that area.