Auto Laundry News - March 2013

Car Wash of the Future — Build on Assets and Overcome Challenges

By Robert Roman

It is a known fact that new car washes are a propelling force for industry growth.

Today, however, the climate is less conducive to sourcing and executing successful bank loans by family-owned businesses seeking growth and has hindered the execution of new projects.

Moreover, financial experts are commenting today that a high level of debt does not seem to work for many retailers as it once did.
To produce a better risk/reward profile, car wash investors should consider rationalizing the fragmented market. This can be accomplished with an integrated approach that allows for a wider range of opportunities.

The car wash industry is considered very competitive with many players in the almost saturated markets that provide similar products and services at similar price levels. Market selection has been identified as an important strategy to differentiate a retailer in competitive markets.

Consider the forces conspiring against the self-service car wash model where the tendency was to invest early in new and developing markets due to the effect of competition from large car wash operations. This early entry gave self-service a first-mover advantage and delayed the bigger washes’ entry.

However, store owners often find they have much less of a business when their customers suddenly enjoy a low-cost, high-convenience alternative (i.e., express exterior).

In the car wash industry, the ripple effects of this have been an estimated 22 percent decline in the size of the self-service fleet, over a 50 percent decline in self-service equipment spending, and loss of certain suppliers and vendors including acquisition of legacy companies, recently Coleman and Hanna.

Arguably, if self-service is to survive, it will have to evolve. Consequently, a framework such as an integrated strategy may be helpful in evaluating retail investment in competitive markets.

Integrated refers to a framework for investment which sets out priorities for allocating resources and attracting investment. Similar to business model strategy, integration incorporates aspects of economics, entrepreneurship, finance, planning, marketing, and operations.

The objective of this strategy is to create opportunity by overcoming barriers to growth. The strategy would outline priorities to ensure growth is balanced and sustainable. Most important, an integrated strategy is evidence-based, requiring research and analysis.

A successful integrated strategy would build on the company’s assets and overcome its challenges. The integrated approach has aims, which guide the priorities and inform the approach.

For example, is it possible to build on the store’s position? Given the changed retail climate, self-service owners may find advantage by combining forces in a given area or region and merging into a single, larger company. This would allow the resulting company to extend market range and gain scale economies, thereby lowering the market threshold — the number of units the market needs to sell per day to cover the cost of acquisition or production. Moreover, bigger firms typically have an easier time borrowing money than smaller ones do.

Is it possible to use innovation to build a more resilient business? Studies have shown that 75 percent of consumers research products online before purchasing and expect to find a wealth of information related to products, brand, and environmental policy to inform their decision — less than 25 percent of self-service operators have a website.

Likewise, 15 percent of consumers (and rising) would like to use their mobile phone as a substitute for credit payment — less than 45 percent of self-service operators accept credit payment.

Is it possible to unlock market potential to take advantage of opportunities that exist? For example, in markets overbuilt with self-service washes, there is often an undeniable absence of assisted-services. Consequently, extending the range of the wash by offering new services like interior cleaning, automated vehicle polishing, etc., can enhance the customer’s experience and create a more compelling reason for customers to visit, meaning more door swings.
The problem solving involved with an integrated strategy requires models of investment, sales assessment, and segmentation to support decisions related to expansion, acquisition and development, and store characteristics.

Traditionally, car wash operators have made little use of such formal techniques relying instead on intuition, experience, and common sense. Just as experience and intuition cannot be underestimated in operating a car wash, operators should not underestimate the ability and capacity of formal techniques to deal with the dynamic nature of consumer behavior.

Otherwise, like a plant that is denied nutrients, rain, and sunlight, the wash may wither and die.

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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