As commerce increasingly migrates to online ‘pure play’ platforms, the reactions from high street businesses are diverse as the stores themselves. Cycling iQ speaks to one bicycle industry player with a dual-mode model that hedged against such change whilst embracing it at the same time.
Fuel Performance Cycle Mechanics opened in Melbourne’s south-east five years ago, with the premise that ground-based bicycle retailing had peaked and quality mechanical service was inherently a more sustainable and predictable income device. The decision, by owner Herbert Donovan, to invest into this area proved to be a good one. That ‘Fuel’ has since independently grown to become a profitable business is itself a measure of success; though perhaps of equal significance, Fuel was recently selected by Wiggle to be one of two ‘service points’ for the UK-based e-commerce giant’s growing Australian customer base.
Cycling iQ visited the “bicycle mechanic studio” to interview Herbert and find out more.
When was the idea for Fuel conceived?
About ten years ago.
What’s your background?
My background has always been in cycling; I started working in a small bike shop when I was 14. I’ve been in the industry now for 20 years, mostly as a mechanic. I did two years of industrial design in University and tried to race mountain bike professionally. I didn’t quite make it. My “plan B” was to get back into a bike shop, and into mechanics again. I love the (bicycle) trade, it’s just the best. Supporting health and fitness, helping people to change their lives, I really enjoy that aspect.
We set up Fuel to bring up the level of service, purely as mechanics. We’re not getting involved in retail of bikes or other pressures that come with big shops. We just want to get the service right.
Fuel Performance Cycle Mechanics’ owner, Herbert Donovan (from behind the twin-group espresso machine)
Retail sales were still buoyant when the idea for Fuel transpired, and there was no threat from e-commerce. It was quite a progressive idea…
It came down to timing, finance, location and family; but mostly finance. If we had the finance earlier we would have set it up a long time ago. We identified that service quality just had to improve. Retail shops are spread too thin; (retail employees) tended to get pulled from selling into the workshop; there wasn’t enough focus on (pure) mechanics.
How did you get the money to finance a venture like this?
From the bank.
Was it easy to get a loan?
(Laughs) I wouldn’t say that! Not on a bicycle mechanic’s wage.
So, how hard did you need to push the banks? Was your business plan received well straight away?
You know, we basically had a good relationship with the bank so they were happy to help us out. We didn’t have a huge start-up cost (due to no sunk cost of inventory), but without retail we (also) didn’t have that extra income. What they looked at was my experience in the industry, which was extensive, and they were very happy with that. They could see the natural progression.
Take me through the first 12 months of trading. Did you meet your targets and stay within the business plan? Were there surprises along the way?
Definitely, there were surprises along the way. Mostly (due to) how many people were referred through friends, etc. That was really nice. We met the targets but we didn’t start exceeding them until the last few years. The first couple of years were pretty tough.
Have you seen the client base alter over that timespan?
Yes, in the sense that we now have more new cyclists than we’ve ever had. It’s awesome to see. Some of them start pretty overweight and you watch that drop off over the year. Then they get really enthused about it; next thing you know they’re talking about the Tour de France.
Were there people who informed your career decisions in a mentor-like way?
There’s a couple of inspirational mechanics out there that are doing similar things to what I am. I’ve certainly drawn some inspiration from them, I suppose, indirectly and directly – Dan Hale from Shifter Bikes is excellent.
He’s still doing well?
Cycling, as you know, has just boomed in the last five years – at least in Melbourne anyway. There should be enough riders around to keep us all employed. We haven’t changed anything from when we started up five years ago; we’re just too flat out to do anything.
Do you feel you’ve made a good decision to focus on service and not delve into retail?
Definitely, I wish I’d done it ten years ago – if I could have, I would have. We do no bike sales at all, just spare parts and accessories. We do our own clothing, which has been pretty successful; that’s one thing I would like to do more. I love design and I’ve got a few things ready to go.
How many bikes go through these doors in a week?
I couldn’t give you exact numbers. I just know that we’re flat out every open day of the week.
Work benches clean enough to eat from, but too busy to finish eating.
What’s the average invoiced job worth?
It ranges anywhere from AUD100-1000, depending on the day. We do a lot of high end; if you buy a Super Record cassette, that’s $499, plus a chain is $120, so it can add up pretty quickly.
Wiggle’s CEO and buyer visited Melbourne in 2010. Was that when they initially approached you?
Yes, we met with them then. They contacted me prior and dropped in.
How do you think you got onto their radar?
That was through a couple of customers. They dobbed me in!
What was the timespan between that first meeting and a concrete agreement?
About 18 months; and that (was due to factors) from their side. We were happy to talk further but it wasn’t a quick decision for them, I think.
Has it been a complex arrangement or quite simple?
It’s a simple agreement. I think it’s been more complex behind the scenes from their perspective, to actually have dedicated marketing people working it out.
Did you notice an immediate pickup in people visiting your store?
Definitely. We had a lot of response from our regular customers that saw the email, and some new ones as well.
Are you seeing a lot more Wiggle product coming into your store; especially complete bikes given that’s what they seemed to be targeting?
That’s definitely what they were targeting. We’ve had a successful start with it but I wouldn’t say it’s had a huge impact. It’s been a baby step. So far as (Wiggle-origin) product being brought in, I wouldn’t say that’s changed.
How was the reaction from distributors to your relationship with Wiggle?
So far it’s been fine except from Shimano. They’ve had some words (with us) and actually taken away our online account privileges. That’s been an interesting development, and almost immediate.
You’re still getting product from conventional distribution channels?
Yeah definitely, I buy all my gear from suppliers here. I rarely use online. Those guys (distributors) have looked after me for years. I might buy one thing from Wiggle every six months that I can’t get from here at all, otherwise I get it all from distributors. None of the suppliers have had an issue apart from Shimano, which is really surprising and a bit disappointing. I’ve sold millions of dollars of their product over the last 20 years and have looked after them.
Are distributors becoming more competitive relative to other markets?
Definitely. Distributors have dropped their prices significantly in the last five years. Everyone’s taking a (reduction in margin) but this industry has been overpriced for a long time, so we’re getting back to level with the rest of the world.
We still like to support Australian wholesalers and we sell heaps of their products. But if people are able to access products cheaper from overseas – because the sport is very expensive – it inspires more people to take up cycling. We’re seeing a lot more new people investing into cycling because the pricing has come down, then staying in the sport and buying more products from Australia anyway.
Do distributors pressure you to be more representative of them, or do they get what you’re doing and supply as and when you need it?
No, I don’t think they get what I’m doing! If I were a wholesaler, I’d be happy to whack all my product in a shop, but they’re happy to let it sit in their warehouse until we buy it. I mean, they’ll support (us) 100% with returns and credits but they tend to look after their key (larger) accounts.
So do wholesale representatives still visit you or have they given up?
Most have given up. There’s either not that much new stuff out, or we’ve already seen it before they come in. We do a lot more business by phone calls or online.
Any plans to expand?
Not at this stage. It’s hard to achieve good quality control; good mechanics are harder to find, plus (we need to be) able to pay them enough. I’d love to pay really good wages.
What’s a good annual wage for a great mechanic?
You’d like to think they’d be on AUD60,000 gross per year.
Your own business depends on a great mechanic…
Yes, it does. We do whatever we can, through whatever structure we can work out, to have a great mechanic. James is in his second year of an apprenticeship; he’s very passionate about it, it’s awesome.
Do you have a training structure in place for James?
It’s done by NMIT (Northern Melbourne Institute of TAFE). They’ve got a certification in bicycle mechanics. It’s really well structured; I’ve read through (James’) course books. Hopefully we can get more qualifications in this trade; you can take your bike to an unqualified mechanic and then scream downhill at 70kmh/h – it’s a bit weird. I hope for better regulations.
Are you certain about the future or, like retailers, a bit unsure about the environment?
I’m 100% certain.
Do you have any planned brand extensions?
“Fuel for your mind” is one of our taglines and that’s what we like to do – fuel passion for the sport. We want to stay focused on the mechanical side. The problem we’ve got now is we’re really busy doing what we do, so we’re finding it hard to implement new stuff unless we put in a lot of overtime. We’re very family oriented – I’m very much five days a week. And riding!
Interesting read. Have you posed the same questions to Bike Brain for a comparison?
Hi Phil, good point. Prior to the article with Fuel, I mentioned to Herbert that my objective is to do exactly that. Ride In Workshop (not far from Manly) is also offering a very similar concept, though without being a service satellite for a third party (as far as I’m aware).
Interestingly, many of the full-service bicycle retailers I’ve visited across Australia have workshops that have never been busier – whilst income from product sales may continue to drop away. Even as early as five years prior, there existed a widespread sentiment that stores couldn’t be profitable by service alone. Fuel’s advantage comes from not having to strip away Cost Of Sales (including externalities) to support the narrower focus, whereas gearing in that direction would be alot more painful for a full-service store.
Great story. Congrats
You forgot to mention that Herb also makes the best coffee in Melbourne! I am a loyal customer and have no hesitation referring friends to Fuel – from those new to the sport through to a few ex-pro’s.
Herb is an absolute gentleman. It appears to me that his philosophy is to look after the customers first, and the profits will naturally flow. Congrats to you Herb.
So isn’t that Shimano engaging in anti-competitive practice?
Good question RayG. The interview didn’t delve into the specifics of what “Removing online privileges” meant. If Fuel – on the face of it, a savvy operator – believes Shimano has engaged in anti-competitive behaviour as defined by the Trade Practices Act, I’m sure they’ll pursue it.
They may be savvy enough to realise there are few practical alternative supplies of Shimano parts for them to source if they did go down that track.
Great story and we at The Fixed Wheel certainly believe businesses like Fuel that focus on service are the future. The bike industry here doesn’t have a volume problem and isn’t massively under threat from online. It’s problem is service and profiteering. We set up The Fixed BECAUSE of those two issues. We were tired of being ripped off by inordinately high prices (sometimes double that of online) and lousy service. It’s too easy to blame the internet when the truth is that distributor pricing is actually pretty reasonable and your real value is locked away from your customers in a back room or basement.
In my local hub, northern end(ish) of the Sydney north shore line, yet another bicycle shop has opened. All I’m seeing is a need for skilled servicing, not more stock-for-sale. I feel for the well-established guy who is 100m from the latest open-up, which, when I saw it, nearly made me come down (Hollywood double-take). But the aforementioned guy I go to seems to be busy week-long. Got to be a good sign, not to mention his base revenue.
Surely, even in an expanding market (virgin buyers), the sales potential must be limited; unless some people are acquiring multiple bikes for different rides/days.
Servicing (repeat business), and building customer relationships must be the future. As someone stated above, there’s a big trust factor when you’re hurtling on a downhill.
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