Auto Laundry News - March 2012

Rub-a-Dub-Dub — Who is the Fourth Man in the Tub?

By Robert Roman

In an industry forum a self-service operator was asking how to compete against a $3 exterior express, while an express owner was lamenting the danger of people losing the habit of washing their cars.

Four years of a weak economy is enough to make even the most seasoned of operators concerned the car wash industry may go the way of a lot of other industries. To address this, let’s examine the bakery, dry cleaning, and shoe repair industries, all of which share some similarities with the car wash.

Bakery
Once dominated by tens of thousands of small stores, the U.S. bakery industry is now a $33 billion industry with 8,800 bakeries, down from 9,600 in 2007.

The commercial side is concentrated; the 50 largest firms generate 75 percent of revenues. The retail side is fragmented, the 50 largest generate about 15 percent and the typical company operates just one store.

Like the car wash, bakeries compete on price, quality, differentiation, and relationships with key suppliers. Bakeries wrestle with material and energy costs. The success of bakers is determined by covering costs and building brand recognition and loyalty. Scale economies are not necessary for success, so small businesses can enter the industry with a relatively small amount of capital.

The bakery industry is limited by growth of population. Because it is a mature industry, the growth of individual bakers has come only at the expense of others.

Dry Cleaning
Dry cleaners provide drop-off/pick-up services, laundering, and specialty cleaning — another low market-share-concentration industry. In 2011, the top four cleaners generated just 2.5 percent of industry revenues.

In 2004, there were roughly 30,000 dry cleaners in the United States — 85 percent small mom-and-pops, employing an average of five people and generating $200,000 a year in sales.

The industry grew by a modest 4 percent annually to about 38,000 stores but store profits have been shrinking since 2007. This was due to less discretionary income, an increase in casual work-wear, and more unemployment in industries that still tend to dress up.

In 2007, U.S. Dry Cleaning Corp. attempted first-mover advantage by completing an IPO of $6.1 million to advance a plan to create the first national chain. The move consisted of buying successful chains having dominant share and using resources and scale economies of a public company to improve profits of the chain by reducing existing costs. In 2010, having amassed 60 stores, U.S. Dry Cleaning and seven affiliates filed voluntary petitions for relief under Chapter 11.

Shoe Repair
The shoe repair industry has also shrunk drastically. Although more than 360 million pairs of shoes are sold in the United States each year, there are only 7,000 shoe repair shops left, down from 68,000 in 1968.

According to industry sources, many cobblers are in their 70s and have not kept up with the times by learning how to repair molded bottom and hollow heel shoes. By saying “I can’t fix it,” shop owners have literally chased customers out the door and convinced a generation that it doesn’t make sense to repair a shoe when you can just as easily go out and buy a new pair.

Adapt to Change
Today, these three industries have average net profit that typically does not cover the cost of capital due to low barriers to entry, ease of production, and ease of access to materials.

Successful storeowners have taken industry issues in stride. Having seen the writing on the wall, the best ones have introduced new products and services and gotten much better at customer service.

Cobblers have taken to the Internet so hoofers can pack up their tired soles and send them off to be renewed. Some have diversified by specializing in repair of certain brands like Birkenstocks. Some are entering the field of Pedorthics to address the various feet conditions of 20 million diabetics and 70 million aging baby boomers.

Many dry cleaners have turned to more environmentally benign methods of cleaning, eliminating the use of perchloroethylene. Some have gone to the customer, sending a person door-to-door, to sign up customers for free pick-up and delivery.

Similarly, changing consumer tastes have given rise to gourmet bakery goods and more healthy foods with natural colors. Smaller bakers with flexible production facilities have capitalized on such developments and differences by baking custom and specialty products that yield higher margins.

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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