Feasibility - November 2006

In-Bay Automatics, Part I —
It's Just A Good Business
by Jack DeMarre

The car wash industry, like most others, has always been an evolving business. Those who have been around for a while recognize this. History, if nothing else, has taught us that change is not only constant, it is healthy and promotes growth.

OVERVIEW

Think back on this: During the very early days, car washing had largely been done in the driveway, and commercial car washes were typically more manual than automatic. Somewhere in time — probably the ’50s (it predates the author) — the industry began to go in two different directions. The larger, labor-based washes implemented conveyors, and later in that decade — or earlier in the next — several industry pioneers began to build self-service washes. Many probably remember some of the tent-shaped metal buildings that had “25 Cent Car Wash” signs hanging on them. This was shortly followed by the development of in-bay automatic car washes. Thus began the segmentation of the industry.

Over the next few years, car washing morphed into three markets — the “full” service or conveyor business, the self-service business, and the oil companies with their entry into car wash business as a means of marketing more fuel sales. Then came the oil market crash — well you all know that story — and the business again focused on independent, freestanding car washes, which were either conveyors or part of a fast-growing self-service market until the petroleum business rebounded in the ‘80s. Now here we are — 40 years later, maybe more. The industry seems to be going through, shall we say, another market adjustment.

An interesting aspect to all of this is the habit of the industry to present one type of wash or another as a better way to go or a better investment. It seems to be the old “my dog is bigger than your dog” argument. Perhaps that is the wrong argument completely. It is said that an educated customer is a good customer. To that end, it is not the objective of this article to justify or not justify a particular method or point of view but to present a thought process, which can help investors to make better decisions.

Recent Developments
About 10 years ago, the concept of using conveyor systems to offer lower price washes began to evolve. The idea was to provide a reasonable wash at a faster pace to better compete with in-bay automatic car washes, which were typically four-to-six minute washes for less money than the conveyor wash. The proliferation of in-bay automatic washes increased the competition, especially with the evolution of the “fast and easy,” convenience-minded public. More recently, the concept of the “exterior” wash has resurfaced. This is sort of a hybrid — use the speed of the conveyor and the convenience of the in-bay automatic to give the public what it seems to want — a fast, inexpensive car wash of somewhat reasonable quality. In any case, it has created a new field of play — especially in densely-populated urban areas, but also in high-traffic second- and third-“ring” communities.

The makers and sellers of both exterior washes and in-bay automatics now compete for the same investor. Far too often, this competition leads sellers to skew information in an effort to demonstrate that their approach cleans cars better and produces better cash flows. The effort here is to demonstrate that there are factors that will justify one approach in one case and the other in another case.

A wise man once said, “Beware the man with one answer, as he probably has not heard your question.” The investor ultimately is the one who must determine which direction he will go. That determination should be the result of careful evaluation of all of the options available to him. In order to do that, he must research and understand all of the factors that come into play. The investor should do his best to confirm the information that has been provided by others.

Why Are We Here?
The quest to produce the cleanest car possible is no doubt noble and should be a part of the investment process. Having said that, the quest is also to generate positive cash flow and to grow a successful business. The principle that the consumer will decide if your product is good enough should be sufficient motivation to provide quality. Thus, the words here will be spent on understanding the investment and the presumption will be that the reader is smart enough to assure himself of quality — whether that is quality equipment or a quality product delivered to his customer.

The formula is relatively simple. The inflow of cash must be sufficient to pay all operating expenses and retire debt while still leaving enough to build equity in the business. What a concept. This means that every site must be evaluated on its own merit. What will the traffic flow provide in terms of potential customers? Is traffic control conducive to allowing people to get onto the property? Are the local demographics right? Is the property of the right configuration? Is it zoned properly? Is it accessible to the public? Is it surrounded by businesses that will draw the right kind of consumer? How much does it cost to own the “ground”? How much will it cost to gain permission to develop the site? How much will it cost to gain access to utilities? How much will it cost to use the utilities? How much will it cost to build the building? What kind of demands or restrictions will the local authorities require that you meet? How much will it cost to install the right equipment? How much labor will be required to operate the site? How much will the customer pay for your product? How close is the nearest competition? What kind of site do they operate? How good are they? These are just some of the issues and questions you need to address before you decide to move on a project. The answers will tell you what sort of operation you should consider for the property. The final decision isn’t a right or wrong answer — it is a logical one.

DEMOGRAPHICS

Note that none of the following demographic factors stands alone as a means of justifying anything nor do they likely represent all of the things you should think about. But, the careful consideration of the combination of these and other factors — which we will discuss further in next month’s issue of Auto Laundry News — will help you determine the likelihood of success.

Traffic Count
The traffic count is a key consideration whether planning to build an in-bay automatic with or without supporting self-service bays. As a rule a traffic count of 5,000 to 10,000 cars per day or more will support this application so long as there are sufficient other factors that favor a site. There are many cases where minimal traffic count has still produced good results because of the other factors.

In the case of an exterior site, experts say a minimum traffic count of 30,000 or more vehicles per day, coupled with other factors, is preferable. In other words, the traffic count should be three or more times that of a typical in-bay automatic (IBA) site, and there must be other favorable factors.

Population
In either an IBA or exterior site, the population concentration is important. An industry rule of thumb is that it requires about 1,500 people in a 3-mile radius to support one self-service bay and that population sufficient to support two to three self-service bays is needed to support an automatic bay.

Exterior Washes are said to require a minimum population of 30,000 in a 3-mile radius or, in the case of a suburban or smaller community, a local population of 40,000 to 50,000 people.

Income
It is generally accepted that an IBA/self-service service site is best supported by a low- to middle-income population. In fact, many business-planning models deduct points for higher income areas for this model. There is not as much information available for exterior washes, but it appears that these sites are supported by low- to high-income populations. Thus the income profile of the area is not as critical as sheer numbers of people.

In next month’s issue of Auto Laundry News, we’ll take a closer look at other factors you need to consider — in conjunction with the above demographics —to decide which wash model best suits your needs and to make a considered assessment of the feasibility of your proposed project.

Jack DeMarre is director of sales and marketing for Powerain Systems, Inc. Powerain is a manufacturer of car washing equipment. You can reach Jack via e-mail at jackd@powerain.com.

 

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