Past Issue

New Era - Building Scale, Buying Up Competitors

By Robert Roman

04/01/15

The U.S. car wash industry is fragmented and mature and should progress through some form of consolidation life cycle.

For example, Ryko Solutions Inc. has aggressively defended its advantage by building scale and establishing barriers to entry, focusing more on revenue and protecting its interests.

Several years ago, Ryko tripled the size of its engineering team and reinvigorated its R&D department. End results included a 38 percent increase in equipment sales, 53 percent increase in EBITDA, and a 22 percent increase in total revenue to nearly $90 million.

In 2011, Ryko prevailed in a legal action alleging that it had breached a 2008 distributorship agreement with its former distributor, Nationwide Wash Systems Inc. of Minnesota.

The next phase of consolidation is building scale, buying up competitors, and forming empires. For example, Ryko acquired the assets and operations of R.W. Mercer’s service organization in 2012 to further solidify its national service support network. In 2013, Ryko acquired MacNeil Wash Systems Ltd., a major supplier of tunnel equipment.

Today, Ryko is the only single-source provider of car wash equipment, solutions, and maintenance services. It is the largest provider of managed car wash systems in North America and is the second largest car wash equipment manufacturer in the world.

Arguably, Ryko is in a position to focus on expanding its core business and continuing to aggressively outgrow the competition. Ryko’s decision to help create the frontier of industry consolidation arose as quickly as industry concentration did.

According to Eric Wulf, CEO of the International Car Wash Association, there are now fewer new-to-industry and “mom-and-pop” investors with the capital to get a car wash started.

Consequently, it was deeper pockets and absentee owners who converged on the express wash. Today, the conveyor segment represents 33 percent of the industry fleet and 74 percent of industry wash revenues.

On the other hand, the ranks of convenience stores that sell gasoline have declined by 4.5 percent over the last several years to 92,000 units or 61 percent of total convenience stores.  Also, the number of car wash locations at gas sites dropped to roughly 29,000 units.

According to Stephen Donell, a court-appointed receiver based in California, there has been a 30 percent increase in gas-station defaults over the past several years. Donell says distressed stores are a function of less demand for gas, lower discretionary income, soaring gas prices, and more scrutiny from lenders.

However, companies are borrowing money. According to a report by the National Association of Development Companies, between 2010 and 2012, Chevron and Shell stations, alone, captured 126 SBA loans (7a and 504) totaling over $146 million.

Another barrier to forming empires in car washing at gas sites might be the influence from the “extreme competitors” such as Wawa, QuikTrip, Sheetz, RaceTrac, Speedway, and Casey’s General Store.

For example, these six firms are the most popular convenience store chains in the country, and only Sheetz (116 out of 437 stores) and Casey’s have car wash locations.

The main reason for this is business model. For example, Casey’s has 1,700 units located mostly in rural areas. Casey’s model is to not lose money selling gas, and to use the traffic to drive its grocery, food, and fountain business. Casey’s has some car wash locations, but there is no mention of them on the company website except for finding one with a locator map.

Thus, we find less popular chains like Shell, Chevron/Texaco, BP, etc. account for a large portion of car wash units at gasoline sites. However, car washing is also not a prominent component of these firms’ business models. The reason for this is Big Oil is now a wholesaler of gasoline and oil products.

Arguably, with self-serve still in decline, industry participants unable or unwilling to follow the lead of companies like Ryko will find it increasingly difficult to survive and prosper in the new era.

 

Bob Roman is president of RJR Enterprises – Consulting Services (www.carwashplan.com). You can reach Bob via e-mail at bob@carwashplan.com.



LATEST ISSUES

click me