Exit - Mom and Pop Left Behind by the Pace of Change
By Robert Roman
Arguably, the future of the U.S. car wash industry will look more like corporate America (e.g., McDonald’s) than the familiar locally owned and operated car wash.
The principal reason for this is that most mom and popentrepreneurs will not be able to keep up with the pace of change in the marketplace. This applies to operators as well as suppliers.
For example, self-service has come to a standstill, and the outlook for gas sites isn’t much better because many of the firms that are growing are not including a car wash in their business models.
Car washes at big-box stores haven’t gone anywhere either and aren’t likely to because of the Internet and online shopping.
What has taken off is the conveyor car wash where the emphasis is on providing convenience, a clean and attractive facility, active marketing, and building a brand. As shown above, the similarities between a contemporary car wash and branded quick service restaurant (QSR) are striking.
Arguably, as QSRs forced mom and pop out of fast food, smaller and weaker car wash players will be squeezed out as consolidators benefit from scale economies. For instance, seven years ago the list of top 50 car wash chains totaled 860 units, the largest operation with 72 stores whereas the most recent list represents 1,326 units, the largest chain with 250 stores.
Twenty years ago, the goal and objective for most mom and pop investors was to create good jobs for themselves and to make a better living by making their business perform better. Historically, this was achieved by investing in a single location that did a smaller amount of business volume and required a minimum number of employees.
Today, the typical strategy is to create a regional chain of four to five high-volume locations, build a strong brand identity, and compete on the basis of cost by focusing on unlimited washing. Moreover, there is the flow of private equity coming into the industry that is driving the rate of acquisition and building, thereby further raising the bar.
As shown above right, the industry trend is also going to put pressure on many equipment suppliers to step up their game in order to keep pace.
Similarly, mom and pop car wash operators should be prepared for competition from more aggressive firms that are willing to build within a mile or two of an existing site.
I find operators who face this situation are often dismayed by the prospect of making dramatic changes to their business or suffer a huge drop in sales. In most cases, my advice to these operators is to respond with a combination strategy of stabilization and growth.
The goal of stabilization is to maintain current market position by changing one or more of a company’s business operations (e.g., customer functions, technology alternatives). Conversely, the goal of growth is to expand a business through market or product expansion, diversification, and/or acquisition.
Otherwise, the next alternative would be to consider an exit strategy. Here, location is the key factor because buyers are mostly interested in the real estate.
After all, pundits profess the future of the car wash industry is converyorized, and they are probably right.