Trends — A Need To Adapt and Innovate Identified
Trend analysis presented in this article is based on information obtained from Auto Laundry News benchmarking surveys, US Census updates, and industry reports published by the International Carwash Association.
The purpose of the analysis is to provide historical perspective on key factors of the self-service car wash category and not to make forecasts or predictions about possible future conditions.
In 1999, the self-service category, including in-bay automatics (IBAs) within self-service, accounted for an estimated 40 percent of the US commercial car wash fleet and 25 percent of average annual industry wash revenues.
As shown in Figure 1, the trend in self-service equipment spending (excluding sales of IBA units) is negative with sales dropping from $100 million in 2000 to $8.0 million in 2011. Similarly, there is a negative trend in percentage of survey respondents who indicated they invested in equipment during the period.
Since 1999, there has been no change in the trend for self-service location, market income, or quality of location.
The typical self-service has five wand-bays, one IBA, and six vacuums. Forty percent of self-service stores are located in suburbs, predominately middle income; 25 percent are located in rural areas. Only 5 percent of sites are located in a high-income market. Over 50 percent of owners rate the quality of their location as average, 30 percent rate location as prime.
The self-service customer base is getting younger and has less real spending power. Since 1998, self-service users 39 years old and younger increased by 21 percent, while self-service users 40 years old and older dropped by 7 percent. People between the ages of 18 and 35 represent 20 percent of the potential self-service market and the income of this age group has dropped by 5.5 percent.
As shown in Figure 3, since 1998, self-service annual sales volumes (wands plus IBAs) have trended downward at an average rate of 2.0 percent.
As shown in Figure 4, the trend in revenue, operating expenses, and net operating income have been stable over the period.
Another measure of store performance is conversion rate — ratio of transactions to traffic (i.e., sales divided by number of visitors). Researchers find conversion rate of stores is not uniform and varies between 7 percent and 25 percent across types of stores and time.
Conversion rate is growing in importance in many retail sectors because of evidence that an increase in conversion rate is positively associated with an increase in customer loyalty.
As shown in Figure 5, the self-service category exhibits a low conversion rate and the trend is negative for the period.
Over the last decade, there has been no change in how far customers are willing to travel to a self-service wash. Survey respondents indicate 55 percent of customers come from within 3 miles, 78 percent from within 5 miles.
The barriers to entry for self-service, once low, have increased and the impact has been high. Since 1999, the cost structure including expense for land, improvements, and equipment has increased by over a factor of two.
In addition, when we adjust the industry site-analysis model for changes in competition, income, and population baselines, we find the model score drops by over 17 percent. In other words, a self-service location rated as good or excellent 10 years ago might be rated today as fair or good.
Although there is little new self-service development, Figure 7 shows that competition in this category remains high with a steady trend in the percentage of owners reporting five or more competitors.
Figure 8 shows an upward trend in the percent of owners reporting their business has been hurt as a result of inter-industry competition or density of competition.
As shown in Figure 9 and 10, the trend in the installed base of self-service equipment was positive prior to 2008 with an increase in the percent of owners reporting credit card acceptance and more profit centers.
Today these trends have flattened with 40 percent of respondents reporting credit card acceptance, 30 percent with bill acceptors in bays, and 40 percent with triple foam and suface protectant equipment.
However, less than 20 percent report having a reclaim system.
Over the last decade, self-service operators have invested most in in-bay automatic equipment, plastic payment, and air dryers. As shown in Figure 11, investment in in-bay equipment has dropped off while payment and drying technology has remained steady.
As shown in Figure 12, there has been little growth in the percentage of respondents who link their brick and mortar stores with the virtual world and its potential customer base — 80 percent of owners report having Internet access, but less than 20 percent report having a website.
Table 1 shows the pattern in declining self-service activity factors and increasing prices.
As shown in Table 2, an exit stratgey has been made prohibitive due to the cost to build and finance a new self-service wash.
My outlook for self-service mirrors the one given by Jim Gosnell, Etowah Valley Equipment Company, in the 2008 fall issue of Wash Trends magazine: “The self serve model is not dead, it simply needs updating.”
In his assessment, Gosnell suggests self-service owners need to move away from the “quarter mentality,” must work smarter and more professionally, and make decisions that are information-based.
This can be accomplished by adopting self-service technologies. This means investing in credit card convenience, bill acceptors, card swipe systems, remote monitoring and reporting capabilites, and point-of-sale systems that can support customer loyalty programs.
Research shows the amount and quality of store labor moderates the impact of traffic on retail sales performance. In other words, self-service car wash labor requires more than a clean-up guy or janitor.
Employees should ensure customers have a good experience that encourages them to buy and return in the future. Common elements of customer service include greeting, providing product knowledge, suggesting alternatives, and expediting transactions.
Other strategies that can draw more customers include advertising, offering discounts and loss-leader products, having a website, and sponsoring promotional events.
Self-service same store sales have been sliding over the last decade and expansion planning has dropped by 66 percent. Deflated property values and competition from lower-priced express washes have created an abundance of self-service properties that are ripe for takeovers and makeovers.
Our research suggests between 20 percent and 40 percent of self-service sites may have a higher and better use as a car wash property. However, developers and operators wanting to capitalize on available opportunities need a great business model that will unlock the income potential of a property.
Table 3 represents a possible schema for different self-service investment strategies.
The design objective of each strategy is to achieve trade-area dominance by providing more convenience, better image, and greater value. Economic gains from these strategies would not come from the creation of more demand but rather from the assimilation of existing retail space at a rate of about two stores to one.
Once touted as a recession-proof business and point-of-entry for newbies, the trends presented suggest the self-service category is perhaps more lagging and struggling than was described by Charlie Lieb of PDQ Manufacturing Inc. in a 2008 state of the industry address.
For example, consider the press release of several months ago from Coleman Hanna Carwash Systems Inc. that announced the company is now an O’Hanrahan Coleman Company. Experience shows legacy companies don’t engage in acquisiton and merger acitivity unless it is to achieve strategic goals and objectives as well as mutual benefits for stakeholders.
Consequently, I believe this underscores the need today for self-service operators to adapt and innovate.