Welcome, Bandag Inc., to an old, traditional rubber industry dance—the ``compete-with-your-customers two-step.'' Be careful not to stomp on any toes. That's the challenge Bandag will face now that it has agreed to buy five large retreading franchisees. The acquisition of companies that operate 47 retread plants inevitably will put Bandag in direct competition with some of its customers.
Until now, Bandag has stuck to licensing retreaders and providing them with technology and tread rubber. That's 40 years of exclusively serving independent retreaders. Bandag's abandonment of that position isn't something the company sought nor will take lightly.
The five retreaders—Universal Tire Inc. of Nashville, Tenn.; Southern Tire Mart Inc., Columbia, Miss.; J.W. Brewer Tire Co., Wheat Ridge, Colo.; Joe Esco Tire Co., Oklahoma City; and Sound Tire Inc., Auburn, Washington—were set to merge into one company, bankrolled in part by the investment firm Kohlberg & Co. Bandag correctly viewed that as a competitive threat, since the franchisees generate sales of $366 million, about 6 percent of Bandag's worldwide sales.
Bandag tried to short-stop the merger in May when it said it wouldn't transfer the franchises to the new company. Not a good move for either side, since it could have caused disruption with fleet customers the retreaders serve and would have hurt Bandag's name, too.
The $158 million deal is a logical conclusion to the situation. But what about competing with franchisees? Should Bandag's franchisees be worried?
Bandag historically has shown no inclination of buying up franchisees.
It wouldn't be doing that now if the circumstances didn't require it.
When companies compete with their customers—a common occurrence in other areas of the rubber industry, particularly custom mixing—they have to be extremely sensitive to their clients' needs, or they won't have customers.
They're plenty smart in Muscatine, Iowa. Bandag will do whatever is required to keep its franchisees happy, particularly when sales conflicts arise. There's too much competition in the retreading business for Bandag to do anything else.