One of the major challenges faced by Larry Parsons, owner of Sackville Cab, was the ever-increasing fuel costs. Gas prices had increased nearly two fold since he bought the taxi service in 2001. The price increase could not be offset with a proportionate increase in fares as it would make the service unaffordable to the clientele. Mr. Parsons realized that he had to look elsewhere to save costs to keep the business profitable. Besides fuel, maintenance costs and salaries consumed a large chunk of his expenses. But reducing the number of drivers or service hours wasn’t optional as customers had come to rely on his fast, efficient and friendly service.
Mr. Parsons’ family moved from Scarborough, Ont. to Joggins, N.B. when he was six years old. At 16, he moved to Sackville, N.B. and started working at the Enterprise Foundry, a company that made stoves and fireplaces. He worked there until the company went out of business in the 1980s. Mechanically inclined, he joined the local Chevrolet dealership and worked as an auto mechanic for two years before going out on his own and starting a heating oil delivery business, trucking oil for Esso across the Sackville area. As the heating oil business began to decline, he bought Sackville Cab, a local taxi company with three cabs in 2001.
As he examined his expenses, he started drilling down to see if there were areas he could reduce costs. One of the major items identified was vehicle maintenance expenses. He realized that he was spending over $2,000 per month of repairs to his fleet of large American-made vehicles. These cars not only required regular expensive maintenance but were also heavy on fuel consumption. He started by replacing this fleet of vehicles with Japanese cars, which not only were fuel-efficient, but also provided seating for up to six people as well as cargo space. In addition, these cars were known to be low maintenance.
Another part of his fleet replacement strategy was to go with one model for the entire fleet, allowing for more cost-effective maintenance and standardized customer experience. Next he reduced the number of full-time drivers and added more part-time people to his staff, which allowed him to cater to peak demand periods without having more permanent drivers. The addition of part-time drivers also allowed him to offer 24/7 service , making his company more attractive, as well as increasing billable hours contributing to the bottom line of the business.
The strategy has paid off well for Sackville Cab. Mr. Parsons has built up his fleet to nine vehicles and has a staff of three permanent and five part-time drivers. Knowing the predictable pattern for taxi use in the university town, he has been able to control the number of cars on the road maximizing his profits, yet still being able to offer 24/7 service.
With a 70 per cent decrease in maintenance costs and modest increases in fares, to accommodate rising fuel prices, the business is thriving. To grow his business to the next level, he is considering a shuttle service to Moncton, which would be an affordable alternative to students and town people for shopping and excursions.
Nauman Farooqi is a professor and head of the department of commerce in the Ron Joyce Centre for Business Studies of Mount Allison University.
This is the latest in a regular series of case studies by a rotating group of business professors from across the country. They appear every Friday on the Report on Small Business website.