Today, everyone is clamoring for a slice of the local market. Sales managers who once courted travel agents are now making golf and lunch dates with insurance adjusters. Hertz commercials no longer feature harried businessmen rushing through airports; they show the girl next door taking a drive up the coast with her dog. Once considered the step-child market segment, the local rental market is now head of household. Just ask Enterprise Rent-A-Car, which brought in $5.49 billion in revenue in fiscal year 2003.
Auto Rental News Editor Cathy Stephens recently met with Neil Abrams, president of Abrams Consulting Group, to discuss the ongoing battle for market share in the local car rental market.
Auto Rental News: It seems like every rent-a-car company, from small independents to airport market leaders like Avis and Hertz, is focusing on expanding its local market share today. What’s driving this shift in growth strategies?
Abrams: From a practical standpoint, the local market takes the curve out of the curve, so to speak. It flattens the peaks and valleys in the business. With the local market dominated by Enterprise, the thousand-pound gorilla here, you see that’s where the opportunity lies. You don’t need to take a huge amount of market share from Enterprise to have a substantial business opportunity, given what they have and how much the company dominates.
Enterprise probably has 85% to 90% of the local market with about 5,000 locations domestically. It’s an amazing company with great people, but there is still local market business out there that small operators can get. The business is there.
At the airport, on the other hand, you’re fighting over every deplaning passenger. Travelers don’t make their travel decisions based on getting a great car rental deal. They travel for a business meeting or to go to a resort, for example. The car rental does not initiate a travel decision. So the car rental operators end up fighting over deplaning passengers in a defined market.
The local market offers much more opportunity for salesmanship and service, market penetration and sales strategies. With just one company dominating, the local market is wide open. So our firm has tried to persuade our airport clients to either get in local market operations, or to at least consider that.
When you realize that the cost of airport rental to a customer has all of those airport-related fees — facility fees, concession fees, various pass-throughs — you have a compelling reason to push your customers and employees to rent off-airport if possible. [PAGEBREAK] ARN: What are the fundamental differences in the airport and local business models?
Abrams: The dynamics of the local market are much different. The rates are different, even within the same company. The peaks and valleys differ, depending on whether the segment is dealership replacement, insurance replacement, retail or corporate. The cycles and length of rental are different, and that has an impact on things like fleet planning.
Local market operations, especially those that are replacement dominated, see longer rental periods. And with longer lengths of rentals, you need less fleet to sell the same amount of rental days. So there are fleet planning considerations whether you pursue airport or local market or a combination.
With airport operations, there are three primary ways of marketing — rate marketing through the GDSes, marketing to large travel generators like major corporations and tour operators, and Internet marketing/search engine optimization.
So what does ABC Rent-A-Car do to market to airport customers? For small rental companies, marketing is a matter of being on the GDSes, having an Internet presence, and being cheaper than the next guy. You can’t really offer some sort of value-added products or services.
In the local market, Internet marketing is also playing a growing role. But more importantly, the customer base is right there. The customers are in your neighborhood. You can see them, meet them and develop special programs for them. It’s a much more intimate business relationship. And you have more control over the marketing. You have the ability to go after an Enterprise customer or a Hertz Local Edition customer. Whereas in the airport, how do you compete against Hertz or Alamo if your operation is on a small scale? You don’t have the brand recognition, so you’ve got to compete based on price. It can be done, but again you’re fighting for that airline passenger. What do you have to offer, from a service standpoint, that your competition can’t? Because of the intimacy of the local market, you can market to customers face to face. [PAGEBREAK]
ARN: Hertz Local Edition and Enterprise have forged some national partnerships with insurance companies. How is this affecting the competitive landscape?
Abrams: These exclusive arrangements are certainly problematic for smaller operators. They do create a barrier. But from a practical standpoint, at the end of the day, there are still insurance companies willing to give business to smaller rental companies.
Developing the right sales and marketing initiatives is critical. Finding a niche in the market, developing the ability to service the local customer, and distinguishing your brand from the competition are critical.
You can demonstrate to the insurance companies, dealerships and body shops that you have the ability to service them well at a competitive price. You can still get business, and I know people who are doing just that.
A lot of these generators of replacement business are local companies, local insurance agencies and local body shops. Many of them are just as happy to do business with local guys. Local guys are homegrown and know the customer better. They’re steady. They’re not going to be transferred to another location in a few months, whereas large corporations tend to have constant movement in management, counter agents and service people. An insurance adjuster may be working directly with the owner of the rental business, someone who grew up in the community and still lives there.
Those relationships are the cornerstone of the local market business. It’s all about developing that intimacy. While a large company has the advantage of scale, a small rental operator from the community has the advantage of intimacy, that relationship building.
Quite honestly, I’ve seen many companies leverage that continuity and stability to gain market share from the major companies. You will get business if you just develop solid service with a reliable fleet of cars, and you keep working at developing close business relationships.
You can do some of the same things that Enterprise does. You have to buy cars anyway, so why not buy them from a local dealer with a loaner program? As long as you’re competitive and take care of your customers, you can find a willingness to do business.
Of course, you need the ability to direct-bill. You need to maintain certain quality standards for the vehicle. You can’t put the customer in a five-year-old vehicle with 100,000 miles on it. You need new or late-model vehicles. [PAGEBREAK]
ARN: How has the local market segment evolved?
Abrams: Back in 1976, when I was still with Hertz, my recollection is that Hertz, Avis and National had about 80% to 85% of all airport business. In those days, Budget licensees had a local market presence. But as Budget grew, it set out to be more like Hertz, Avis and National and changed its business model. Nobody was really focusing on the local market, except franchisees and independents.
At the time, the whole concept of replacement vehicles wasn’t well established in the insurance industry. There was a void. The Taylors, who were in the vehicle leasing business, saw an under-served market. At the time, they wanted no part of the airport market. That was a fixed pie, with everybody fighting for a piece of the pie. And even though the pie has grown since then, competition has also grown.
In the ’70s and the ’80s, the two big car rental success stories were Enterprise and Alamo. They both swooped in to capture market opportunities everyone else had largely ignored. With Alamo, it was leisure business. With Enterprise, it was local business.
About four years ago, we did a local-market study for one of the major brands and surveyed independent rental companies and licensees and franchisees. What we learned is that after Enterprise, the biggest competitor out there in any given market is most often the small independent, the homegrown guy. He’s out there banging on the doors of dealerships, body shops and local corporations. He’s attracting retail customers through loyalty programs and local promotions.
Since we conducted that study, of course, Hertz has opened more Hertz Local Edition locations. There are now more than 600, and the company seems serious about targeting local business. But Hertz lost a lot of time and opportunity over the years to develop the local market.
After ANC filed for bankruptcy and closed the Alamo local market operations, I felt at the time it was a fundamental mistake. These locations weren’t necessarily making money, but they held opportunity for growth. I understand why management did it. In the short term, they had to stop the bleeding. But they removed a vital organ. When you’re trying to save a patient, you don’t want to remove an organ that he may need later.
One of the challenges facing Bill Lobeck and Vanguard, as they make plans to revitalize the National and Alamo brands, is to re-enter the local market. In terms of Vanguard’s long-term planning, it is a must. And there’s plenty of room. But the company will have to go back, look at real estate and hire people, and revitalize the technology to network all these locations together.
Right now, Dollar Thrifty is in the local market primarily through its franchise network. However, the company appears to be interested in developing a greater local market presence at the corporate level. For example, Thrifty recently opened its first location in Midtown Manhattan.
I don’t think Cendant has decided how much presence it will have in the local market under the Budget and Avis brands. [PAGEBREAK]
ARN: How does truck rental figure into the local market equation?
Abrams: Budget’s truck business is certainly local market-based, but I haven’t gotten a strong sense of what Cendant is going to do with that truck rental business. The company doesn’t appear to be particularly interested in it for the long haul.
Truck rental is a very important part of the local market business. The ability to add incremental sales — boxes, rope, dollies, etc. — through truck rental is substantial. Enterprise’s involvement in truck rental, while previously limited, is growing and appears to be part of the long-term growth strategy.
With truck rental your utilization rate doesn’t need to be as high because of the rental rates you can get. Truck rental gives you the opportunity for incremental sales with the same overhead, same lot, same personnel. It’s a sales game. The local market is all about sales and creating distinction.
We tell our clients to develop a niche that makes them special. They become expert at serving a particular part of the market and become known for that. It’s about creating distinction, which is more important in the local market than in the airport market. And because of that distinction or niche, the company doesn’t solely rely on low rates to get business. For example, an operator in Napa Valley may specialize in serving tourists coming to tour wineries. Without that niche or distinction, it’s a commodity business and you’re fighting over price.
Why does a small independent coffee house succeed even though there’s a Starbucks every few miles? Because everyone in the neighborhood knows the owner, she’s involved in the community and everyone wants to support her business. The employees remember the customers’ names, and there’s a connection. The same can be true for small car rental companies.
For small operators, the local market presents an opportunity to control their own destiny. As a car rental business owner, you can’t put people on planes. However, you can visit local body shops, dealerships and insurance adjusters and tell them about your company.
It’s hard to market to a global population, but you can advertise in local newspapers and offer weekend specials. You can create your own loyalty programs, partnering with local merchants to create merchandizing programs or offering discounts after a customer has bought a certain number of rentals. You can issue club cards with your own logo and keep track of customer sales and preferences. There are still opportunities.