New Business Rules — Internet Use and Wash Volumes
With the price of gasoline climbing back up to $4 a gallon, car wash operators may face another round of downward pressure on wash volumes and revenues.
The last time gasoline reached a tipping point, the price was about $4 and occurred between 2006 and 2007. Tipping point is the price of gas that results in a reduction in vehicle miles traveled (VMT) and fuel consumption. The Federal Highway Administration (FHW) found gas price spikes and sustained higher prices that occurred during this period caused a 4 percent drop in VMT and fuel consumption. However, based on an examination of the Internet’s effect on travel by FHW, things may be different this time around.
As shown in Figure 1, Internet use by U.S. households has grown significantly. Today, people use the Internet for leisure, social activities, information, shopping, business, trip planning, etc. Studies of early adopters show Internet effect on travel is apparent when it supports choices like trip frequency, purpose, time, route choice, and distance. This is evident with increased use of tools like MapQuest.
The Internet is also an attractive vehicle for doing things like online banking instead of going to a location via travel. In one FHW funded study, researchers examined factors affecting personal shopping trips and found a net decrease in these trips of 6.2 million for a 1 percent increase in Internet access.
According to a study by the New York State Department of Transportation, increased use of the Internet has lead to a 3.7 billion reduction in total VMT, and 4 percent of total New York residential VMT had been diverted from household trips to commercial deliveries.
Examining behavior and time associated with Internet use and travel, researchers found time spent at home has increased for men and women. The shift came almost entirely from time spent at places away from home like brick-and-mortar establishments. Research also shows a trend toward making fewer trips by age and income. FHW found the number of average daily trips taken by people 16 to 30 years old dropped from five to four.
Between the 2001 and 2009 Nat-ional Household Travel Surveys, significant declines in personal travel were noted for all income groups except the lowest. The largest dec-lines occurred in households earning $40,000 to $60,000.
Across the data series, the highest income households make about 2.5 times as many personal trips as lowest income households.
Studies of late adopters of the Internet suggest that increased Internet access and use tends to result in
less miles traveled, less time spent at destinations, and more time at home. If so, this could have further consequences for car wash operators when coupled with a tipping point for gasoline.
For example, as shown in Figure 2, conveyor operators have been reporting fewer customers coming from within 2 and 3 miles over past decade. To illustrate the importance of this trend, we can use population capture rates.
According to a study of property appraisals, the average population capture rate for a conveyor car wash within 1 mile is 0.6 percent. So, if population within 1 mile is 14,600 and equated to 88 washes a day, we would expect a loss of 32 washes a day if the percent of customers coming from within 1 mile dropped from 55 percent to 35 percent. If the trend has been greater dependence on by-pass traffic for business rather than on businesses and residents, it would be reasonable then to expect some havoc from reaching a tipping point in the price of gasoline.
Arguably, motorists today are better prepared to deal with higher gasoline prices. During the last round of gas price hikes, consumers learned how to cut back significantly on miles traveled, reduce fuel consumption, and reel-in spending.
Today, over 80 percent of homes have Internet access and people have learned to use the Internet for purposes that can result in making fewer trips and driving fewer miles. Analysts expect Internet access will reach nearly 90 percent within a few years and broadband 80 percent.
Combined with conservation measures motorists have learned and now practice, events that lead to an increase in the economic distance of a car wash may have further consequences for operators.