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Cost of Goods and Services - Extra Services Add Cost, Pay Dividends

While we have imprecise information about industry size in terms of car wash outlets, volumes, and revenues, experience shows the cost of goods and services is a rising issue.

By Robert Roman

01/02/14

While we have imprecise information about industry size in terms of car wash outlets, volumes, and revenues, experience shows the cost of goods and services is a rising issue.

Today, we know the price of oil-derivatives can adversely affect the car wash industry. For example, the Fed tells us high gas prices can lead up to a 4 percent decline in vehicle miles traveled. A 55-gallon barrel of car wash chemical purchased in 1995 for $350 now lists for $500.

On the energy side, power companies increase base rates, exact fuel charges, and bid for annual rate increases for subsequent years to pay for power plants and other projects and to ensure return on equity, a closely watched measure of profitability in power generation.

As shown in Figure 1, the trend in benchmarks suggests a 4 percent increase in the cost for chemical, maintenance, and utilities as a percentage of gross sales. However, benchmarks only tell a part of the story.

To illustrate, I compared four conveyor systems using information from my internal files on real-world washes.

System A is reminiscent of a full-service tunnel decades past. System B represents the advent of on-line extra services (e.g., wheel brite, tri-foam, and clear coat). System C reflects the express exterior tunnel. System D represents the latest in chemistry, technology, and materials.

Each system was evaluated for estimated full-load amperes equipment, chemical usage, and sales mix. The constant was number of cars washed.

As shown in Figure 2, energy use rises as an operator moves up the food chain in terms of horsepower and number of profit centers. Here, the biggest consumers are air-dryers and high-pressure pumps.

For example, if we compare loads and convert amperes, the difference in electricity use between Wash B and Wash D in kilowatts is 153 percent. Kilowatt-hour is the most commonly used billing unit in delivering energy to consumers by electric utilities.

On the chemical side, a similar dynamic exists where operators balance cost and increasingly rely on chemicals for up-sell.

To put this into perspective, consider my old wash (A) equipped with one chemical tire applicator, pre-soak arch, brush detergent, and drying agent. In other words, it was a simple system with basic chemistry but few profit centers.

Tire cleaner contained caustic soda, salts of acid, and wetting agents. Pre-soak: chelating agents, surfactant, silica, and alkali. Brush detergent: phosphoric acid and foaming surfactant. Drying agent: paraffin oil, ammonium salt, and organic solvent.

By comparison, today’s car wash is like stepping up from My First Chemistry Kit to the Chemistry Whiz Kit.

Consider the chemistry that can be in a top package today. To that in Wash A, add wheels: strong base, foam surfactant, chelating agents, and emulsifiers. Undercarriage: acid, wetting agent, and amine salt. Tri-foam: foam surfactant, wax or acid, and ethanol surfactant. Clear coat: polymers and detergent range alcohol. Glow foam: organic solvent, surfactant, and amine salt mixture. Tire shine: silicone and paraffin oil. To this add bug juice, brake dust, and hot wax.

Sounds like a lot, but it does a lot.

For example, acids are reagents that cause needed reactions to occur. Chelating agents inactivate hardness. Amine salt increases solubility and mixtures can enhance gloss and confer smoothness and anti-static properties. Polymers biodegrade to form both hydrophobic (water-hating) and hydrophilic (water-loving) properties.

Chemistry comes with a cost. As shown in Figure 3 and 4, chemical use and cost is a function of horsepower and number of profit centers

On the other hand, the benefit of chemistry is it allows operators to create value-added service by offering on-line profit centers. This has led to a more robust value proposition for motorists who need to clean, shine, and protect their vehicles.

In the final analysis, volume (60,000), average revenue, and chemical use and cost were combined for each wash to produce a bottom line.

As shown in Figure 6, the cost of adding technology (chemical, equipment) employed in washing cars can reward operators with handsome dividends.

As shown in Table 1, more also means more to manage including maintenance labor plus shipping and disposal costs. Today, these costs are addressed with computer software, concentrated chemicals, and better application systems and reclaim to absorb waste and save water.

Operators also stand to gain by optimizing efficiency of air-dryers, the biggest user of electricity. This can be accomplished by selecting a design that best fits site-specific conditions and installing energy saving devices. Hot-air drying can be transformed to cold, less expensive air.

We have shown that as operators move up the ladder in value-added services they face higher energy costs and a laundry list of chemistry at greater expense. Consequently, working with qualified technicians and buying from reputable suppliers is crucial.

Motorists who will buy a car wash today or shell out $3 or $4 for an extra service simply have higher expectations. They want products that perform as advertised. This relationship is too important to trust to suppliers who compete on low price and come up short on service.

 

Bob Roman is president of RJR Enterprises – Consulting Services (www.carwashplan.com). You can reach Bob via e-mail at bob@carwashplan.com.



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