Auto Laundry News - April 2013

Strategic Planning — Be Willing to Tear Down, Renovate, or Add On

By Robert Roman

During the last decade, the once deep pool of new mom-and-pop investors has been drained. The after effect has been a huge slump in equipment sales and subsequent loss of some equipment manufacturers and dealers and even trade journals.

Throughout all of this a new breed of car wash investor has emerged. These investors have greater business acumen and deeper pockets than the typical newbie. Instead of prototypical self-service, these investors are building express conveyors.

Instead of an investment of $1 million or so for self-service, the enterprise value for the new breed has been about $2.5 million to a reported $4 million for a freestanding express in Nampa, ID.

Not only is the typical express conveyor 2.5 times the normal start-up expense for self-service, lenders have all but shut the door on mom-and-pop investors unless they have the industry experience and an excellent market opportunity.

Today, many self-service markets are in decay or decaying and new opportunities are few and far between. Consequently, we should find people who are more willing to tear down, renovate, or add on to an existing site because of opportunity cost — the cost of any activity measured in terms of the value of the next best alternative forgone (that is, not chosen).

LAST IN

Years ago, the overall design objective for many self-service projects was build-it-and-they-will-come. Markets were fertile then and newbies were able and more willing to bet on future growth. This condition is more a rarity today for many companies unless you happen to be a brand like Apple, NASCAR, Walmart, or Starbucks. Or is it?

Today, even mighty Walmart has seen same store sales drop and less demand for new super centers. Consequently, Walmart has diversified by investing in smaller stores and betting on a proximity and quality of goods strategy.

Presently, Walmart operates 200 “Neighborhood Market” stores in the United States and had plans to launch 35 more by the end of January 2013. Neighborhood Market is a 30,000-square-foot store designed for convenient afford-able shopping and is stocked with 29,000 basic groceries, fresh produce, and general merchandise. However, Walmart is not rolling out retail space for these new stores in the same manner as it did with its massive super centers.

Instead of plopping down a 250,000-square-foot box filled with countless discounted goods that act like a big magnet drawing customers from a distance measured in tens of miles, more careful decision making has been used in the placement of Walmart’s new stores.

The reasons are smaller economies of scale and having to compete with the likes of Kroger, Publix, Safeway, Giant Eagle, Giant Carlyle, etc. that are established and entrenched in markets.

In locating these new stores, Walmart used a last-in strategy like Wawa — a gasoline and convenience retailer and industry leader that operates more than 590 stores in Pennsylvania, New Jersey, Delaware, Maryland, Virginia, and, now, Florida.

Instead of piggy-backing and building a store wherever a Walmart is located or using a sequential approach to build stores like Starbucks has done, Wawa looks for site locations in markets populated with smaller, obsolete gas sites that have no room to expand and then achieves trade area dominance by building large stores that offer more convenience, better image, and greater value.

DIVERSIFY

Now that the pace of construction has slowed in building large, free-standing express conveyors, we find developers who are diversifying by renovating self-service sites as express washes as well as manufacturers who are prospecting gaps in markets and trying to extend product lifecycle by promoting the concept of converting an in-bay to an express mini-tunnel.

However, as noted by car wash broker Roger Pencek in an article several months ago, “An additional flashy new express doesn’t add customers, it just splits the pie.” The why is, absent growth, a new wash does not create new demand in an area — all the motorists who would buy at the new wash are already getting all the washing they need from someplace else.

Consequently, there is logic in Pencek’s suggestion for stewardship from equipment and chemical suppliers to discourage developers from building a new wash in an existing wash’s trade area.

The car wash industry has also been affected by Big Oil’s exit from retail gasoline selling business. According to long-time petroleum marketer Robert Stambolic, president of Chicago-based RM Petroleum Inc., “Retailers who were formerly buying directly from the Big Oil companies no longer have a ‘babysitter.’ Now, for dealers who no longer have that Big Oil relationship [but are buying from a jobber], if a pump breaks down, Mobil won’t come to fix it.”

Stambolic also noted the positive side — independent owners are more adept at operating stores. For example, Stambolic said he has already invested in the Shell sites he purchased, adding car washes to two locations, upgrading pumps at three, and making them PCI compliant.

As for self-service, I believe Charlie Lieb, former president of PDQ Manufacturing Inc. (now retired) best described this segment several years ago as lagging and struggling.

SELL MORE

Although many self-service owners still have robust businesses, I find the quandary of some owners comes from trying to cost cut their way to profitability rather than focus on ways to generate more sales. Well, how does one generate more sales when many people generally have less money to spend? Consider my neighbor, Eli, who owns a small convenience store.

Eli’s store is located in one of the economically depressed areas in the county where I live, and yet his store produces more than twice what the average store does in terms of sales dollars per square feet of store.

Unlike the typical c-store with a one-acre lot on a hard corner with multiple fuel dispensers, Eli’s store is located in a small strip center with no gas pumps. Instead of a branded store with standardized floor plan, mix of merchandise, and store-in-a-store franchise food service dictated by a corporation, Eli’s has carefully calibrated his business to sell stuff that people in his market actually want to buy — not pizza with crust that resembles cardboard.

Eli accomplishes this by spending time at the store; surveying his customers often to identify what they most want and don’t want; and willingness to adapt and change his store to meet the needs and wants of his customers.

Well, I didn’t get into the self-service business for these very reasons. Indeed, but today it has become increasingly difficult to operate any small business on a part-time basis unless it’s a home-based online store or MLM scheme.
This reminds me of the time I was riding my motorcycle one Sunday morning and came across a self-service wash that was being serviced. Watching from across the street, the person doing the work was practically running while emptying garbage cans, leaf blowing, etc.

When I parked my motorcycle in one of wand-bays and walked over to introduce myself, I was given the grace usually reserved for a telemarketer. Judging by the quality and style of the guy’s apparel, I could only assume that I was holding him back from a tee time. Well, you might say, this is not my MO with customers, but I am still struggling, so what should I do.

ASSOCIATIONS

A good starting point would be to identify your company’s position and activities in the value-chain structure and then look for ways to capture part of the value the chain creates. For example, regional car wash associations provide network effects that car wash owners can use to deliver more value to customers.

Like an agricultural co-operative, a regional association serves as conduit to the network of dealers, suppliers, and consultants and offer benefits to members far exceeding the cost of joining. Consider the Western Carwash Association (www.wcwa.org).

On its membership information page, WCA lists a cornucopia of value-added services that apply to newbies and veteran car wash operators alike including but not limited to employee handbook, labor law consultation, consumer posters, best practices and wastewater manuals, newsletters, and WaterWise Certification Program.

Members also can get savings on credit card processing, insurance, human resources services, legal consultation, PCI compliance, mystery shopper, freight shipping, websites hosting, and more. WCA also hosts road shows and a convention and tradeshow with educational sessions and networking opportunities.

Of course, a car wash owner might question whether these benefits would help create a sustainable competitive advantage. Consider the possible advantage of WCA’s website assistance — a fully developed professional website offered by WashCard Systems and hosted for only $12.99 a month.

Today, roughly 30 percent of potential self-service users search and shop online and pay mostly with plastic and increasingly with mobile technology. However, of the 82 percent of self-service owners who have Internet access, only 24 percent have a website. Arguably, in such markets, a self-service owner could take advantage of the web’s ability to create networks of customers through online communities, content, and partnerships.

In the final analysis, many self-service owners stand to gain by developing strategic partnerships and identifying network effects that are known to build revenues and create barriers for other operators attempting to own the primary customer relationship.

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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