On The Wash Front

In-Bay Profit Picture - Room for Improvement

By Robert Roman

02/01/21

Given the total cost of ownership, the in-bay automatic is probably one of the better car wash investments for people new-to-the-industry to consider.

For example, equity required to build a state-of-the-art express exterior is roughly $1 million whereas equity required for in-bay facility is around $250,000.

The principal advantages of an in-bay are less real estate development and ownership risk and less business operating risk as compared to traditional projects.

 

Shown above is the profit picture for in-bay automatic based on data obtained from Auto Laundry News operator surveys and two seasoned car wash operations.

The dual in-bay was built in 2002 and includes a 2,400-square-foot building and 0.5 acre of land. The total investment for this car wash was $800,000 including real estate. The wash was appraised at $1.4 million and changed hands for $1.5 million.

Arguably, a transaction price that is almost twice what it cost to build and a history of robust sales suggest the owner of this property received a handsome return on investment. However, the sales volumes underscore one of the disadvantages of in-bay automatic which is hourly capacity.

WAIT TIME

Generally speaking, an in-bay automatic takes an average of between four and five minutes to wash and dry a car or a capacity of 12 to 15 cars an hour. Moreover, as the take rate trends towards the more time consuming and higher-priced wash packages, the average service time is more like eight to 10 cars an hour.

Consequently, we find a single in-bay automatic tends to top out at about 30,000 cars per year as in the dual in-bay example. The reason for this is waiting line characteristics.

Shown in Figure 1 is a diagram of the single server queuing model. Here, customers arrive, wait their turn to use the server, and then depart after having received service.

The average arrival rate of customers is denoted by, average time spent waiting in line is W, average service time is S, and the response time is T (sum of average waiting time and average service time).

To illustrate waiting line characteristics for a single server queuing model, Figure 2 provides a graph of a computer spreadsheet simulation. The graph shows that as the utilization rate of the service increases, the length of the waiting line grows at an increasing rate. For example, at 35 percent utilization, the length of the queue is five customers whereas at 45 percent utilization, the queue length is 10 customers.

Experience shows when customers have to wait more than 10 minutes they may defect from the line or balk at entering the queue resulting in loss of business and goodwill.

Here, equipment suppliers might suggest a conveyor system to wash more cars an hour. However, this solution does not coincide with the “no employees” aspect of the in-bay business model.

In keeping with this business model, hourly capacity could be increased by affecting the average service rate and/or arrival rate of customers.

For example, in-bay automatic suppliers have developed improved models that are 20 percent faster than their counterparts, and there is also the express in-bay model, which can process 25 to 30 cars an hour.

However, as with other single server lines, what hampers performance expectations is variations in customer arrival rates (i.e., unpredictable volume swings) and demand (i.e., product mix).

For example, experience suggests most car wash customers will usually visit between the hours of 8 a.m. and 8 p.m. or a 12-hour window, whereas the peak period may occur between 10 a.m. and 3 p.m.

Consequently, encouraging customers to avoid peak hours can have some benefit (e.g., early bird, night owl). It also helps to ensure consumers understand services are available 24/7, rain or shine.

SERVICE TIME

Service time variability can be reduced by limiting service selection and using technology to reduce customer involvement.

For example, some operators will offer as many as five wash options, each having a different process time ranging from three to eight minutes for the top wash.

Here, service variability could be reduced by offering only three wash selections (i.e., clean, shine, protect) and two process times (i.e., four and five minutes).

Reducing customer involvement means making the wash easier to use. For example, this may include an on-board dryer and/or bullet-proof enter/exit system to usher customers in and out of the wash bay smoothly.

Another method of reducing customer involvement and improving engagement is to digitize the car wash. In this age of touchless delivery options, this would include a point-of-sale system with smart technology that can accommodate mobile payment, vehicle recognition, and a loyalty program.

ONLINE PRESENCE

Another must have today is an online presence that is effective. This means having a business website that renders successfully on mobile devices and smartphones and engaging in social media such as creating a Facebook page.

The website and social media help connect to Internet users, establishes credibility for the brand, and provides a place to showcase products and services. According to Google, retailers who use a small-business website as a tool to connect with customers online can achieve an average growth of 15 percent or more.

The results of implementing such efforts can lead to a scenario where the investor expects $200,000, the analyst predicts $250,000, and the actual results are over $300,000.

 

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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