Past Issue

Price Theory - All for the Cost of a Haircut?

By Fred Grauer

03/01/17

You might be scratching your head and asking, “What?” What does a haircut have to do with car washing?

Well, sort of everything. Let me explain. But first, a trip down memory lane to set the scene.

My uncle, Bill Thacher, started in the car wash business just after WWII buying an existing car wash in Camden, NJ. To put that in perspective, at the time, we think, there were approximately 30 car washes in the entire country. Every day was a new adventure, there were no “how to” books, associations, or industry “experts” to guide us through the learning curve. We were totally on our own. Most people, my grandparents included, thought he’d lost his mind. I’m sure my parents thought the same.

Most holidays, when I wasn’t in school, I worked in our family car wash business. During the summers, when I was old enough to drive, I would rotate from one wash to the next as an interim assistant manager while ourregular managers were taking vacation. After I graduated from college and had my military experience behind me, I was full time in the family business.

In those early days we were a multi-site, full-service operator, some days washing more than 1,200 cars at our number one Camden site with no wraparound brushes, friction curtains, hook-less on-demand conveyors, or other automated devices that today’s car washes benefit from. It was all elbows, hustle, hand mitts, wash troughs, pull chain conveyors — in short, organized mayhem. As time went on, many people would come to my uncle Bill and ask him to assist them in building their car wash.

OPERATOR TO MANUFACTURER

Bill saw this as a natural extension of our retail business and in the mid-1950s acquired Sherman Vacuum Company, one of the earliest manufacturers of car wash equipment. Sherman Larson, the founder of the Sherman Vacuum Company, supplied the first central vacuums to the car wash industry in 1945. As time went on and more people got to know Sherman he was asked to develop other car wash items and soon was producing a full line of car wash equipment.

Sherman started in Culver City, CA but, as the demand for automobiles grew, he moved to Detroit. Bill Thacher acquired the company, moved it to Philadelphia and changed the name to Sherman Car Wash Equipment Company. In the 1960s we developed and patented many items. Among them were wraparound brushes, friction curtains, hook-less conveyors, activation switches, and a myriad of other items that are standard fare in all tunnel washes today. In the mid-70s my cousin and I purchased Sherman and changed the name to Sherman Industries.

Over these many years of being a car washer I have had the good fortune of watching, witnessing, and participating in the history, changes, and the ups and downs of our industry. So please allow me to give a little background behind the haircut theory as well as some thoughts as we move into new chapters of our business.

During those early days I spent a lot of time with my uncle Bill. By nature I’m very inquisitive and, being attached at Bill’s hip, I would ask endless questions. One that always came up was the question of pricing. Without fail Bill would respond by saying, “Ferd (my nickname), a good car wash should be the price of a good haircut.” He further explained that the two services were much related. Both had to do with how you felt about yourself and how others perceived you. So a clean, dry, shiny car and a good haircut went hand in hand — two very personnel and somewhat anxious services, both at the time with similar pricing. If it was a bad hair day you could always say, “Well it will grow back.” With a bad car wash experience, you probably won’t be back. So here we are some 60-plus years later and Bill’s words are still resonating with me: A good car wash should be priced the same as a good haircut.

Today, considering all the various businesses washing cars, there are probably around 120,000 car wash locations in the United States. There are local associations, regional associations, national associations, dozens of manufacturers, equipment and supply distributors, several industry publications, national trade shows, and a few “industry experts.” We’ve come a long way since the end of WWII. Change has been slow and methodical, some good, some questionable but the one thing for sure is change.

As the demand for car washing services has grown so has our industry business models, services, and facilities. Technology has enabled us to wash cars faster, cleaner, and drier with less labor and more control. What started more than six decades ago as a primarily a mom-and-pop, mostly labor-intensive full-service business has seen many iterations: full service, exterior service, flex washes, express washes, touchless, automated, self-serve, in-bay automatics, and still the occasional hand wash. Add to this list washes at c-stores, gas stations, quick lubes, and automobile dealerships.

LOOK AHEAD

What’s next?

Here are the obvious givens: higher labor cost, more competition for labor, and less availability; higher cost of money (the honeymoon is over); real estate and availability of developable property scarce and expensive; stiff competition for your sales dollars, especially as expendable income stays relatively flat. So if you are going to stay in the game, the old expression applies: “lead, follow, or get the hell out of the way.” It is time to rethink, revamp, and reinvest. Ask yourself if your business is the right model for the demographics? If yes, then ask what you can do to provide a different and more meaningful experience? If no, change! Ask your customers what they would like to see at your business. Look at your top and bottom lines. Are you really getting enough revenue and margins to support your investment? Are you able to expand, reinvest, merge, or acquire?

Right now our industry is very attractive to the investment community. Mom and pop are going corporate. Mergers and acquisitions are being discussed as you are reading this article. Manufacturers and car washes are being acquired. Are you ready? Do you stay in the game, or is it time to exit?

PRICING

Back to Bill’s theory: Should a customer pay the same for a haircut as he or she pays for a car wash? Let’s take a look.

Some time ago, US News wrote an article about “what America pays for a haircut.” They described a haircut as “both a chore and a purchase that can brighten someone’s day, but with so many options, Americans might wonder if they are being overcharged by a stylist or tipping the proper amount.” Sounds familiar, doesn’t it? Remove the “stylist” and “tipping” and interject “car wash,” and you start to see a parallel situation.

Data from mobile payment company Square show that the average cost of a haircut for men is $28 nationwide. For women, the average is $44. I wanted to see how car wash prices and the haircut theory played out 60 years later, so I set out to obtain comparable numbers. The US News report looked at pricing in key metropolitan markets across the country: Los Angeles, San Francisco, Seattle, Denver, Minneapolis, Dallas, Chicago, St Louis, and New York. Googling car washes in all the markets listed, the national average cost of a full-service wash was $25.16. For an exterior wash it was $10.14. The markets that were the closest to their average for a haircut (using average full-service wash price and average price for a man’s haircut) were Chicago 92 percent, Dallas 90 percent, and Seattle 81 percent. The markets with lowest price ratio were Los Angeles and St Louis.

So what does this tell us about the car wash? The average development cost for a new car wash today — land, building, and equipment — is approximately $3.5 million (land cost will vary greatly). It doesn’t take genius to figure out that if your average price for a wash were $3 ($28 vs. $25) higher, no matter how many cars you washed, you’d be a lot happier.

The bottom line: I believe car wash prices are too cheap. Is it our fault? Are we not creating enough value to command a better price? Do you really know what it costs you to wash a car? I don’t mean just your variable expenses, but all of your fixed costs as well. It’s one thing to look down the street to see what your competitor is doing, or to visit with your local equipment salesperson and accept what he says as gospel, but the fact is he doesn’t know your situation nor, in many cases, has he ever washed a car except his own, made a payroll, borrowed money for a business, or put everything he owns on the line.

So before you compete with the guy down the street, dollar for dollar, do yourself a favor: do a SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis of his operation. Ask yourself if you want to be the same or better? If better, then don’t be afraid to charge the price that allows you to be profitable.

Think of this: Very few business have gone out of business from being the most expensive, but bankruptcy courts are littered with businesses that charged too little. Volume doesn’t necessarily translate to profitability.

Right now there is a potential investor looking to acquire a niche leader in their community. Whether that is you, or you continue to own and operate your business, I wish you a great and profitable year.

 

Fred Grauer is executive vice president - new business development with Sheridan, WY-based Vacutech LLC.



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