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BATTERIES PLUS PLUGS INTO $15 BILLION MARKET

By Karen M. Kroll

They power our laptops, our cell phones and our portable music players, to name but three items that seem to be grafted to our bodies these days. Moreover, our dependency is likely to keep growing. “They” are batteries, of course. And the Cleveland-based Freedonia Group, a research firm, predicts that battery sales will keep growing at a rate of nearly 6 percent annually through 2009, when they will probably approach $15 billion.

Yep, we all run on the darned things. And this is great for Batteries Plus, a Hartland, Wis.-based chain of 300 stores that sell batteries, batteries and more batteries. And when the company is not selling them, it is repairing them. A customer walks in with a flat battery of just about any description, and Batteries Plus gets everything up and running again. Each store stocks up to 12,000 different types of batteries, says Russ Reynolds, CEO of the $200 million-revenue company. “In an electric-powered society, there’s a lot more than just double-A batteries,” said George Knauf, a franchise consultant in Warrenton, Va., who has done business with the company.

Batteries Plus operates in 41 states, with the heaviest concentration being in the Midwest and the Southeast. Fifteen stores are company owned; the rest are franchises. The company is privately held, and management has no plans to go public. “It’s difficult to invest in the business and achieve long-term objectives while focusing on the quarterly earnings call,” Reynolds said.

The company plans to roll out roughly 50 franchise stores annually for the next several years and to double the number of company-owned units to 30 over the next five years, Reynolds says. The goal is to have about 600 stores operating within the next five years. Most will be in suburbs of the Northeast and the south central U.S. and along the West Coast.

The company could open 1,000 stores and still not saturate the U.S. market, Reynolds says, citing internal surveys. Everyone needs batteries, and American homes are rich in cordless and cell phones, handhelds and even garage-door openers, he says. Thus, most Batteries Plus stores are located in open-air centers near lifestyle and power centers, where they are a stone’s throw from a Best Buy, a Home Depot or a Target. The company does not generally seek space in malls, because easy access is important — customers carrying the appliances for which they need batteries prefer to avoid a long trek to the store.

The stores measure between 1,500 square feet and 2,000 square feet, but the cost of real estate puts freestanding locations out of the company’s price range, says Reynolds. Batteries Plus makes a strong tenant for small open-air centers, says Mark Stewart, COO of Pellerin & Salomon Real Estate Services, Atlanta. “As developers of retail strip centers, we’re always looking for the next new concept,” Stewart said. “This is one of them.” So far Batteries Plus is a tenant in a Pellerin & Salomon center in Huntsville, Ala., and the companies are discussing future deals.

When entering a metro area, the company generally opens about 20 stores in quick succession to gain critical mass and build brand recognition. This is particularly important for the stores’ business-to-business sales, which account for about 40 percent of revenue. Corporate customers span some 20 fields, including manufacturers, government agencies and educational institutions.

José Perez, president of the Perez Group, Portland, Ore., operates five Batteries Plus stores in the Portland area and says he plans to open a sixth. About 60 percent of his business comes from manufacturers, technology companies, police departments and similar institutions.

The Batteries Plus concept lends itself well to franchising, says consultant Knauf. It’s a clean operation and requires fewer employees than, say, a fast-food restaurant. Most franchisees are referred by other franchisees or are former customers and have at least two stores, he says. This is a good sign, of course, indicating that earnings are generally healthy enough to allow investment in additional stores and that the operational structure is conducive to multiple units, says Joe Mathews, a consultant at Franchise Performance Group, Litchfield, Conn., which has no business relationship with Batteries Plus.

According to the Batteries Plus Web site, the initial capital investment for a franchise is somewhere between $144,000 and $296,000. Batteries Plus franchisees invest 4 percent of net revenue in local radio and newspaper ads, direct mail pieces and the like. They contribute an additional 1 percent for national advertising, which is handled through an in-house agency of Batteries Plus. They also pay a computer-support fee of $200 a month. Most of the national marketing is focused on the company’s Web site, which added e-commerce capabilities last year.

“It’s a significant brand- and traffic builder for the stores,” said Reynolds. About a third of visitors to the site click on the store locator feature, he says. Franchisees are credited with any Web-related sales that come from their geographic area. A strong e-commerce strategy makes sense, Mathews says, because consumers looking for a specific battery usually begin their research online.

The concept “makes a lot of sense from a consumer point of view,” Knauf said. Though many stores sell batteries, he says, it does not appear that anyone nationally is offering the breadth and depth of inventory that Batteries Plus does.