On the Wash Front - July 2009

Disaster — It Can Double Your Car Count
by Anthony Analetto

The damaged facility.
The renovated facility.

I sat down today to finish writing a column for this magazine on evaluating the effects of adding an express exterior lane to a full serve when I received an interesting e-mail. Regular readers may recall an interview that appeared in Auto Laundry News just over a year ago about an F4 tornado that severely damaged Marc-1 Car Wash, one of Marcus Kitrell’s three car washes near Birmingham, AL. At the time, Marcus was trying to make heads or tails out of his insurance policy and determine if he would be able to recover. The e-mail I just received contained a series of before and after pictures documenting Marcus’s completely renovated facility. Having re-opened only five months ago, Marcus is washing nearly twice as many cars as he was before the tornado.

Recovering from a natural disaster that closes your business for 10 months is no small feat. Reopening to increased revenue and profitability is truly remarkable, even for a seasoned car wash veteran such as Marcus, with over 26 years of industry experience under his belt. Although in the middle of site selection for his fourth location, Marcus agreed to share some of his insights on insurance and disaster recovery. Below are some excerpts from the conversation that I’m sure will get you on the phone with your insurance agent.

ANALETTO: Looking at a picture of the new site, it doesn’t look anything at all like the original full-serve. How much of the building were you able to recover?

KITTRELL: Zero. Nothing of the original building was salvaged. Enough of the building was destroyed that I had a choice: try to repair what I had or rebuild everything from scratch. I had an opportunity to convert my dated full-serve wash into a completely new express exterior and decided to go for it.

Did you have enough insurance?

No, not entirely. The insurance policy I had only covered $800,000, and the entire project cost $1,050,000. I had to put in the other $250,000 myself.

So you were underinsured on the property?

Yes and no. I was certainly underinsured if the tornado had leveled my entire facility. We were lucky, however, and many parts of the property were salvageable. If I had to, I could have rebuilt my facility to the same level it was before the tornado within the $800,000 coverage. The only reason I even had the option to build a brand new express exterior for $250,000 was because I had a loss of income insurance policy — something I don’t think you can be without in this business.

Could you explain what a loss of income insurance policy is?

Whereas property insurance is required if you have a mortgage, loss of income is usually optional so you have to make sure you have it. The policy I had paid my ongoing expenses — including rent and payroll for a few key employees — for up to 12 months while we rebuilt. During the 10 months we were closed, they paid the actual incurred expenses. We reopened with two months left on the policy, so they paid us a makeup on the sales we would have had if the disaster had not occurred for those months. I don’t remember the exact numbers but basically if I did $20,000 the month I reopened but the year before I had $40,000 in sales, then they sent me a check for the difference. We were able to provide the insurance company with very accurate records and they made calculations from them that were fair.

I really can’t emphasize enough how important it is to make sure you have this coverage. Without the policy, I would have had no choice but to reopen as fast as I could, with whatever I could, just to make my mortgage payment. Instead I was able to step back and evaluate my options. Another point I want to make regards real estate. In my situation, I have an LLC that owns my buildings and properties, with each wash operating as an S-Corp that owns the equipment but rents the location from the LLC. This is a pretty common structure for many car washes. It’s also normal for the holding company to make a profit on what it charges the car wash for rent. For example, if the holding company pays an $8,500 mortgage payment, the car wash might pay the holding company $15,000 in rent. The reason I’m pointing this out is because it’s the car wash that holds the insurance policy, but you want to make sure that the policy names the holding company as “additionally insured.” This extends your coverage to the holding company so that in this scenario, you’d receive $15,000 instead of $8,500.

Why did you decide to change to an express exterior and not a flex-serve or even stay as a full-serve?

As the only full-serve in town I was hesitant to change. The decision was even harder, because if I stayed a full-serve I would not have had to invest $250,000 of my own money and could have reopened several months sooner. I did play with the flex model and had some site plans drawn up for the property, but ultimately felt that the express-exterior model fit the location and my market best.

As a full-serve, my base wash was $12 and we averaged $18 washing between 2,000 and 3,000 cars per month. I also had 20 employees and labor accounted for 38 percent to 40 percent of my revenue. To move to express, I lengthened the tunnel and added more equipment so I could deliver a clean car without prep. Now I only have four employees and produce a cleaner car. After four months, I’m already averaging 5,000 cars per month at $8, and labor is only 15 percent to 16 percent of my revenue. The bottom line is that I’m making more per month with a lot less headache. Volume is growing each month and I expect to recoup my initial investment in less than 24 months. Also, if I ever choose to sell the property, an express exterior is more appealing to a larger base of investors.

How did your customers respond to the format change?

Great. We’re offering free vacuums and putting out a great car. Once we explain the difference, customers really appreciate the value. There were definitely some questions at first but the price is appealing, not to mention the convenience and speed.

Did you have any difficulties with the city, contractors, or the construction process?

Not really. We sat down with the city and the city planner and worked very closely with them. The most important thing is to not rush into anything. Take a second to analyze the situation from every angle and get your ducks in a row. We took a hard look at fixing the building but realized we had to reposition it by a few feet to make the express format work. That required a variance, which I had to make sure we could get before moving forward. Once you start either knocking things down or repairing them you really can’t go back easily.

What misconceptions do you think people may have about their insurance policy?

Mainly not realizing that you’re not in any way obligated to rebuild what you had before. You certainly don’t expect to have a tornado wipe out your business, but if you’re properly insured, you can turn it into an opportunity to build a better one. Not only did I upgrade my equipment, I improved the overall efficiency of my entire location. I was able to change the motor voltage from 208 to 480, which will lower my electric bill. The tunnel controller is also new and dramatically better than what I had before. It’s helped me reduce my detergent, utility, and water consumption. Even maintenance is easier and less expensive with improvements like a self-cleaning conveyor pit. Overall, I’m producing a cleaner car than ever before at a lower cost in every respect. One other thing I did was to install underground reclaim tanks. Our water situation doesn’t warrant me adding a reclaim system right now but if that changes it’ll be an easy conversion. Those are the type of things you have to keep in mind if you’re ever forced to rebuild your wash due to an unexpected disaster.

What recommendations would you make to other operators to be better prepared for a disaster?

First and foremost meet with your insurance agent every year to review your policy. Make sure you know how much it will cost to replace things from the slab up and check that you have enough coverage. Also verify that you have a loss of income policy structured to cover your holding company if you’re set up that way. I can’t emphasize that enough.

Next, go to trade shows, talk to operators, and know what’s current so that you can make intelligent decisions quickly. When I went to rebuild this wash I already knew what wash format and equipment I wished I had if my tunnel were just a bit longer and the property laid out differently. I never expected it to happen this way, but I did have an idea of what I would do with the property if I had the money to do it.

Questions can be sent directly to Marcus at: marcuskittrell@bellsouth.net.

Anthony Analetto has over 26 years experience in the car wash business and is the president of SONNY’S The Car Wash Factory’s Equipment Division. Before coming to SONNY’S Anthony was the director of operations for a 74-location national car wash chain. Anthony can be reached at (800) 327-8723 x 104 or at AAnaletto@SonnysDirect.com.

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