Auto Laundry News - March 2011

Growth or Decline — The Car Wash Life Cycle

By Robert Roman

A phenomenon that has been overshadowed somewhat by the recession and bad weather is the fact that the car wash industry is now fairly mature. Consider some of the signs.

Wand and in-bay combinations are widespread and overbuilt in certain markets, and about one-half of the gas stations and convenience stores in the United States have a car wash.

The dot.com era of the car wash industry has finally ended with Mace Securities selling the last of its car wash properties, and new companies trying other strategies to consolidate.

The annual building rate of washes has slowed considerably causing mergers and acquisitions in the equipment supplier market, with the larger companies becoming more dominant.

Late entrants to the market have diminished price by building high-volume, express exterior conveyor washes to capture market share from existing sites.

When an industry matures, it inevitably experiences stable earnings, slower growth, or decline.

To avoid decline, firms typically pursue innovation and technological change to prolong the life cycle. The notion being that improving efficiency would result in maintaining a positive or at least constant trend in the product life cycle.

These strategies are evident with “new and improved” car wash products, more “on-line” products, and eco-friendly chemistry. Wash systems are being designed to clean better, faster, and use fewer resources. More automation is being deployed, like pay stations and moving platforms to help reduce operating expenses. Operators are trying management techniques like lean production to help improve efficiency.

In a mature industry or market, the rate of sales expansion is typically equal to the growth rate of an economy. Given the size of car wash’s presence in the gasoline and convenience store industry, we should expect the building rate of washes to continue at a much slower rate for the foreseeable future.

Today, total fuel sales at c-stores are topping out, and the trend in store counts has flattened over the last four years.

Consequently, with less demand for new retail stores and wash systems, there may be other shakeouts in the
car wash industry as manufacturers and suppliers fight for slices of a smaller pie.

So what may get the car wash industry growing again?

Growth may occur with the new wave of consolidation, but at what price? For example, car wash owners looking to grow as a NASCAR-branded facility may do so in exchange for 51-percent ownership in their sites.

An investment thought bankable these days is to build a large express exterior car wash that provides owners the capacity to wash high volumes at low cost. Pricing may be one way of squeezing incremental revenues out of a mature business, but this strategy isn’t sustainable because it will not help the industry grow.

With Big Oil leaving the retail gas selling business to independent operators, the opportunity may exist to install more car wash units at gas sites, as independents may be more willing to discount the price of gas with a car wash purchase to leverage overall sales. However, this may be a tough sell because car washing continues to rank near the bottom in what is most important to retailers from a revenue standpoint, namely, convenience store items, coffee, beverages, tobacco, and food services.

Motorists who wash their vehicles at home may be a source of growth, but it is not going to get any easier to attract them from their driveways. When an economy has a down swing, client services are usually affected first and the most. For example, retail sales are off by about 7 percent whereas dry cleaning, chauffeuring, housekeeping, landscaping, and other luxury services are off by as much as 30 percent.

Perhaps what the car wash industry can bank on most are the traditional strategies that aim at maintaining a slow but steady forward movement rather than trying to zip along to the top of the charts.

Consequently, car wash developers seeking growth need to become more selective in finding good sites. Instead of building a wash on a grade “A” property in a “B” quality location, developers should first prospect for grade “A” markets.

Similarly, car wash operators seeking growth need to focus on the fundamentals. This means extracting gains from operations and brand performance, effective advertising and communication, and incremental business.

After all, what happens when you lose on price?

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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