Last year, executives of four major car wash equipment manufacturers shared their views on the 12 months ahead. In previous years, we benefited from the observations of operators, distributors, and association executives. The participants in this year’s presentation are executives of car wash chemical manufacturing companies. The panelists are:
- Bill Gorra, president and CEO, Simoniz USA Inc.
- David Krause, president and CEO, Lustra Car Care Products
- Brent McCurdy, managing director, Blendco Systems
- Jeff Resmer, director of professional products, Turtle Wax Inc.
We asked the participants to consider three issues of general interest to car care business operators:
- The economy — the outlook for 2013 and its impact on the car care industry.
- Advances in car wash chemistry — where to next?
- What technological and wash-format trends should we look for in the coming year?
I believe the outlook for 2013 is a mixed bag of good, bad, and the unknown, all wrapped up in that ever-present wild card — the weather. The good news is that over the last three years new car sales in the United States have been rebounding. The new-car owner has always been a high-value target for car wash operators and more of them in every car wash operator’s marketplace is only a good thing.
The bad news is that household incomes are off considerably and middle income families have been hit the hardest. Demographically, we believe the middle-income car wash owner makes up the largest segment of our marketplace. We have to continue to be mindful and diligent of the fact that we compete for consumers’ disposable income with the fast-food restaurants, the movie house, the donut shop, etc.
The unknown are gas prices and ObamaCare. We are all aware of the effect high gas prices have on our volumes and, if gas prices continue to remain high, it will continue to have a negative impact on our industry. If ObamaCare is fully implemented, our industry will lose tens of thousands of employees in 2013 and the full-service car wash segment will have many difficult decisions to make. Operators need to get their arms around how mandated healthcare coverage and the nuances of ObamaCare will affect them.
Clearly, the global economy is facing some great challenges. These challenges are being felt worldwide with a soft to minimal recovery being experienced in the United States and a general economic slowdown being felt in most other major economies. In the United States, two key obstacles that impact all of us are job creation and effective governmental spending reductions. The ability to improve in each category could define whether we expand or contract in the coming year.
The U.S. economy will face a critical juncture at the end of 2012 referred to as “The Fiscal Cliff.” The U.S. Federal Reserve Chairman, Ben Bernanke, uses this term to refer to the major fiscal events that could happen simultaneously (Budget Control Act of 2011 goes into effect which could initiate deep cuts in spending such as the military), along with tax increases that are scheduled to occur, these could drive the U.S. economy back into a new recession as we enter 2013.
From a car care industry perspective, “The Fiscal Cliff” could negatively impact all parties with interests in the success of our industry. The organic growth of our industry will be heavily dependent upon job creation, disposable income growth, and our ability to steer clear of a new recession.
My take on the economy is that we are in a delicate time with several outcomes possible for 2013. The most likely outcome is that 2013 will present a washing environment with modest growth of 2.5 percent to 3 percent. The drivers for the growth will be gradual increases in wash habits back closer to pre-recession levels, increases in new car purchases, and continued growing demand for professional car washing vs. washing at home. Unfortunately, this modest growth, since somewhat small, could be interrupted by any major economic interruption that erodes people’s confidence in the economy. Interruptions could include a return to a recession, election results deemed unfavorable, stock market crash, acts of terror, or a major spike in gas prices, which would eat into consumers’ allocation of monies for auto expenses.
As the economic conditions improve and banks continue to free up credit, the outlook for the car care industry remains bright. One positive outcome of the recession is a more business-savvy car wash owner/operator. In order to weather the economic downturn of the last three to four years, owner/operators had to analyze every aspect of their business including chemical cost per car, labor to sales ratios, utilities’ costs, and marketing strategies. Those individuals, who were able to grasp these concepts, understand the impact on their business. Those who implemented change quickly were able to survive and will ultimately thrive in a more favorable economic climate.
In 2012, the car wash industry has seen the savvy owner/operator stabilize his/her business and begin to invest in new equipment, brand-name chemicals, and new business models. While credit has not completely freed up to pre-recession levels, there has definitely been a spike in new equipment sales, equipment reloads, and brand-name chemical sales, which should continue into 2013 as the economy stabilizes further. While many car washes fell by the wayside the last few years, those that have survived should benefit from their new equipment, new business model/services, and marketing strategies.
CAR WASH CHEMISTRY
The ability to offer quality services where the consumer can see appreciable and discernable differences that add value, as well as convenience, is critical. Time is a precious commodity for most consumers and they weigh that into their purchasing habits. Advances in car wash chemistry have allowed us to wash and dry a car quickly and affordably. Additionally, we have learned how to dress tires and now can actually wax a vehicle during the wash and dry cycle. Our ability to wax and shine a vehicle on line is an enormous breakthrough that is already adding millions of dollars in revenue to our industry. I expect this trend to grow exponentially.
The good news for all of us in the “Do It For Me” side of car care is that the DIY marketplace continues to contract and environmental and water restrictions have the ability to further drive the driveway car washer into our tunnels and bays. Let’s be ready for them with quality services that they will be willing to pay for.
Over the past three years, a clear trend has emerged relating to the development and introduction of ultra-concentrated chemical programs by car wash chemical manufacturers. Although the use of ultra-concentrated chemicals is not new in our industry or other industries, the focus of intellectual and financial resources from a system approach has been significant. The ultra-concentrated system improvements versus past introductions from these programs are in many areas: product performance, product flexibility, safe handling, space savings (backroom), packaging, transportation requirements, and product utilization improvements.
The introduction of ultra-concentrated chemicals allows the operators and distributors to gain local market share while cost effectively delivering an “extraordinary car wash experience.” As the economy continues to wobble, it is critical that manufacturers continue to provide valued innovation that supports the growth in operator wash counts in a profitable manner.
Car wash chemistry that creates “noticeable” benefits to the customer is what’s next. If the consumer cannot see a real benefit, the new chemistry will not sell to the wash or with the consumer. The example of total car protectants is a good one. The customer can see the results in shine and see that a protectant is there the next few times it rains.
Hot waxes that really deliver a soft, shiny, hand-waxed-car feel are also the rage and will continue as long as the customer gets more than just a color show at the time of purchase. Think about it, the show is fun but after the purchase, customers will check to see if the car is “hot waxed.” If it doesn’t feel soft, resist soils, and bead water like crazy, they will not buy the upgrade again. The problem is that many car wash owners eventually convince themselves that inferior products go unnoticed, or, in some cases, they assume all products provide a level of softness. As we saw with tri-color foams, many deal-searching operators now buy tri colors that lack true conditioning, so they end up with a tri-color feature that provides far less value to the customer.
While there hasn’t been a major innovation such as triple foams or total surface protectant to shake up the car wash industry lately, we have seen a shift to hyper-concentrated products. Now, more than ever, companies are beginning to see the value in delivering products that contain over 85 percent active ingredients because it simply costs too much to ship products containing mostly water all over North America. Would the industry have moved in this direction if not for the economic recession? One will never know, but the move to more concentrated products definitely makes sense from a financial perspective.
The shift to hyper-concentrated products has also caused car wash owners/operators to think about their chemical spend and usage differently. Operators who were used to purchasing chemicals based on sticker price or cost per gallon are now having to evaluate chemical spend and usage on a cost per application basis. Without this cost per application analysis, it is truly impossible to compare chemicals on an apples-to-apples basis. As more companies move to hyper-concentrated products, chemical manufacturers have been forced to spend significant time re-educating the industry with emphasis on cost-per-application versus cost-per-gallon thinking.
We look for a continuation of emphasis on unlimited-wash-club plans in the coming year. Technology has allowed us to track and quantify these plans, and it is our understanding that the average customer in such plans washes 4.5 times per month and stays on for an average of 4 months. We believe that as operators continue to “tweak” their offerings, these plans will continue to gather momentum, which is great news for the operator because, properly executed, they can provide cash flow relief for an industry that is so heavily dependent on the sun coming out every day.
And, finally, all technologies that enhance productivity, including throughput and labor reduction, will continue to be critical. Necessity is the mother of invention and as an entrepreneurial-driven industry dominated by small businesses, innovation will continue to pop up when we least expect it.
We are all born optimists, and that’s why we’re in this business.
I believe that valued innovation in regards to technology is the key to growing operator revenues, profitability, and driving consumer loyalty. With the many recent technological advancements in ultra-concentrated chemicals, I see a significant focus by manufacturers in the area of chemical application systems that more accurately meter chemical usage, reduce operational costs (water and chemical), and provide operators with greater flexibility to improve the customer experience in the wash bay.
I think we are going to continue to see the trend in shorter tunnels — chasing smaller real estate parcels and converting automatics into mini tunnels. These smaller tunnels require careful water and chemical balances. Further, we are going to see the continued trend of water-driven dilution mechanisms for detergent and wax delivery. These systems offer benefits in reduced water and chemical use, consistency, and lower-maintenance operation.
As we progress into 2013, the wash-format trends that seem to be most prevalent in the car wash industry are express exterior and flex-serve business models. Both models allow operators to process a high-volume of cars daily while offering quality, high-end services. In many instances, operators offer free vacuums to customers who choose to vacuum and clean the interior of their cars on their own. The industry has also seen the expansion and incorporation of other value-added services at car wash sites such as express detailing, oil and lube, etc.
From a technological perspective, it looks like chemical dispensing in the backroom and in the bay has become a major emphasis as of late. This allows operators to manipulate the chemical to offer enhanced show and create a “wow factor” for the customer while saving on chemical and water costs in the equipment room. As utility costs continue to rise along with the cost of raw materials contained in car wash chemicals, we would expect to see a continued emphasis on chemical dispensing and technology.