In-Bay Automatic - November 2010

Future of the Format
By Robert Roman

Over the last several years, the car wash industry has obviously been in a quagmire.

Wash volumes are down in certain markets because the weather has been more than uncooperative. The recession is supposed to be over but unemployment remains high, job growth is anemic, and home values are down all of which are causing many people to keep their hands in their pockets. For many car wash owners and vendors, all of this has led to genuine concerns about the future.

The state of the economy and the current credit crunch have damped new car wash development considerably. The construction trend has moved decidedly towards lower-priced, express-exterior conveyors with the free use of vacuums. This trend has caused considerable rumblings in the car wash industry.

According to the latest survey results, 43 percent of self-service owners indicate they have an express exterior present in the market area, and 44 percent of those believe this presence has hurt business. Just 10 years ago, the journals were tracking responses about the potential harm to independent owners from gas sites that discounted the price of a wash with a gasoline purchase. The economy and construction trend have also caused in-bay suppliers to get hopping.

Equipment advertisements and promotional campaigns for in-bay automatics now tout how innovation and technologies have been used to improve process speed and wash quality, and reduce water consumption and operating expenses. The ads also boast of better adjustability, increased marketability, and easier management.

So, what might be expected in the future for the in-bay automatic market segment? Let’s start at the beginning.

THE NUMBERS

An in-bay automatic is a type of car wash system where the customer stays inside the vehicle, the vehicle remains stationary and the equipment automatically does all the work.

These attributes are generally thought to be the reason why in-bays are usually a good fit with gasoline stations, convenience stores, self-service and quick lube facilities, automobile dealerships, and car rental agencies.

The typical in-bay user is potentially any motorist who buys gasoline. By most estimates, there is about twice the number of in-bay automatics at sites that sell gasoline as compared to in-bays at private investor sites — mostly facilities with coin-operated wand-bays.

The demography of in-bay users is a little fuzzy but it is generally thought that users are in their mid-30s and older with an income in the range of about $35,000 to $100,000.

Motorists who use in-bay automatics are most concerned with the quality of the wash they receive, the time it takes to complete a wash, and the safety of their vehicles.

In terms of size and sustainability of the in-bay market, most estimates suggest there are over 40,000 in-bay units at gasoline sites and over 20,000 units at self-service car wash sites.

According to the results of a 2006 study, the in-bay automatic market accounted for 55 percent or $322 million of all car wash equipment spending in the United States, including a 25 percent distributor margin.

SUPPLY

The supply side consists of about 40 or so individual suppliers, mostly small companies, and is heating up. Product showcases show that in-bay suppliers will go to great lengths to make noise about their product’s labor savings, faster speed, lower cost, better quality, more options, and better return on investment.

Consequently, competition in selling equipment is becoming more intense in the wake of less car wash development and may open the door wider for consolidation. Another challenge for in-bay suppliers, and some owners, is the trend towards friction washing.

Mark VII recently announced that, for the first time, friction units accounted for more than 50 percent of the company’s in-bay sales. Moreover, large chain operators such as Pacific Convenience and Fuel announced plans to switch its considerable fleet of car wash facilities from touchless to friction and hybrid units. Touchless is thought to account for about 56 percent of the in-bay units at gas sites and over 70 percent at self-service sites, down from 90 percent in 1999.

PERFORMANCE

Looking back from 2009 to 2005, the industry data suggest that in-bays will remain an attractive investment for the foreseeable future.

In the private investor market, demand is driven mainly by visibility, curb appeal, and accessibility to highway traffic, homes, and businesses. Average annual wash volume for in-bays during this period is about 15,500, and average revenue has ticked upward from $6.53 to $7.13. Surveys show daily capture rate is down slightly from 0.21 percent to 0.18 percent. By comparison, average wash volume was about 20,000 in 1999, and average revenue was only $4.84.

Profitability of in-bay automatics at investor sites is closely tied to the owner’s ability to control operating expenses, which account for about 50 percent of gross sales including chemical and supplies, utilities, advertising, maintenance, vehicle damage, insurance, and labor. During this period, there appears to be no material change in operating expenses as a percentage of gross sales with the exception of capital/rent, which is reported as rising from 18 percent to 24 percent of gross sales.

In the gasoline station and convenience store industry, demand is dependent on fuel sales. The typical store sells over 110,000 gallons of gasoline a month and gas/wash rates for stores varies from 45 to 150, the average is thought around 60. Average revenue is typically lower for this market, about $5, due in part to many store owners (about 60 percent) discounting the price of a wash with a gasoline purchase.

Profitability of in-bay automatics at gas sites is also tied to controlling operating expenses, which account for about 44 percent of gross sales. Profits are further tied to the ability of customers to pay for a wash at the gas pumps with cash or plastic. With more store owners realizing the potential benefits of discounting the price of gas with a wash purchase, this will put more pressure on point-of-sale suppliers, predominately third-party specialists, for more innovative software and flexible equipment solutions.

Another challenge for suppliers and some in-bay owners is that Big Oil is exiting retail gas selling. Big Oil is selling off stores and moving to a franchisor/franchisee business model. This trend presents challenges for the distribution network in terms of sales, technical support, and customer service. Moreover, growth in gas sites has dropped and flattened, and new development is trending towards stores of larger dimension, more product and service categories, and greater sales volumes, making more stores potential candidates for car wash systems with much greater capacities.

DEMAND

On the demand side, consumers are decidedly more sensitive to price and have become more demanding and want more value for their money. This is generally thought to mean more convenience, better quality, and better use of their time.

On one hand, researchers find the younger generation is more likely to want to talk with a machine than a business owner, and they don’t want to be hassled by up-sell pixies. On the other hand, experience has shown that baby-boomers want personalized service and appreciate sound advice and knowledge. Additionally, some car wash pundits believe that lowest price is the only big driver now, and yet studies of consumers continue to suggest that most people will put service ahead of price, if given the chance.

The dichotomy of DIY/DIFM and low price/service quality has kept the heat on in-bay suppliers to further refine machines to improve the ordering and payment process, cycle speed, service options, and wash quality as well as offset the high incremental cost of adding additional capacity to a site.

IN-BAY EXPRESS

For the most part, in-bay suppliers appear to have done a reasonably good job of addressing many of these issues. Now is the time for owners to pull the trigger and take advantage of the improvements. Perhaps the most exciting opportunity for car wash operators who prefer an in-bay automatic is the in-bay express car wash.

In-bay express is a system where several functions of the roll-over process are separated from the gantry and arranged lengthwise, like a conveyor, according to the steps required to clean, shine, and dry. There are now several types of systems to choose from.

Yes, an in-bay express would be more expensive to develop as compared to a typical in-bay because it is a more substantial system — as are the advantages.

For any car wash with a single entrance line, the length of the line and average waiting time will grow as the arrival rate of customers approaches the service rate of the machine. When the arrival rate equals the service rate, the length of the waiting line and average waiting time will grow indefinitely. What the in-bay express does is give operators “stored-up” capacity and an extra margin of speed, like a conveyor, that can be used during busy periods to catch up to an increasing random arrival rate of customers.

Not only can you wash more vehicles during a given period of time with an in-bay express as compared to a typical machine, operators can offer the full array of extra service options just like their conveyor counterparts. Moreover, you can do so without needing full-time attendants. In fact, there are investors who are combining two in-bay express units with the free use of vacuums on smaller properties as an alternative to building and operating a conventional express conveyor on a large property.

BOTTOM LINE

In the final analysis, the future of the in-bay automatic market appears very bright, but challenging. Given the challenges, it may become more difficult for some in-bay owners to meet the conditions that are thought necessary to attract customers and keep them coming back for more.

People with an in-bay automatic or planning for one who cling to decisions of whether or not to have a drier, total-body protection, tire shiner, or reclaim system may want to reconsider even asking the questions. People who debate the merits of offering a “wet” wash or a less expensive, slower in-bay system with longer waiting lines may want to consider the same logic especially if they have to compete with an express conveyor.

Similarly, gas station and convenience store owners who are unwilling to offer customers an attractive and brightly lit car wash facility; first-class clean, shine, and dry; vacuums; vending machines; or the convenience of purchasing a wash with cash or credit at the entrance of the wash-bay may want to reconsider this wisdom.

Sources used in the preparation of this article include Auto Laundry News; National Petroleum News; National Association of Convenience Stores; International Carwash Association; and Booze, Allen & Hamilton.

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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