Providing a choice – arguments for and against multi-branding

Multi-branded dealerships have been part of the automotive distribution picture for as long as we have had dealerships.  I am not aware of any data to prove this, but I suspect that it was more common in the early years of the industry before going into decline as manufacturers sought to establish clear brand representation through solus dealerships and dealer investors mitigated risk through having a portfolio of large single brand dealerships rather than multiple brands under a single rooftop.  Today, most multi-brand dealerships are in smaller towns, and often for lower volume brands that cannot provide a viable return if they carry the full costs of the facility.  The tendency has been for brands to enter new markets using a multi-branding strategy as they can use marginal cost arguments to show that the investor will gain through adding potentially modest volumes of the offered product through a facility that is hopefully already viable with the brand or brands they are currently carrying.  We also have the pattern of family brands riding on the established brands within the portfolio such as Mini on BMW, Dacia on Renault and smart on Mercedes.

A very few investors have chosen to establish a ‘department store’ of brands, notably Barchetti with their Autocity in Bolzano (see an ICDP Video of the Autocity here) and Autopolis in Luxembourg, but many others have combined two or more unrelated brands onto single sites, sometimes under single rooftops, more often onto single sites, but with distinct showrooms for each brand supported by a common back office and service department.  The benefits from such a strategy depend on the relationship between the brands.  Where the brands are of the same brand family, then it is likely that retail systems will be similar, parts supply may be shared, as may be significant investments in diagnostic equipment, technician training and special tooling.  Where the brands are unrelated, synergies will be much less, although some staff and technicians will be able to work across brands allowing some operational economies of scale as well as a reduced total facilities investment compared to a number of solus sites.

This all becomes much more topical in today’s environment as the emphasis in retail networks moves from physical to digital.  We see no evidence that the need for dealerships in some form will go in the next decade, but we have been clear for many years that there are too many franchised sales points, and that they are too large and too highly specified relative to what customers actually want.  Customers are far more interested in the people they interact with and the cars on display and available for test drive than they are in the glitz and scale of the showroom itself.  Given the over-riding need to reduce the fixed costs in distribution channels, it makes sense for every manufacturer to look at ways in which the costs of physical networks can be reduced.

This becomes even more important if the manufacturer strategy includes a move to an agency format, away from the traditional franchised format.  Under agency, the dealer acting as agent is not allowed to take on any commercial risk, including that related to brand-specific investments.  Other than Stellantis, who have included a move to a multi-brand ‘Stellantis House’ as an integral part of their future distribution strategy, manufacturers have not addressed physical network costs in their agency agreements or proposals.  They have indicated that they will look to reduce brand-related network costs – which they need to fund through the commission payments – at some future date.  Some have gone further and said that as part of this, they will be more open to multi-branding than they have been in the past.  This makes sense insofar as rather than have a number of inefficiently utilised dealerships within an investor portfolio, all exceeding a revised, lower, manufacturer standard, a number of brands can be consolidated together into a reduced number of facilities, and surplus facilities sold or redeveloped for other purposes.  This will result in a real saving in distribution cost.

It does however leave open a couple fundamental questions that we hope to address in the coming months.  If the brands included on one multi-brand site include comparable brands, some sold at fixed prices on agency and others open to negotiation on franchise, will the dealer principal or his or her staff try to steer customers towards the brands that are in the franchise system?  These cars will be on the dealer balance sheet, and depending on the deal struck and bonuses available may offer a higher unit profit than the cars available on an agency contract at fixed commission with no related balance sheet exposure.  Similarly, if a customer has conducted extensive online research, and has settled on a brand and model when they come into a dealership (our consumer research indicates that 66% had a brand and model in mind at the start of their research and of those 72% continue through to buy that), will that commitment change when they are faced with a choice of brands on the same site, and possibly some encouragement from the salesperson to switch in order to close a deal?  Both are critical questions that we will seek to answer in the coming months.