Barriers to market entry are obstacles that restrict the ability of a new car wash to enterand begin operating in a given area. These obstacles may involve making large investments in capital equipment or overcoming strong customer loyalties that have already been earned.

For example, an analysis of conveyor benchmarks shows the basic cost to wash a car continues to increase as well as the number of cars needed to break even (see Table 1, above).

Figure 1, above, shows how the tunnel wash has changed in terms of size, consumption of resources, and expense. Since 2003, the average start-up expense has increased from $2 million to $3 million.

Also, full-serve isn’t getting any easier. For example, unionization has been slowly moving through the industry. According to U.S. Bureau of Labor Statistics, cost of unionization to a mom and pop business is potentially a 22 percent increase in wages.

The current federal minimum wage is $7.25 an hour. The highest minimum wage states are California ($9.00), Oregon ($9.10), and D.C. ($9.50). Minimum wage in Washington State is $9.32, but the city council of Seattle passed an ordinance to increase the minimum wage in the city to $15 an hour, phased in over seven years.

Moreover, the National Small Business Association finds the average monthly per-employee cost of health insurance premiums for a small firm is $1,121 up from $590 per month in 2009. To deal with these rising costs, 60 percent of small businesses either delayed hiring, laid people off, or dropped insurance coverage.

Small-business owners also reported spending an average of 13 hours and $1,274 per month on the administrative side just to understand how the Affordable Care Act will impact them.

Competition is also different. For example, in the 1990s, baby boomers were making and spending big money; Millennials were in diapers. Business was good for full-serve, and there was growth in self-serve and in-bay petroleum sites.

Now there is less demand, markets have thinned, and it is not uncommon for a new express wash to open close to the area’s most formidable competitor.

Of course, the barriers to entry could always go higher. For example, consider Mr. Wash, Germany’s fanciest car wash. According to the manager, Robert Kerbler, Mr. Wash in Stuttgart is large enough to handle 400 cars per hour, 50,000 cars per month, and 500,000 cars per year. Reportedly, this is more than double the sales volumes of the largest car wash systems in the United States.

These volumes are achieved with a high-tech express tunnel and by using moving platforms (belts) in the wash bay and detailing bay. Mr. Wash provides waxing and interior cleaning in just eight minutes. For more information on Mr. Wash, see the article, “Size,” starting on page 24 in this issue.

Bob Roman is president of RJR Enterprises – Consulting Services (www.carwashplan.com). You can reach Bob via e-mail at bob@carwashplan.com.