SpeeDee Oil Change and Tune-Up History

Address:

P.O. Box 1350
159 Highway 22 East
Madisonville, Louisiana 70447
U.S.A.

Telephone: (504) 845-1919
Toll Free: 800-451-7461
Fax: (504) 845-1936

Private Company
Incorporated: 1980 as SpeeDee Oil Change
Employees: 85
Sales: $60 million (1995 est.)
SICs: 7538 General Automotive Repair Shops; 6794 Patent Owners & Lessors

Company History:

SpeeDee Oil Change and Tune-Up started out as a single quick-oil-change shop in the New Orleans, Louisiana, metropolitan area in 1980. It began offering franchises in 1982 and grew rapidly during the 1980s. The 1980s was a good decade in general for the quick-lube industry, with several factors propelling industry growth. After several years of unchecked growth, however, the industry experienced problems at the end of the decade, and SpeeDee was unable to grow as fast as it wanted to. By the early 1990s SpeeDee had about 130 locations and was the seventh largest quick-lube company in the United States. By comparison, industry leader Jiffy Lube International Inc., which was taken over by Pennzoil Co. in 1989, had approximately 1,100 locations. Although it tried several times, SpeeDee was unable to negotiate a successful joint venture agreement with a major corporation to raise the capital it needed for the kind of dramatic expansion that it wanted, and the company's growth leveled off in the 1990s.

Founded by Two High School Buddies in 1980

SpeeDee Oil Change and Tune-Up was founded in 1980 by two high school buddies, Gary Copp and Kevin Bennett. Copp became president and Bennett director of franchising. Copp and Bennett went to high school together in New Orleans at Archbishop Rummel High School. Copp admitted that he was not a mechanic, but he did not consider that a drawback. "The people who were in it before, they were mechanically-oriented, 'grease monkeys.' They didn't know anything about marketing the business. We changed that," he said in New Orleans Business.

Copp and Bennett were 26 years old when they started. Copp had studied marketing and transportation at the University of Tennessee, expecting to go into airline management. When Gulf Oil offered Bennett, who owned several car washes, a small piece of land next to a service station on Veterans Boulevard in Metairie in the New Orleans metropolitan area, Copp suggested they set up a quick-change oil shop similar to ones he had seen in California.

Their first office, set up with a loan from a friend, was in the Odd Fellows Rest Cemetery on Canal Street in New Orleans. Neither Copp nor Bennett had much money to work with, so they borrowed whatever they could. They added a third partner, Conrad Kuebel, because he was a local contractor and friend of Bennett who had enough assets and business experience to make the young company more appealing to bankers.

When it first opened, SpeeDee Oil Change avoided using the word "lube," because everyone else had it in their name. The company also promised a nine-minute oil change when everyone else was advertising ten-minute oil changes. Three months after signing their initial agreement, Kuebel died from cancer. Copp and Bennett had to hustle to obtain the necessary financing, going to manufacturers. Not having much management experience, they found they had too many employees on their opening day in 1980. As Copp said, "Our most expensive payroll was the first day we opened. I think we had 89 people standing around, expecting all these vehicles to come rolling in. It didn't happen."

However, direct-mail coupons helped SpeeDee turn the corner. By March 1981 Copp and Bennett knew they had a winner. That was when they started opening more shops and reincorporated as SpeeDee Oil Change and Tune-Up. Their goal initially was to own the New Orleans market, and by 1986 they had 11 shops there and were the dominant quick-lube chain. Sales for 1980, the company's first full year in business, were just over $100,000. By 1984 the company was doing $2.5 million worth of business, and sales doubled in 1985 to around $5 million.

Offered First Franchises in 1982

In 1982 the first franchises were offered. The partners had not originally intended to franchise their business, but it seemed the logical way to grow. The first franchisee was Ed Mikkelson, who opened a SpeeDee shop in nearby Baton Rouge, Louisiana. By 1989 Mikkelson had opened eight stores, sold two, and reduced his debt to $80,000 by paying off his construction loans with cash flow. According to New Orleans City Business, Mikkelson's net worth soared above $1 million and his income tripled to six figures by the end of the decade.

Mikkelson was the subject of an article in Success magazine in March 1993. He built an 11-unit franchise in New Orleans and became SpeeDee's master franchiser in New England. Success reported his franchises were generating $16 million a year by 1993. One of the keys to his success was called "big fish marketing," which meant going after fleet accounts and corporate clients. When his franchise opened in 1982, he was pulling in $4,000 to $5,000 per week from drive-in trade. Then he signed up a local police department for his first account and added $600 a week to his cash flow. Other corporate accounts followed, eventually accounting for 20 percent of Mikkelson's revenue. He offered them volume discounts, central billing, and convenience. Explaining the key to obtaining corporate accounts, he told Success, "You've got to network and you've got to have more than one store to succeed." His biggest account was Louisiana Power and Light, with a fleet of more than 300 vehicles.

Offered Time-Savings and Other Benefits to Customers

The company's main selling point to customers was the time-saving offered by a quick oil change. Price was less of an issue, with SpeeDee Oil Change charging around $20, which was, according to Copp, "probably less than a service station, less than a dealership, but more than a Goodyear or a Firestone." However, at Goodyear or Firestone, customers would have to leave their car all day for a $10 oil change. At SpeeDee, they could be in and out in less than 10 minutes.

SpeeDee shops offered oil changes, tune-ups, and diagnostic services. Each shop featured a clean waiting area, hot coffee, friendly non-grease-stained employees, and a rack of take-home reading material. Customers could see the service bays through a window in the waiting room. The company felt that letting the customers see the work being done helped reduce paranoia and make the company seem upfront with its customers. Repeat business was very important. Copp explained, "The name of the game is to get people in again and again and again. We want a lifetime customer because it's very expensive to get them in the first time."

Explaining how SpeeDee Oil Change marketed itself, Copp said, "Our market research was mainly in my head, from growing up here and knowing where the action was and where the growth was. The whole name of the game is market penetration, with the best locations you can pay for." The company used direct mail, then aired some radio spots. However, it found that television advertising worked best. The company's advertising budget came from a five percent advertising fee paid by franchisees, which was later increased to six percent.

The company's advertising also targeted women, and its television spots in 1986 featured a female customer. Copp reasoned that men already knew what was going on, but women had to be educated somewhat, and the negative image associated with service stations had to be overcome.

One of the Fastest-Growing Private Companies, 1984

In 1984 SpeeDee ranked 84th on Inc. magazine's list of "America's 500 fastest-growing private companies," based on a phenomenal increase of 2,158 percent in sales between 1980 and 1984. The same year the company was also listed in Entrepreneur magazine's "Franchise 500." Sales for 1984 were $2.5 million and around $5 million in 1985.

By 1986 the company had 16 franchised shops located in Florida, Mississippi, and Louisiana, and it was working on an 18-region franchising plan. Copp told New Orleans Business that as many as 1,800 SpeeDee shops may open by the end of the 1980s, but several factors would prevent SpeeDee from reaching that goal. Prospective franchisees could expect to invest anywhere from $75,000 to $350,000 per shop in start-up expenses, depending on the cost of real estate and whether the equipment was purchased or leased. Those costs would be in addition to a $20,000 franchise fee. As Copp said, "The franchise fee gets them started. They're buying all of our mistakes so that they don't make them."

SpeeDee's expansion had been financed internally up to this point, but it was beginning to receive buyout offers. A takeover offer from Jiffy Lube International, Inc. was rejected. Then a proposed joint venture with Gulf Oil was sidelined when Gulf was taken over by Chevron Corporation. "That set us back years," Copp later said. When the deal with Gulf fell apart, Copp and Bennett settled on a franchise plan in order to obtain capital needed for expansion. They modeled their plan after real estate company Century 21, which would sell regional master franchises to investors who would then sell individual franchises.

SpeeDee's franchise plan was set up to offer regional, or master franchisers, who would in turn sub-franchise about 150 franchises in their region. A regional franchiser would be responsible for handling the franchisee relationship and services as well as any necessary financing. Requirements to obtain a master franchise included payment of a $150,000 franchise fee (later increased to $200,000) and a net worth of about $600,000. The master franchiser could then sell up to 150 franchises in the region for about $25,000 each.

To market their franchising plan, the partners retained an advertising agency in New Orleans and Networks Unlimited of Newport Beach, California, to really begin pushing franchises in 1986. Around this time a third partner was added, Frances K. Thomas, who handled financial matters.

Between 1986 and 1989 SpeeDee sold 11 master franchises for $150,000 or $200,000. Nine of the 11 survived, and by mid-1989 SpeeDee's regional franchisers had sold a total of 256 franchises. The company's 100th store was set to open in the fall of 1989.

Problems Plagued Quick-Lube Industry, 1989

After several years of unchecked growth, the quick oil change business began to run into some problems in 1989. Industry leader Jiffy Lube announced a $39 million loss in the spring of 1989 and was quickly taken over by Pennzoil Co. It closed 100 of its 1,040 shops in an effort to trim costs. Other smaller chains, such as Autospa and Eaglespeed, filed for bankruptcy.

In 1989 SpeeDee was in joint venture negotiations with Mobil Oil. By 1989 SpeeDee was the sixth largest quick-lube chain in the United States with 80 stores and systemwide revenues of $18 million expected in 1989. A joint venture with Mobil Oil would enable SpeeDee to build as many as 400 stores in five years and to purchase other smaller quick-lube operations. Under the proposed agreement with Mobil, SpeeDee would be obligated to buy oil, filters, and other supplies exclusively from Mobil for at least 10 years. However, the failure of Jiffy Lube cast a pall over negotiations, and SpeeDee remained an independent chain.

Other Factors Also Slowed Growth for SpeeDee

SpeeDee was fairly selective about selling its franchises. One analyst noted that "they have not been eager to sell a franchise to just anyone." As a result, SpeeDee did not expand as fast as it could, but it enjoyed a low rate of failure among its franchisees. Also slowing growth was a lack of capital. Even though some $3.5 million in franchise fees was ploughed back into the company, SpeeDee did not have the "deep pockets" of its competitors. The top three quick-lube chains in the industry were all owned by major corporations who had the capital to invest in new buildings and new locations. SpeeDee, on the other hand, placed the burden of developing new locations and financing new buildings on its regional franchisers. In some cases, the regional franchiser had to turn away potential franchisees because they ran out of money. Although its franchisers tended to remain loyal, many wished that SpeeDee would become more involved in underwriting the construction costs of new locations, or offer a loan program. To do that, SpeeDee needed a source of capital, such as a joint venture partner.

One example of how SpeeDee's lack of a loan program for new construction slowed the company's growth was in Atlanta, Georgia. Even though Atlanta was a hot market for quick-lube shops, growing from 91 to 227 stores in just one year, SpeeDee's master franchiser in Atlanta, Tom Slimp, was only able to sell 10 franchises in two years. He had to turn away as many as 200 people, simply because he did not have the capital to build new locations on speculation. Slimp told New Orleans City Business, "My typical customer [for a new franchise] is some middle manager who is about to be transferred out of town and has 90 days to find something else to do. If you don't have something ready for them, they'll go buy a pizza shop." Slimp called it quits in 1991.

SpeeDee Anticipated Growth in the Early 1990s

In 1990 SpeeDee explored a major acquisition, Sparks Computerized Car Care Centers based in Illinois. Sparks had 130 automotive service centers. However, once Copp and Bennett looked into merging the two companies, they realized they would have had to build pits for the automotive technicians in order for them to perform a nine-minute oil change. The partners decided it was not worth the expense. According to Copp, "It just didn't fit. It's a lot easier to buy an oil change business and add tune-ups than it is to buy a tune-up shop and add oil changes."

New store openings for SpeeDee averaged 13.5 a year for the past two years. However, in 1991 SpeeDee announced it would roll out another 43 units for a systemwide total of 150 shops. That would have made SpeeDee the fastest-growing quick-lube chain, since none of the other top ten companies surveyed planned to open more than 30 facilities in 1991. As it turned out, SpeeDee opened about 30 shops in 1991 and, according to information in Entrepreneur magazine's annual "Franchise 500" issue, SpeeDee had 139 franchises operating in 1992, none of which were company-owned. That number declined to 131 operating franchises in 1993, and the company had taken over ownership of two of the franchises. For 1994 the company had 134 operating franchises, three of which were company-owned.

SpeeDee brought in new managers and executives to run the business, which the partners expected to expand dramatically. Bruce German was hired as the new chief operating officer (COO), and Peter Stewart was brought in as executive vice-president of marketing. German had previously been in charge of operations of a 515-unit Hardee's franchise in the Southeast. Stewart was marketing vice-president at both Godfather's Pizza and the Straw Hat restaurant division of SAGA Corp. Maurice Gaudet was named the new chief financial officer.

In 1991 the company stopped selling master franchises in the United States. Looking overseas, it began to expand internationally. In December 1991 it sold half of the Brazil territory, and it was looking to make deals in Taiwan and Mexico. However, with 18 locations in the New Orleans area by 1992, SpeeDee was the dominant quick-lube shop there. The company decided to go after new car owners by validating new car warranties. With the cost of new cars rising, new car loans sometimes went for five years or more, and that helped bring in business with people taking care of their cars for longer periods of time. Environmental issues, especially the safe disposal of used oil, also served to bring in more of the do-it-yourself owners.

Some SpeeDee Franchisers Had Major Problems in the 1990s

In 1992 SpeeDee was the seventh largest quick-lube company in the United States. However, the company was experiencing some discontent among its franchisers. Some investors began demanding their money back, while others sold out for a loss. In Florida, the master franchiser filed for personal bankruptcy, causing some individual Florida franchisees to sue the company for not doing a better job of selecting its master franchisers. One New Orleans franchisee claimed that SpeeDee's pre-opening projections were off by 40 percent. Bennett and Copp claimed that about 10 percent of the company's stores were unsuccessful.

However, not all franchisees were disgruntled. Ed Mikkelson of Baton Rouge now owned 10 SpeeDee locations in Louisiana. SpeeDee had 36 units under construction and projected its store count would be in the 175 to 200 range by the end of 1992. It had 130 locations in early 1992, and nearly 300 franchises had been sold. The company's hottest region was southern California, where 79 franchises were sold in three years. Other markets were slower. In New England, only one-third of the 63 franchises there opened a store over the previous six years.

Owners of one or two SpeeDee shops could be successful, however. One couple, Mike and Karen Klaubert, opened their first SpeeDee franchise in 1987 in Concord, New Hampshire. A year later they opened a second one in nearby Laconia. According to Nation's Business, they broke even in their first year, then saw gross sales for both locations increase by 32 percent from 1988 to 1990.

Of the nine regional franchises sold since 1986, only five remained at the beginning of 1992. The other four were taken back by the company after the master franchiser either gave up or went broke trying to make it work. In St. Louis, Missouri, the master franchiser originally sold 15 franchises. By 1992 only two remained in the SpeeDee chain. Of the rest, five never opened, two closed, and the remaining owners sought new affiliations. Other regions experiencing failure included Atlanta, Georgia, and southern Florida.

The toll on individual franchisees was enormous. One franchisee in St. Louis lost his entire $200,000 investment. He told New Orleans City Business, "The biggest problem we had was that we literally received no support whatsoever. The promised training never materialized, the merchandising support never materialized, calls were never returned. I was on the verge of closing and they didn't have time to visit with me."

Bennett and Copp claimed that lack of working capital was not the cause for all of the failure. They tended to blame the franchisees for running a poor shop. According to the SpeeDee system, it was the regional master franchiser who was responsible for providing support to the individual franchises in the region, with SpeeDee providing support to the master franchiser if necessary.

Individual failures proved to be a contentious point with the company. While the franchisees saw the company as being at fault, SpeeDee officials described a different pattern of failure. They said that such franchisees either do not follow the system, do not operate the stores themselves, or they put their personal expenses on the company's tab, according to New Orleans City Business. SpeeDee hoped that its new managers and executives would help improve franchisee relations.

The cost of opening a SpeeDee franchise and the lack of a financing program from SpeeDee may have contributed to a slowdown in the company's growth. One franchisee in Davie, Florida, obtained a Small Business Administration loan for $635,000 and put in an additional $200,000 of his own money to cover the cost of the franchise, land, buildings, and equipment. Franchisees had the option of purchasing or leasing the necessary equipment. In 1995 Entrepreneur magazine estimated the start-up costs to be between $39,000 and $333,000. An article on a new SpeeDee franchise opening in Rock Hill, North Carolina, reported that it cost $700,000 to build a 3,100-square-foot facility with four service bays that could hold two cars each.

Launched National Promotional Campaigns in 1994

In 1994 SpeeDee became an associate sponsor of NASCAR driver Ricky Craven for the 1994 Busch Grand National racing season. The SpeeDee logo would appear on Craven's car and uniform, and Craven would be available for special promotional events. SpeeDee hoped the campaign would enhance its national marketing efforts. SpeeDee had sponsored Craven in the 1989 season and was his first major sponsor. SpeeDee was creating several promotional campaigns around Craven, including in-store promotions featuring Craven's likeness and a "Buckle-Up for Safety" public service campaign.

In 1994 SpeeDee also launched a national promotion, "The SpeeDee Weekend Getaway," which ran from June through November. The campaign rewarded customers for their loyalty to SpeeDee. Several "Getaway" weekends were offered at 35 destinations, including Hilton Head Island, South Carolina; Palm Springs, California; Orlando, Florida; and Puerto Vallarta, Mexico. Customers had to spend at least $200 at SpeeDee's, for which they would receive a certificate good for two free nights at participating hotels.

Number of Franchises Peaked in 1996

In 1995 revenues reached $60 million, and the company had 140 locations in operation, eight of which were company-owned. The number of operating franchises increased to 147 in 1996, but the number fell to 128 in 1997. During this period the initial franchise fee was $30,000 to $40,000, the royalty rate was still six percent, and SpeeDee was continuing its policy of not providing any type of financing for start-up costs or the initial franchise fee.

After riding the wave of growth in the quick-lube and automotive service industry of the 1980s, SpeeDee had to cut back on its plans for expansion in the 1990s. It has remained a privately owned company in an industry dominated by subsidiaries of major corporations. Although patterns of automobile ownership, environmental concerns, and busy lifestyles continue to favor growth in the quick-lube industry, SpeeDee will need sources of outside capital if it intends to meet its earlier growth projections.

SpeeDee Oil Change and Tune-Up History

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