BUSINESS CENTRAL Issue: July August 2014

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1 BUSINESS CENTRAL Issue: July August 2014 We re Here Since 1997 Royal Tire has been following an aggressive growth strategy. Yet this home-grown company prides itself on maintaining the same family feel it has cultivated for over 60 years. By Gail Ivers Sometimes, growth hurts. We made our first acquisition only two months after we bought the company, said Pat Duininck, CEO of Royal Tire in St. Cloud. Pat, along with his brother, Paul, purchased Royal Tire from their father in When we took over we had this wild idea to grow, said Paul Duininck, company vice president. We saw our competition growing and we thought maybe we should grow with them, stay up with the competition. So we expanded the business considerably in the first couple of years. We wanted to borrow money, we wanted to expand territories. We basically wanted to make things larger. Not knowing anything, about anything, we did three major acquisitions the year after we took over, Pat said. It was tough. It nearly sank us. Like many family owned companies, Pat and Paul Duininck grew up in the business. Their father, Roger Duininck, started St. Cloud Tire and Tread in 1963, providing sales, service and retreading for commercial truck tires. Both men recall working in the store as children, sweeping floors, stocking shelves, changing tires, and eventually helping in the retread plant and with service calls. In 1987 Roger Duininck purchased Royal Tire in St. Cloud. The two companies were direct competitors, but similar in size and scope. At $8 million in sales, the purchase doubled the size of St. Cloud Tire and Tread. Royal Tire also brought with it a Bandag retreading plant. St. Cloud Tire and Tread converted to the Bandag retreading method and rebranded itself as Royal Tire. By this time, both Pat and Paul were well established in the company having worked as commercial salesmen and store managers. Paul, with Roger s help, purchased a small store in Monticello. Pat, with a background in computers and accounting, was in the business office. By the mid-1990s, Roger was talking about a succession plan and Pat and Paul were pushing to grow. Dad had this good, mature business that he wanted to protect, Pat said. Paul and I were interested in growing the company and the two can t happen together. So he decided to turn it over to us. In 1997 the transition was made and Pat and Paul were off and running. To this day those early acquisitions were probably the biggest challenge we ve ever faced, Pat said. It put a lot of pressure on our people. It put a lot of pressure on our cash flow but we learned from it, and in the end it turned out just fine.

2 Maybe better than fine. Today the company has 300 employees, 26 stores, and a growing footprint that extends from Rochester, Minn., to Williston, ND, to Virginia, MN. They have tripled their sales since 1997 and grew a fledgling wholesale business by 10 times, selling it in In 2013 they acquired their third manufacturing plant, located in Rochester, MN, positioning themselves for significant growth and expansion. The commercial tire business is a pretty old business, Pat said. But we ve incorporated technology that allows us to share information with our customers so they can reduce their costs and be more successful. Some of our competitors use it, too, but we were the first to embrace it years ago. One of the things that sets us apart from our competition, Paul added, is that we provide service Our philosophy is never say no to a commercial customer. We have a service network and whether it s midnight or 2 a.m. we will have a service truck out to help your fleet. Our competition works 9 to 5. We will service every call we get. We probably did several calls last night. Royal tire has 50 trucks on the road to service commercial customers at any one time. Something else that sets Royal Tire apart is their network of manufacturing, or retreading, plants. The company currently owns three plants: St. Cloud, Montevideo, and Rochester, MN. The Rochester acquisition was maybe the most amazing thing we ve done since I ve been at Royal Tire, according to Mick Pickens, company president. It added a manufacturing plant and manufacturing is really key in the commercial tire business. Retreading operations are franchises offered primarily through Bandag, the largest retreading franchise in the world. They re not creating any new franchises so the only way to secure one is through acquisition. We worked on this for about five years, Pickens said. It allows us to leap frog into Wisconsin, Iowa, and maybe into Chicago some day. Retreading is important because of the cost savings for customers. A new commercial tire might cost $510 just one tire, Paul said. We can retread that tire for $200. And you can retread a tire many times. I ve seen tires coming off waste fleets that have 10 to 12 retreads. As long as the tires pass inspection we can retread them. Retreading is also better for the environment. Plant locations become critical because Royal Tire guarantees one week turnaround on retreading, allowing for only one day in the shop. We have salesmen all over the state, Paul explained. They pick up tires from the customers and bring them to plant. They receive a barcode and are identified as the customer s tires. The tires then go through a complex inspection process to make sure they re still good. If they pass the inspection we grind the rubber off the tire, put new tread on the tire, and run it through a bunch more quality checks. When it s all done, the tire comes out and looks like a new tire. Though their focus is on commercial sales and service, along the way Royal Tire added a retail division. Accounting for only about 20 percent of the company s business, the Duinincks found that offering retail products was another way to service their commercial clients. They have pickup trucks and fourwheelers that they re using. It just made sense to add retail to our mix, Pat said. When it comes to growth, the Duinincks have learned that finding the right employees is harder than weathering a bad economy. We added eight stores and sales are up 30 percent since 2008, Pat said. The recession wasn t that bad for us. We had to make some adjustments, but not like other companies

3 did. Retreading and tire repair goes up in an economic downturn because it s more economical to retread tires than to buy new. We actually can help customers through a bad economy. Employees are another matter. Growth is a big challenge for us, Paul said. We have a lot of ideas and areas we want to be in, but finding the people to help us achieve that is really tough. As our store base gets more distant we have to rely on good people to run those stores, Pat added. That s always a challenge to find as many talented, reliable people as you need. We hire from within. We have longevity among our employees. We provide training, tuition reimbursement, and good benefits. But we always have job openings on our website. Growth and distance create another type of challenge, according to Pickens. We have to keep an eye on the fact that we want to be a certain kind of company, he said. It s easier when you re small to pay attention to little things the community, giving back, employee recognition, that sort of thing. As we get bigger it takes a concerted effort to remind ourselves that we re only growing because of our employees and because of the people in our communities. Even when we re big, we still need to have those same values we had 20 years ago. The challenges of growth are on everyone s mind because the Duinincks still have aggressive expansion plans. We re going to continue to grow and expand our territory, Pat said. That s our future. One of the things I like about working at Royal Tire is that the Duinincks leave the money in the company, Pickens said. They do that with the expectation that the management team is going to grow the business through acquisitions and new store start-ups. Pickens has his sights set on acquiring a multi-store operation in the next few years. We ve mostly acquired single store operations over the last ten years or so, he said. But there are some larger opportunities that we re talking to and working on right now. That will move us up to the next level. We re the largest Minnesota-based tire company, Pat said. We have good rapport with our competitors. We tend to work with them, not against them. We needed to get to a certain size so the big guys wouldn t gobble us up and we still need to pay attention to that. We re big enough to do just about anything we want, Paul said. But we re small enough that people know us. They can reach us, touch us, talk to us. We re here. Gail Ivers is vice president of the St. Cloud Area Chamber of Commerce and managing editor of Business Central Magazine. QUOTES: When we grow the company, we provide employment for more people in each of the communities where we do business. Mick Pickens We help our customers keep things working, reduce their costs and be more successful. That s what our role is and when we do it right it feels really good. Pat Duininck

4 SIDEBAR: ART: Include the 2014 Family Owned Business logo Recognizing Excellence Royal Tire was started in 1948 and acquired by Roger Duininck, in As with most small businesses, brothers Pat and Paul Duininck grew up helping out around the family business, which provides retail and commercial tire sales, service and repairs, and operates three retreading plants in Minnesota. Paul officially joined the business in 1979, followed by Pat in A slow transition process started, which gathered speed as Pat and Paul pushed for a more aggressive growth plan. We wanted to expand our territory at a quicker pace, Pat said. Dad wanted to take things a little more slowly and deliberately. So he decided it was time to sell us the business. The brothers started their expansion immediately, making three acquisitions within the first year. That was probably our biggest challenge, Pat said. Today the company is about three times the size it was when Pat and Paul took over, earning them the 2014 St. Cloud Area Family Owned Business of the Year Award. This award is presented annually to a business that has been passed from one generation to another and run successfully by the next generation for at least 15 years. What really sets the company apart, according to company President Mick Pickens, is the commitment Pat and Paul have for the company to be part of the community and to respect both employees and customers. I know it sounds cliché, Pickens said, but we re growing because of our employees and the communities we re in. We really feel that our customers are our guests and members of our family. We re repairing our neighbors cars; our friends cars. Business Profile Royal Tire Corporate Office 3955 Roosevelt Road St. Cloud, MN Phone: Owners: Brothers Pat and Paul Duininck Leadership team: Pat Duininck, CEO; Mick Pickens, president; Paul Duininck, vice president of operations; Brad Burley, vice president of retail Mission Statement: To exceed the expectations of our guests, employees, and community every day. Business Description: A full service retail and commercial tire company, including auto service, and 24- hour commercial roadside tire service. Locations: Royal Tire has 26 stores: 10 retail and 16 commercial operations: Alexandria, Brainerd, Fergus Falls, Grand Forks, Hibbing, Marshall, Minneapolis, Montevideo, Monticello, New Ulm, Newport (South St. Paul), Rochester, Savage, St. Cloud (Highway 10 and I94), St. Paul, Virginia, Waite Park/St. Joseph, and Williston, ND. Many of the retail operations are co-located with the commercial stores.

5 Manufacturing: Royal Tire owns and operates three manufacturing, or retreading, plants in Minnesota: St. Cloud, Montevideo, and Rochester Number of employees: 300 Fun Fact: During the summer Royal Tire retreads about 700 tires per day across the company. In 2013 they serviced 137,000 tires. PERSONAL PROFILE: Pat Duininck, 50 CEO, Royal Tire Hometown: St. Cloud Education: Brown Institute and St. Cloud Business College Work History: Started at Royal Tire in 1985 Family: Married 24 great years to Rachel, 2 kids: Megan 24, in medical school at the University of Minnesota; Craig 21, junior hockey player in Canada Hobbies: Fishing and golf Advice to a would-be entrepreneur: Whatever business you pioneer, work to re-invent it and stay ahead of everyone else. Best advice you ve received and who gave it to you: Work harder and know more. My dad Roger Duininck Paul Duininck, 53 Vice President of Operations, Royal Tire Hometown: St. Cloud Education: 3 years at SCSU, then on the job training Work History: Started working in the shop at Royal Tire in the summers during high school. Started as a tire tech, then retread tech, moved to outside sales, then inside sales, then to store manager to current position. Family: Wife Jeanne married for 31 years, son Bobby 29 married last year to Amber, works for Royal Tire, son David, 26 Teaching 8 th grade English in Mesa AZ. Getting married to Christie in July. Hobbies: Racquetball, golf, fishing, hunting Advice to a would-be entrepreneur: Don t be afraid to work hard and seek the advice of experts when needed. Best advice you ve received and who gave it to you: Build win-win relationships in everything we do. My father Roger Duininck TIMELINE Royal Tire opens at 1020 St. Germain, in downtown St. Cloud Roger Duininck founds St. Cloud Tire & Tread Company. The focus of the business is commercial truck tires, sales, service, and retreading. Tire retreading is done with a hot cap process Duininck acquires Mathisen Tire, including locations in Brainerd and Virginia, MN St. Cloud Tire & Tread purchases Maus Tire in Monticello, MN St. Cloud Tire & Tread acquires St. Cloud-based Royal Tire with two locations: St. Cloud and Maple Grove. The Royal Tire acquisition includes a Bandag retreading plant. All retreading production is converted to the Bandag retreading method A retail service location opens under the Mathisen Tire name in Hibbing, MN Royal Tire-St. Cloud adds the first Bandag Off-The-Road retread plant in the United States.

6 The TireOne program, a network of independent tire dealers, launches with 35 dealers. The company phases out the St. Cloud Tire & Tread name in favor of Royal Tire A Bandag retread plant is added in Virginia, MN St. Cloud Tire & Tread founder Roger Duininck retires and sells the business to sons Pat and Paul. The Maple Grove commercial store relocates to Minneapolis. Pat and Paul purchase Kampa Tire, with locations in Minneapolis and St. Paul and install a commercial rim and wheel reconditioning facility in St. Cloud. The company has about $22 million in sales and 80 employees Royal Tire acquires Brandon Tire with service locations in Montevideo and Marshall, as well as a retread shop and distribution center in Montevideo A new retail service location opens in Waite Park. Royal Tire commercial service locations are added in Mankato, MN, and Aberdeen, SD New, state-of-the-art, distribution center is built in St. Cloud New corporate offices open in St. Cloud. Royal Tire is in the top 40 tire retreaders nationally Royal Tire acquires Tri-State Tire in Fergus Falls. The Virginia retread plant, and Mankato and Aberdeen service locations close Royal Tire opens a new commercial service location in Shakopee, MN and acquires Brown County Tire in New Ulm, MN Royal Tire obtains exclusive distribution rights for Mighty Auto Parts in their trade area; they add a commercial service location in Grand Forks, ND Royal Tire adds a commercial location in Waite Park and remodels the Waite Park retail location Royal Tire sells the TireOne program that has grown to over 325 independent dealers. Royal Tire acquires Dependable Tire and moves its Shakopee location into Dependable's location in Savage, MN. The retail/commercial store in Brainerd moves to separate Brainerd locations Royal Tire purchases Tires Plus of Alexandria, its first retail store acquisition since Royal Tire acquires St. Paul Tire in Newport, MN Royal Tire acquires Midstates Retreading & Wholesale and Northwestern Tire in Rochester, MN. Royal Tire adds a commercial store in Williston, ND Royal Tire is named the 2014 St. Cloud Area Family Owned Business of the Year. They are the 24 th largest tire retread company in the U.S. and have almost tripled in size since brothers Pat and Paul Duininck purchased the business in 1997.

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BASIC REQUIREMENTS TO BE A DEALER - Bill Gorman - RV Trade Digest, January 1995 The time for fair-weather dealers is back. Fair weather dealers are those who only come out of the closet in good times.