In 2006, car wash investment planning guides described the business as a sure bet. The reasons cited were that the amount of money alone makes for an attractive investment plus potential for growth, fast learning curve, high profit margin, and opportunity for self-employment.
How much money? From a macro perspective, in 2012, there were an estimated 80,500 car wash locations in the United States generating wash revenues of roughly $20 billion.
According to research released by IBISWorld and reported by the Small Business Development Center Network, growth of 3.3 percent annually is anticipated through 2018.
From a micro view, a car wash can be a rewarding and profitable business. To illustrate, consider John’s and Ted’s car washes. John’s sales are $500,000. Variable unit cost is $2.25. After fixed cost (including labor and debt), earnings before taxes and depreciation (EBTD) are $250,000. Ted’s wash is older and sales are $400,000. Variable cost is $2.50. After fixed costs, EBTD is $200,000.
Of course, this wasn’t achieved by arriving several times a week to pick up the money. Before investing, John and Ted researched location, equipment, building costs, competition, and other factors to ensure the return on investment needed in order to be profitable.
Next, they put in long hours in all kinds of weather to respond to customer and equipment needs. For their commitment and dedication, John and Ted were rewarded with profitable businesses.
On the other hand, folks who thought it was simple to plan and operate a car wash often face an exit strategy that doesn’t relate to the industry model. For example, I had no trouble finding washes similar to John’s and Ted’s listed for sale as distressed, vacant property, or for auction — all at list prices 1/3 the market value of John’s and Ted’s washes.
Of course, a lot of things have changed since John and Ted built their washes. For example, the International Carwash Association (ICA) finds the percentage of consumers who prefer to wash their vehicle at home or at a self-serve wash continues to decline. Analysts at IBISWorld expect the industry will benefit from recent improvements in the economy, disposable income, and new-vehicle sales.
In an article in the Convenience Store News, Eric Wulf, ICA CEO, opined that car wash counts and average sales are improving for those operators who think outside of the traditional standards. For example, when people buy gas, they expect a full gallon, filling speed (three to four minutes), easy to use and pay, quality (fuel additive), and customer loyalty programs (e.g., Speedpass™).
Likewise, when people have their car washed, they don’t expect to wait in line for 20 minutes, nor do they look favorably at windshield eyebrows, a dripping-wet vehicle, or an out-of-order sign. As Wulf put it, if you have a wash, it requires regular maintenance and capital attention. You can’t simply treat it like free air on the side.
The flipside is: doing so creates opportunities. For example, besides vacant properties and auctions, broker and real estate listings also including car wash locations that may make excellent conversion properties. Arguably, shifting through the chaff and repositioning a wash requires entrepreneurs looking to hit a homerun instead of investors looking for a grand slam.
John and Ted did not rest on their laurels. Each developed a strategy that would allow them to increase throughput, provide better quality, and more uptime.
In the final analysis, a car wash doesn’t need to be designed in a certain way, offer free vacuums, or have an unlimited wash option to be profitable. Required are owners/operators who are willing to improve programs and services and ultimately bring customers back more frequently.
Bob Roman is president of RJR Enterprises – Consulting Services (www.carwashplan.com). You can reach Bob via e-mail at email@example.com.