Trends — Adapting to Consumers’ Growing Preferences
The tight economy and financial markets have created trying times for many participants in the car wash industry; self-service owners appear to have been particularly hard hit.
In a 2008 state-of-the-industry report appearing in Modern Car Care magazine, Charlie Lieb, president of PDQ Manufacturing Inc., stated the self-service market would continue to struggle in many areas in the future because of increased launch costs and a lower potential revenue stream. Mark Thorsby, former executive director of the International Carwash Association, added that self-service has been in a real quandary having no significant changes in the segment for well over a decade.
Earlier this year Roger Pencek, president of Carwash Brokers Inc., stated that gross sales over the last three years have consistently dropped 10 percent to 40 percent across the country, creating the potential to buy and sell at 30 to 50 cents on the dollar as compared to 2005 market values.
These pundits may be on to something. As shown in Figure 1, self-service owners have been reporting lower net site sales for the past three years.
Figure 1 - Sales Revenue Benchmarks
Figure 1 - Sales Revenue Benchmarks
More troubling is the trend shown in Figure 2. Self-service owners have been reporting lower total sales volumes each consecutive year since 1999. This trend suggests the segment had been in a quandary well before the last recession.
What are the possible causes for the downward trend in reported volumes?
Since sales volumes are linked with trip generation, the argument could be made that consumer preferences for in-bay automatics and wands have changed for the worst. However, this would contradict findings by the ICA of a growing preference for both of these categories over the past decade.
The weather is always a usual suspect for lower sales volumes but there has been no gradual change in the weather pattern. Instead there has been a great deal of variability in the weather over the last 10 years.
Self-service operators do not appear to have priced themselves out of the market. Since 1999, the average price charged for wands has risen by only 7 cents, 35 cents to 42 cents per minute. During the same period, average sales for in-bay automatic increased by only $3 - $4 to $7 a wash.
As shown in Figure 3, the offer of a free car wash at a gasoline site has long been an area of concern for self-service operators with nearly 50 percent saying a free wash was a detriment to their business. Today, this threat would come from convenience retailers that discount the price of gas when customers purchase a wash at the pumps.
Some of the loss in the segment may be caused by the growth in express exterior washes. Over the last two years, nearly one half of self-service operators reported having an express exterior nearby, nearly one-half of those saying it was a detriment to their business.
Figure 3 - Competition
Location may also be a contributing factor to lower self-service volumes. About 53 percent of self-service survey respondents described the quality of their site locations as average (40 percent prime) and 68 percent serve a customer base that is predominately middle income.
According to researchers like Nielsen Media, it has been the middle-income households that have made the greatest spending adjustments to offset the effects of the recession and higher consumer prices.
So how does a self-service operator facing these factors obtain a better profit picture? Arguably, it means going to war, and wars are won with strategies and tactics.
Cutting expenses is usually considered a sound business strategy during lean times. However, as shown in Figure 4, there is probably not much to gain in this area because operating expenses as a percentage of sales for our mythical wash have remained fairly consistent over time.
Consequently, meaningful value creation could only come from generating more door swings.
Figure 4 - Operating Expenses
MARKET
A car wash is built on the premise that there is a minimum level the market needs to sell so the wash can cover its costs of acquisition and production. The market range for the wash is all of the customers who come from beyond this threshold and purchase stuff.
Beyond this range, people are less willing to go to the market because of the economic distance to it in view of the competition. If demand drops below the threshold, the wash will lose money. If demand increases above the threshold level, a business will increase its profits.
The frequency of use also affects the extent of the market threshold because it is linked to income. For example, a
self-service wash needing 70 cars a day is generally thought to require a threshold population of around 12,500 if the average number of customer visits is three a year.
If the average number of visits drops from three to two a year, the threshold would increase to 16,700 persons and
perhaps one instead of two car wash facilities would be fully supported by the same population.
Consequently, self-service operators may obtain a better profit picture by focusing above the threshold level because this is the area from which a business is most likely to increase its profits.
If the goal is to gain new customers and win back old customers lost to competition, one strategy would be to overcome customers’ indifference to patronize the site in view of the competition.
In speaking with self-service operators hurt by an express wash nearby, most believe they have lost ground to the $3 or $4 base price and free use of vacuums.
However, in speaking with clients and friends owning an express wash, most believe they have become dominant because their facilities provide more convenience, better image, and greater value as compared to other washes in the area. Self-service operators looking to buck this competitive advantage must be willing to at least match it to get gravity working on their side.
CONVENIENCE
Part of the inconvenience of most in-bay automatic systems is the presence of long waiting lines during busy periods. For example, an in-bay with a service rate of 12 cars an hour and customer arrival rate of nine cars an hour will have four or more vehicles in the system over one third of the time. In other words, it would take at least 20 minutes for the last person in line to get a wash. If the wash gets any busier, the length of the waiting line and average waiting time would grow indefinitely.
Figure 5
An express in-bay or mini-tunnel with a service rate of 25 cars an hour and arrival rate of nine cars an hour would have only two vehicles in the system over two thirds of the time. There would be no waiting line. A long waiting line would not form until the arrival rate of customers approached eighteen cars an hour.
Part of the convenience of the express wash format is touch-screen tellers. Tellers provide a smiling face and greeting, bilingual capability, instructions, and are able to up-sell and dispense tokens for vacuums. Tellers can also connect to the Internet to provide operating data, information for loyalty programs, and capability to remotely adjust the wash.
VALUE
Part of the value of the express wash format is its hand-finish quality. Express in-bay and mini-tunnels achieve this by combining high-quality chemicals, friction, and high-pressure water to clean all horizontal and vertical surfaces.
Chemical applicators and high-pressure nozzles penetrate crevices and rims and clean tires. Top rotating and articulating wrap-around brushes use material that cleans and brightens paint, damage-free. Rain arches ensure thorough rinsing, and attachments flush excess water from mirror cavities reducing spots. A 75-hp drying system strips excess water.
The express wash format also creates more value with the offer to clean, shine, and protect customers’ vehicles instead of the typical good, better, and best scheme. This value comes from top package marketing that drives average sales. Wheel-bright, scented soap, tri-foam, rust inhibitor, paint sealant, rain repellant, spot-free rinse, and tire shine not only solve motorists car-care problems they also put on a good show for customers.
Of course, what must go hand-in-hand with the express wash format’s greater convenience and value is having corresponding visual appeal and customer service.
Car wash owners who have adopted this strategy and tactics are selling more washes than their in-bay counterparts and many have average sales of $10 despite difficult market conditions.
Stepping up from a standard in-bay to the express wash format also provides the opportunity for owners to create goodwill. Goodwill is the value of a wash over and above the value of its assets. Creating goodwill improves the valuation of a wash.
Arguably, it seems impossible to match attributes and benefits of the express-wash format with a low-cost, touchless reload having two soaps, tri-foam, and two waxes.
Upgrading to the express format would also seem to lessen the need for self-service owners to give the farm away by offering unlimited washing for one low price.
Historically, farmers have been very good at pulling through during tough times. To prevail against floods, droughts, and other conditions that dampen profits, farmers adjust by modifying planting dates, switching the type of crops they grow, changing rotation schemes, and deploying irrigation when it is economical.
Similarly, self-service owners should consider adapting to prevailing conditions such as the consumer’s growing preference for more convenience, better image, and greater value. Investing in modern technology is crucial in preparing for this, and the express-wash format is of great importance in drawing more customers towards a self-service site.
Bob Roman is president of RJR Enterprises - Consulting Services (www.carwashplan.com). You can reach Bob via e-mail at bob@carwashplan.com.
