Past Issue

2016 Executive Forecast

12/01/15
Bruce Arnett, Jr.Bob BlackCharles Bonfiglio 

Auto Laundry News invited the chief executive officers of three multi-location car care companies with franchising exposure to share their views on what the following 12 months might hold for the industry. The participants are:
• Bruce Arnett, Jr., CEO/president of Carnetts Management Company LLC, DBA Mr. Clean Carwash
• Bob Black, CEO/president of Super Wash Inc.
• Charles Bonfiglio, CEO of Tint World®

We asked the panelists to consider four issues of general interest to car care business operators:
• The Economy — The outlook for next year and its impact on the car care industry
• Franchising — Its place in the car care business in 2016
• Market Saturation — Are we building too many (too few) car washes of a certain type, or too many (too few) washes in general?
• Concerns — What other issues will the industry face next year?

 

THE ECONOMY

Arnett

Due to so many factors like the upcoming election year, Middle East turmoil, Greece, and our national debt, to name a few, it is very difficult to predict what the U.S. economy will look like for the next year. I do, however, like what I see regarding new-car sales. In 2015, U.S. sales are on track to hit 17.3 million vehicles. It will be the sixth straight year U.S. deliveries grew after hitting a 27-year low of 10.4 million in 2009 during the recession.
2015 will break sales records and next year is expected to be even better. If you add to that the projected downward trend in fuel costs, then I believe our industry will see good growth throughout 2016.
We have all had to deal with challenges over the past few years. In many cases the challenges we faced made us better operators. We have had to refine our procedures and find savings within our companies. It will be up to us to capitalize on these lessons to make the most out of what hopefully will be a year of steady growth.

Black

The past seven years have been the most difficult we have experienced in the 39 years Super Wash has been in the car wash business. Over the years, we have weathered several recessions, but this one has been by far the longest and the most severe. This is the very first time a recession has reached all the way down into the customer’s $2 pocket.
I see little relief in the immediate future for the car wash industry. Obviously, the economy is still very weak when the Feds are afraid a 1⁄4 percent bump in interest rates could potentially stop any forward momentum. 

Bonfiglio

The car care industry has been evolving rapidly over the last few years through:
• New advancements in technology
• New energy forms
• Extended manufacturer warranties
• Car dealers performing expanded services on other makes of vehicles than the makes that they sell at their car dealership
• Car dealers becoming tire replacement centers
• Car dealers venturing into aftermarket service offerings; both internally and outsourcing to qualified specialty centers
The economic outlook for the car care industry in 2016 will be impacted by very competitive product pricing due to the consolidation trend among parts and tire manufacturers. These companies are also purchasing distribution centers, parts stores, and local service centers to dominate the end-to-end supply chain. It includes buying independent shops, service chains, and franchised company centers in the United States and Canada. This has caused a one- or two-tiered buying model that creates competitive-buying-power difficulties for smaller independent car care service shops and part stores.
The consolidation of large companies further restricts small independent car care centers from being able to compete because they are paying higher rent on a limited number of automotive-zoned locations. Furthermore, large companies are able to offer more aggressive compensation and pay plans. They also have the ability to offer advanced training and purchase equipment required to service new, complex, innovative-technology vehicles.
More and more, consumers are educating themselves online first — by comparison shopping for the lowest prices and best service offerings with services like Groupon, LivingSocial, Angie’s List, and other online discounters — before they bring their vehicles to a local car care service center.

 

FRANCHISING

Arnett

I do think there is a place for a successful car wash franchise in our industry. Within the franchising world the car wash franchise has one major challenge that needs to be overcome for franchising to succeed. The biggest challenge is the investment required to build a car wash. This investment is on the higher end of the scale among potential franchise opportunities. This reality limits the pool of franchisees.
Franchising is the undisputed #1 business model in our country today. Hundreds of thousands of potential franchisees are out there searching for a business to be a part of. They are comparing different opportunities in an effort to find a franchise to invest in. Today’s car wash franchise programs eliminate approximately 96 percent of those interested in becoming a franchisee due to the investment level. The significant upfront investment severely reduces the pool of potential candidates.
A car wash franchise program, which eliminates this barrier of entry, would have a great chance to succeed.
Chic-Fil-A is a great example of a franchise program that has been extremely successful with a similar model. The franchisee is a location operator; they do not own the facility. They get a salary and a split of the profits. I believe an approach similar to theirs would produce the right environment for a successful car wash franchise program.

Black

The car wash industry is best served in the long run by “Mom and Pop,” who have mortgaged their “souls” to own and operate their own small business. Many of their washes are the best competition we face on a day-to-day basis.
Super Wash franchised in 2001. My wife, Mary, and I owned 187 Super Washes at that time. As a franchise, we knew our financial investment in car washes would be safer and also every Super Wash owner would have a better chance of being successful if we all followed a consistent operating strategy. 

Bonfiglio

Today, franchising is more important than ever as a sustainable business model. People who want a business opportunity to start a new business, or existing small-business owners who can convert their business to a franchise, can take advantage of a franchise-branded system. With consolidation and merger trends in the automotive aftermarket supply industry, small businesses will be at a growing disadvantage, and a sustainable franchise system may be the best way to be a part of a national brand that can provide small business with sustainable growth and make the business more valuable when it is time to exit. Franchise opportunities help you open and grow your own business in many ways including obtaining financing and investing in a proven brand with a good track record of success.
A franchise company will provide you with a developed method of doing business that produces successful results by supplying you with a great deal of industry and business information. You will gain the competitive advantage you need by being part of a company that has built regional or national brand recognition, which has added value in the eyes of your customers. A good franchise company will provide training programs designed to bring you up to speed on the most successful methods to run the business, along with an operation manual with information to open and operate your business.
Franchise companies have documentation and staff to assist you with real estate, finding the right location, and negotiating the best possible lease or purchase for your business. A good location with a good lease or purchase agreement and build-out is an important advantage that can provide the best chance of success. Franchise companies also provide you with a designed business layout to get the exact mix of furniture, fixtures, and equipment needed to maximize the efficiency of your business.
Franchise companies maintain a dedicated staff of operation managers to provide ongoing assistance to franchise owners, so you are not on your own when you’re opening and operating your business. You can also rely on other franchise owners in your franchise that share the same industry and brand. This provides additional support since you are both part of the same brand while each owning your own businesses.
To compete in today’s fast-changing marketing arena, you need a full marketing team to manage broad and costly marketing channels that include building and maintaining a website, marketing materials, and proven tools and strategies for attracting and retaining customers. Cooperative budget contributions from all franchise owners will provide a greater efficiency for advertising a unified brand and ongoing marketing of your business effectively than a single business could sustain.
The collective buying power of franchises is advantageous in negotiating prices for everything you need at significantly lower levels than you could achieve as an independent operator. This includes initial fixtures, equipment, supplies, inventory, uniforms, and everything else you’ll need on an ongoing basis.
Franchising has an important place in the car care business and will be increasingly more important in 2016 to compete and thrive. One of the biggest reasons to buy a franchise is that it will help you avoid much of the risk of starting a new business and will set you up for the best chance of success.

 

MARKET SATURATION

Arnett

I do believe many markets are facing an over-build situation. The success of the exterior express and flex models has really caught the eye of many new investors to the industry. Many of the older style traditional car washes are being converted. I do believe this model has the potential to increase the frequency at which consumers wash due to the “express” reality of the model. More people seem to be washing more often and taking advantage of the unlimited wash programs. Whether or not this is enough to overcome some of the overbuilding, time will tell.
There will most likely be a correction in certain markets and, as always, the strong will survive.

Black

It depends totally on the individual market. I know of towns with a 6,500 population that have six car washes with three of these washes having been built in the last 10 years. Obviously, the car wash “pie” has been cut into very small pieces and it takes a toll on those car washes.
There are other markets in the Midwest that remain under-served. Accurate demographics and honest evaluations of existing competitors are critically important prior to any small-business person investing another $400,000 to $800,000 in a saturated market.

Bonfiglio

There is a formula in each industry to determine potential support for a new business in a market. Simply stated, there is a certain number of vehicles that need basic or advanced type car wash services in each geographic area. The placement of car washes of a certain format should be carefully considered. Although populations are growing, developers should be mindful not to rely on simple demographic trends alone.
Advanced technology is evolving more rapidly and can change the formula dynamics within a single year’s cycle. Disruptive technologies are changing current business processes and consumer habits. A few to mention is how Uber affects the taxicab industry, electric cars affect the gas station industry, self-driving cars affect the drivers for Uber, and how programmed flying drones delivering products at your doorstep will affect the shipping industry.

 

OTHER CONCERNS

Arnett

We are certainly keeping our eye on Obamacare. The full impact of the law starts to become more of a reality in 2016. We are working closely with our insurance company to be sure we are ready for all of the changes. Another issue, which would directly impact our business, would be an increase in minimum wage. These issues require a great deal of planning and compliance to ensure maximum success.
On a smaller note, we are keeping our eye on the trend we are seeing regarding matte finishes for cars. Whether or not this really takes off is yet to be seen. But, if it does, how will it affect the wash habits of these consumers? Will they wash as often? Will they need wax? Are the days of a shiny-looking new car going to be replaced with the dull matte finish?
We all need to be ready to react to change. Whatever happens, I am looking forward to a good 2016 for our industry.

Black

Water and sewer rates have exploded in the past few years. All indicators point toward most cities significantly increasing these fees. Many of the smaller towns we serve are being forced to put in $20 million to $25 million treatment facilities. This in turn causes a radical escalation in user fees.
I personally own a wash that had a $35,000 water and sewer bill in 2014. This is simply crazy expensive for five wand-self-serve [bays] and two touchless automatics.

Bonfiglio

We have covered business concerns, business models, market share, and saturation as well as some potential disruptive technologies that are changing the current business environment, but there is one area to touch on that is unknown and uncontrollable: politics. The one factor that no business of any size can forecast or directly control is governmental policies that can directly affect virtually every area of business: regulation; taxation; import; export; federal, state, and local policies; etc. This is the area of business where you need to maintain enough agility to change as necessary.



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