It’s not news there is consolidation in the car wash industry. It continues to occur with industry suppliers and the car wash fleet through mergers and acquisitions and network expansion.
Companies merge or acquire to become more powerful and better positioned to compete. For example, larger companies often have economies of scale that result in cost savings. Consolidation can also eliminate duplication of effort and redundancies. A larger footprint also makes it easier to capture market share.
Pundits opine the main drawback of consolidation is reduced competition, which can lead to higher consumer prices. I’ve already seen this in my area, as one express operator charges $14 for a basic wash, whereas the typical price is $10.
Job loss is also not uncommon as duplication is reduced. Another drawback is the loss of options, such as fewer full-service operations and detail shops to choose from.
Conversely, consolidation has stimulated the car wash industry’s economic growth. According to an article by Mithun Sridharan (CCO, Think Insights) and Nikhil Dogra, industry consolidation activities can be explained with the concept of an endgame curve. Postulated by A. T. Kearney, Kearney Management Consulting Company, the consolidation curve is a framework that suggests all industries consolidate and follow similar trends through four stages.
The first stage is characterized as a race to gain and secure market positions. Consolidators emerge and game change by dominating others with their scale. There is a lot of excitement, venture capital, and buzz about mergers and acquisitions.
The second stage involves scaling up, capturing market share, and claiming all available territories. The third stage is described as the last one standing and is characterized by large-scale mergers and mega-deals.
The fourth and final stage occurs when an industry is dominated by several extremely large firms. For example, General Motors, Ford, and Chrysler or the Big Three.
Where the car wash industry lies along the consolidation curve is probably between the end of the first stage and the beginning of the second stage.
At this stage, consolidation should have an effect on industry suppliers. For example, as car wash companies get larger, there will be fewer individual buyers of chemicals and equipment. Arguably, this will have an adverse effect on the number of suppliers the industry can support and the number of options available.
What about mom and pop?
Although consolidation is often viewed as large companies gobbling up small, weaker companies, it doesn’t mean all small companies.
Consolidators only acquire businesses that meet financial criteria and fit their expansion strategy. For example, Mister Car Wash isn’t very likely to acquire a self-service company or chain of convenience stores with car washes. Consolidators also tend to buy or build in clusters to squeeze out the competition.
Consequently, the best play for mom-and-pop is to produce a great product and provide personalized service or prospect the niche markets. The latter is open territory because such markets are impractical and of little interest to consolidators.
Bob Roman is a car wash consultant and can be reached at email@example.com.