Consolidation, Phase Two - Prepare, or Be Squeezed Out
By Robert Roman
In the October 2017 edition of Auto Laundry News, there were two paragraphs in the Industry Newsline section announcing that the Goo-Goo’s Car Wash chain headquartered in Columbus, GA had been acquired by the IMO Car Wash Group.
WHO IS IMO?
IMO Europe and IMO Australia are wholly owned subsidiaries of International Car Wash Group (ICWG). IMO operates through a network of 800 sites across 12 European countries and Australia, washing over 30 million cars every year.
Founded in Germany in 1965 the IMO brand has expanded to include over 320 sites in Germany, 260 in the United Kingdom, and over 200 sites throughout the rest of Europe.
IMO’s goal and objective is to find strong opportunities for future growth both within existing and as yet to be developed countries.
In July 2014, TDR Capital, a private equity firm focusing on mid-market, control buyout investments in Europe, acquired ICWG. In October 2017, Roark Capital Group, an Atlanta-based private equity firm focused on multi-unit consumer businesses, announced that its affiliate closed on the previously announced acquisition of ICWG from TDR Capital LLP.
In the United States, ICWG operates under the banners of several major car wash chains including Car Wash USA Express, Zippy’s, Car Wash Express, Supersonic Car Wash, and now Goo-Goo’s.
ICWG is committed to delivering consistent wash quality for the customer while minimizing the impact on the environment.
What does this mean?
According to the company’s website, ICWG’s wash system has been continually developed to maximize quality and speed and to ensure consistent results on every car. Machines are all manufactured in Germany.
ICWG’s quick conveyor car wash model can wash a vehicle in three minutes and wash up to four vehicles at a time or a car washed every 60 seconds. Wash prices start at about $2.60 US.
ICWG’s washes are designed to use a maximum of 100 liters of fresh water per car, recycling up to 80 percent of the fresh water and only biodegradable chemicals from the Autoglym group are used.
Moreover, ICWG’s local friendly operators are always on hand each day to ensure that each car is thoroughly pre-washed and wheels are cleaned.
Arguably, these developments imply that the car wash industry is in the second phase of consolidation.
Phase two is characterized by larger scale companies with sufficient venture capital and expertise to buy up smaller companies — and the number of competitors shrinks dramatically.
Gobbling up smaller firms allows consolidators to dramatically lower their operating expenses and achieve even higher rates of growth. Consequently, the losers in the second phase of consolidation are usually the smaller firms that do not have access to private equity or the ability to react competitively to the threat. For example, the IMO/ICWG acquisition of Goo-Goo’s did not include the company’s eight self-service car wash locations.
Other characteristics of the second phase are proliferation of more efficient business models (e.g., express exterior, flex-serve, in-bay express) as well as more acquisition activity. For example, in July, Generation Growth Capital-backed Harrell’s Car Wash Systems Inc. acquired Littleton, MA-based New England Car Wash Equipment LLC, a provider of car wash systems and supplies.
To paraphrase John Reinke, managing director of Generation Growth Capital: Our strategy is to build the nation’s leading distributor and service provider of car wash systems and supplies. This will allow us to serve large national operators as well as local accounts. We are already seeing best practices throughout the industry that we plan to instill into our platform. NECWE is the first acquisition to the Harrell’s platform, and we are excited to continue our consolidation with other acquisitions in the near future.
Another example is Mister Car Wash’s recent acquisitions in Georgia, Florida, and Michigan, which bring the company’s total store count to 251 locations in 21 states.
If you are on the outside looking in like I am, how can you win while the industry consolidates? Perhaps the first thing to do is to forget about it.
Arguably, if consolidation continues and eventually reaches phase three where an industry is actually transformed, there isn’t much you can do about it.
Phase three consolidation involves major changes in capitalization, competitive dynamics, and market share mix. None of these would bode well for mom and pop car washers or small family-owned chains.
The only thing that can be done about it is to prepare. For example, this may involve major investments in technology, adopting industry best practices, modifying the business model and carving out a niche, strategically positioning for acquisition, or building a company specifically to be acquired by a large consolidator.
Arguably, smaller car wash companies that choose the status quo will slowly be squeezed out because they will not be able to keep up. For example, consider ICWG’s mantra of safety, quality, environment, and value whereas probably half of the mom and pop washes in the country don’t have a website let alone a formal value proposition.
In ICWG’s other markets, the company delivers a wash in two minutes, and on-site operators ensure each vehicle is prepped whereas in the United States a wash takes about four minutes and most operators want to avoid prepping each car.
ICWG car washes recycle 80 percent of water whereas probably less than half of the washes in United States reclaim any water. Furthermore, experience shows that ICWG uses its considerable scale economies to drive prices down.
Of course, this won’t happen overnight, but it is happening. Consequently, preparing sooner is better than later. Preparing for consolidation begins with initial analysis of financials and operations to determine a company’s competitive position in the marketplace. Based on the results of this analysis, a company may choose to chart a course to exit the market or a course for growth.