Past Issue

Hand Wash - Car Wash For the Ages

By Robert Roman

12/01/15

Although automatic car washes account for most of the total available market, the hand-washing method is still used by some full-service conveyors, wash-racks at car dealerships and rental agencies, mobile detailers, fleet operators, and free-standing hand-wash locations.

Hand washing is used when it is not cost effective or practical to install an automatic car wash system. Hand washing may be a holdover from the past like in California and the northeast United States, or it can be a way for mom and pop investors to differentiate and compete.

 

Figure 1 – An inter-city hand wash.

Shown in Figure 1 is a type of hand wash that can be found in the inter cities of big metro areas like Atlanta, GA. This site wasa former convenience store and gas station.

The profitability of hand wash depends on several factors including price, labor, capacity, and demand.

Arguably, most people would like to have their vehicles hand washed except it takes a lot more time and requires a lot of labor so it’s pricier than an automatic wash. For example, before the Elite Hand Wash in Atlanta was closed and demolished due to a state road-widening project, it was on track to generate gross sales of $450,000.

This was from a decommissioned gas station where the three service bays were used as hand wash bays and vehicles were vacuumed and made “ready” under the gasoline canopy.

Conversely, in California, there are still full-service conveyor operators getting it done the old fashioned way using the same business model as the car wash I worked at as a teenager back in 1968.

Typical volume for one of these sites, usually between one-half and one acre in size, is between 60,000 and 70,000 vehicles per year with average sales of $20 or more. So, if labor expense is kept in line, excellent cash flow and returns are achievable.

Of course, labor expense is a key. Wages at full-service hand washes are usually 37 or 38 percent of gross sales. However, with management and payroll expense added in, total labor cost can creep up to nearly 50 percent of every sales dollar.

Conversely, we know exterior express is the epitome of efficiency with capacity to wash 100 or more cars an hour with only three people. Of course, this efficiency comes at a price. For example, the last quote I read for a 100’ exterior express was $650,000. This included POS, conveyor system, support equipment, vacuums, erection fee, and freight. Add in real estate, fees and permits, site work, building construction, and other start-up expenses and the price of $2.5 million or more is out of reach for mom and pop. Or is it?

Years ago while in college, I met a car wash operator in Florida who decided to take a different path. Instead of battling it out with high-volume full-serves at $14 average, he chose a less dynamic location. He also paid well above average to attract high-quality employees so he would need a lot less of them. Bottom line, he washed fewer cars but made more money and more easily than the higher-volume, lower-priced full-service washes.

If we apply this line of thinking to exterior-express hand wash, we would need to turn the table upside down on efficiency and reduce expense to put it within reach of mom and pop. The primary mechanism for this would be substituting labor for capital and realigning the technology.

For example, a high-performance wash module can produce 50 cars an hour and consists of nine brushes including dual wraps, tires, side/rockers, and top washer.

Based on my experience with the various types of hand washes, it would take six people in the wash-bay to clean 50 vehicles an hour online. Maximum hourly capacity of 50 cars would be sufficient for a medium volume operation (i.e., 50,000 cars per year). Here, average hourly volume is 16 cars.

Fifty cars an hour would require only a 50’ long tunnel. So along with the wash module, out goes other components and sub-systems needed for high volume. This would include pay terminals, high-pressure pumps, power packs, sophisticated controls, PC and software, and a central vacuum system. Left in place is a conveyance system, solution arches, 16-function controller and push-button entry, dryer, and canister vacuums just like back in the 1960s.

Express is personalized with a customer service advisor instead of an auto teller, people hand-washing vehicles instead of machines, and slower pace that allows the owner/operator to focus on customer satisfaction and staff instead of a for-hire manager.

Smartphone technology, a mobile app, and a belt printer would be used for processing sales transactions.

A laptop and apps can be used for a responsive website and customer-loyalty programs.

So, besides the difference of washing cars by hand, the value proposition remains the same as exterior express. Namely, a stay-in-the-car, exterior wash, with hand finished qualities, done in four minutes, at preferred price points and free vacuums.

 

As shown in Figure 2, all of this would fit nicely in a 1,500-square-foot building on a standard half-acre parcel including eight to 10 vacuum parking spaces.

 

Tallying required assets with a construction-cost calculator including a tasteful but not extravagant building shows our express hand wash would pencil out at just under $1 million, or less than the cost to develop a typical self-service car wash with five wand-bays and one in-bay automatic.

As for performance characteristics, one of the attributes of the exterior express is virtually no waiting in line. For example, during peak times, even a 125’ express conveyor may have eight or more cars in line, although the average wait is short.

 

 

So, would long lines form with this smaller wash and would customers be willing to wait a bit longer in line for a hand wash? Applying a process rate of 50 cars an hour against the single server queuing model shows the average length of the waiting line would be four cars deep at a random arrival rate of 25 cars an hour or 50 percent of capacity. At a random arrival rate of 37.5 cars or 75 percent capacity, the waiting line blows up and will grow infinitely as the arrival rate increases.

Arguably, the customer’s propensity to wait in line is a matter of personal taste. For example, Chick-fil-A, a fast-food chain specializing in chicken sandwiches, has the industry’s highest ticket average but its average service time is twice as long as the benchmark — and is seven to eight times slower than Checkers. And yet, the company, whose stores are closed on Sundays, has a very large and extremely loyal customer base.

Hand washing has a lower variable unit cost (i.e., chemical, water, energy, maintenance, etc.) but slightly higher credit card fees using smartphone technology.

Like exterior express, labor for the hand wash would be treated as a fixed cost. Problems with recruitment and employee turnover, due to fluctuations in demand associated with car wash operations, would be mitigated by paying employees a salary. Our estimate to staff a customer service advisor, hand-wash crew of six persons, and management (owner) to cover a 10-hour day, 7-days a week, fully burdened, is $335,000.

The revenue model is basically the same as for exterior express — a tiered menu with basic wash, shine and protection options, spot-free rinse, and air dry.

Benchmark for exterior express is average per-car revenue of $8.50. Like a Chick-fil-A, we would expect an express hand wash with top package marketing to command a high average ticket for better taste provided. Experience shows this is a very attainable goal.

Shown in Table 2 is a pro forma based on our general assumptions. In our model, total labor expense is 56 percent of gross sales. Break-even point is 65 percent of projections.

At $12 average sales, gross sales of $600,000 would generate pre-tax cash flow of $114,000. Add in a manager’s salary and the owner’s benefit becomes $173,000 or a cash-on-cash return of 87 percent.

The typical return for a “new-to-industry” self-service wash is only 36 percent. Of course, this would require mom and pop to transition from the realm of low-yield, semi-absentee ownership to a lifestyle or occupation business.

 

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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