Business Strategy — Changes in Customer Tastes are Looming
When planning for the future, managers begin by comparing past and present performance to gauge the business position. Next is an analysis of the firm’s industry.
An environmental scan of the U.S. car wash industry shows a turning point was reached in 2007.
Industry wash revenues grew at an average annual rate of roughly 3 percent between 2000 and 2007 and most industry participants did well.
In 2007, the industry fell off a cliff.
Between 2007 and 2010, revenue benchmarks for full-service and self-service dropped by 12 percent and 18 percent, respectively. The exterior-only segment increased by 24 percent.
Perhaps most telling about the impact on the car wash industry is the change in wash revenue per employee, which dropped, according to my estimate, by $15,000 between 2007 and 2010. This would equate to a total potential loss of roughly $6 billion in wash revenues for the period and about $300 million less in chemical spending.
In 2010, the International Carwash Association (ICA Leadership Summit) released a report indicating that total U.S. car wash equipment spending dropped 33 percent between 2007 and 2009 or a loss of roughly $110 million in sales.
This is evidenced by the overall decline in construction. According to the U.S. National Retail Report, new retail construction contracted from 200 million square feet a year in 2008 all the way down to 25.6 million square feet in 2010.
Today, key drivers for the car wash industry are muted.
Population growth is steady but low. Household income is not growing. New vehicle sales are projected to grow after a decade of decline but current levels have been disappointing. The number of vehicles on U.S. roads continues to decline.
The only industry driver showing much optimism today is the consumer’s preference to use a professional car wash.
According to the ICA, washing cars at home has declined by 2 percent over the last 10 years. ICA believes demographic and societal trends support a continuation and likely acceleration in this trend.
In order for car wash operators to hang their hats on such a notion, a cause and effect relationship should exist between preference to use a car wash and propensity to buy car wash services.
As shown in the graph (above), the relationship between annual percentage change in consumers’ preference to use a car wash and GDP per capita (measure of standard of living) provides some support for this notion.
Despite the current business environment and nominal outlook for industry drivers, I believe car wash operators still have plenty of good opportunities.
For example, the trend in consumers’ wash preference implies there are millions of people throughout the course of a year that can afford car wash services but do not buy. Arguably, just a small portion of this untapped potential would easily dwarf what is lost to charity washes each year.
There has been a sea change in driving habits. Instead of stopping at a bar or running errands after work, more people are sitting at home, eating dinner, and watching TV. I hardly know anyone who doesn’t look for bargains on the web. People once computer challenged now spend hours a day surfing the web, e-mail, Facebook, etc.
With employment over 85 percent, there is a lot of business available and no shortage of ways to reach consumers. Consequently, focus should be one element of a business strategy today regardless of market definition — owners should focus on a niche they know particularly well.
Exterior car wash operators have shown that cost advantage is now essential in attracting customers. Owners need to find ways to improve processes and lower costs.
Changes in customer tastes are looming again with a rapidly aging population and younger generation with less money to spend. Car wash operators must remain nimble and look for ways to add more value to their products and services.
Bob Roman is president of RJR Enterprises — Consulting Services (www.carwashplan.com). You can reach Bob via e-mail at firstname.lastname@example.org.