Executives of four car wash equipment manufacturing companies agreed to participate in this year’s look ahead to what the following 12 months might hold for the industry. The panelists are:
- Kevin Collette president of Istobal USA
- Ryan Essenburg president of Tommy Car Wash Systems
- Tom Hobby president of AUTEC Inc.
- Jon Jansky president of D & S Car Wash Equipment Co.
|Kevin Collette||Ryan Essenburg||Tom Hobby||Jon Jansky|
We asked the participants to consider three issues of general interest to car care business operators:
- The economy — The outlook for 2014 and its impact on the car care industry.
- Wash formats — Where is the industry heading?
- Consolidation — Future activity and its effect on operators and vendors.
A slowing economy impacts car care in 2014. We can expect continued conservative banking and increased taxes to slow our economy in 2014. If Obamacare turns out to be just another tax, then we may approach near recession levels. Inflation has been mild, but wages have not increased in half a decade. These factors pressure car care customers to tighten their grip on disposable income, which is what drives our industry from top to bottom. The consumer debt to income ratio has gone from 17.6 percent in 2007 to 13.8 percent today — the lowest in 30 years.
Meanwhile, banks, possibly overreacting to Dodd-Frank regulations and the 2008 collapse, have accumulated nearly $2 trillion in excess reserves. Both the banks and the U.S. consumers are in good financial health, yet we see very little borrowing and thus little of the related positive business activities.
The ICA created an industry profile in 2007 and the retail industry was estimated to have total revenues of more than $19,000,000,000. I have discussed this recently with several respected industry leaders and we estimate total revenues are currently actually closer to $12,000,000,000. We are having to do more with less. More than ever before, greater value and convenience is king. The guarded consumer will spend, but only if he feels he is getting more bang for his buck in terms of time and value.
Our vision of the future may look gloomy with the a debt crisis and Obamacare, but by understanding economic cycles of industries, we are able to anticipate a great time in our businesses. The stage we believe we’re coming into is a time in the cycle where massive growth will take place as our industry transitions from mom and pop operations to rapid regional expansion and global development before it becomes commoditized later in the lifecycle. The next 10 years should produce rapid changes, the greatest wealth generation, and continued transition of the business models. I believe in focusing on your own business and only your piece of the economy. It’s good to be informed about the greater economy, but worry about what you can control and don’t worry about what you can’t.
Trying to predict the economy is a difficult task. With all of the issues that banking and regulations have created, it has been a difficult environment for many investors. Our business has been fortunate in that we market to three distinctly different users. The first is to auto dealers, whose business has been strong the past year, and the projections are that those trends will continue. Secondly, we market to the petroleum/convenience store industry, and that business model has changed substantially and continues to evolve. There are currently several huge players in that market and most of the manufacturers like us are trying to sell all of them direct at almost any price, regardless of margins. We have tried to stay with regional petroleum marketers while keeping our distributors in the loop and not trying to be direct to every entity across the nation. Long term, we believe our distributor relationships are still very important. Thirdly, we market to the individual investors or professional car washers. This is truly the bright spot in the future for us, since our InBayExpress business model continues to get more traction with its 24/7 operation without labor. That certainly appeals to many astute investors today and we see the financing picture easing up with more funding available every month.
I am certainly not the one to make predictions about the economy in 2014.There are plenty of really smart economists in our country that can make those predictions and get them wrong. I am just a small business owner that sees the everyday decisions that all of us make to take care of our families and businesses. Unfortunately for the car wash industry, washing your car is a discretionary expense. You do not have to wash your car to survive. So it falls down the list after shelter, food, utilities, clothing, etc. that are necessities. With that said, the economy seems to have stabilized in 2013 but it remains very fragile. Gas prices going up to $5 again will kill the wash business; the chronic unemployment continues to hurt the wash business as so many jobs are part time these days or at reduced hours. However, banks seem to be lending again as they have gotten their balance sheets cleaned up and have adjusted to the Dodd-Frank regulations. The recession in the country was really a depression in our industry. As a result, those operators, distributors, and OEMs who have survived have opportunities to benefit even in a fragile no-growth economy in 2014.
The industry heads toward new wash formats and loyalty perks: Operators in tune with the marketplace have heard their customers’ cry for more, more, more. New formats are providing better washes in less time. New wash formats include the conveyor-driven mini, flex, and express exterior and the automatic “Express on Rails.” These wash concepts provide faster service with multiple service choices for the ever-changing wash customer. Time-deprived customers want to stay in their car and spend a couple of bucks on a quick wash, while others want a full detail-level-of-service wash. Operators formerly operating with one technology are now diversifying by offering both touchless and friction washing, hoping to attract their entire market.
Loyalty programs are used more than ever and are helping operators to achieve customer retention. Volume-purchasing programs are in use virtually everywhere. Look for more unlimited-wash-per-month programs at attended and unattended sites. State-of-the-art point-of-sale systems act as sales personnel at the point of purchase. The POS gives the customer the details of the rewards programs, captures their personal data, and enrolls them in a monthly program. More services, more choices, and higher throughputs help industry operators survive a sluggish economy in 2014.
Great car washes don’t just wash a car; they wash a car and provide an experience for the customer. The biggest change in the business model and wash format isn’t about how to clean a car better; it’s about how to produce this experience for the customer. Today, this is the added value people pay for. It’s things like the unlimited clubs, self-loading without someone watching you, no prep brushes banging on your car, no noisy blasters that sound like they are ripping the car apart, smooth belt conveyors instead of clunky narrow conveyors, and bright, open-atmosphere car washes. If you look at our counterparts in the food industry, you can see they’ve quickly adapted to this consumer need. Starbucks and McDonald’s have created an environment — their product is more than just food or coffee.
There is no question that the express wash business model has had a lot of play during the last several years. To some degree, we believe that segment of the industry is being oversold. Not every site will create the volumes that many manufacturers are claiming. Years ago, many of our competitors sold lots of car wash equipment to customers by saying that every customer wanted a touch-free wash service. It just wasn’t so. Today it’s been proven that, in reality, most customers do want a clean vehicle as their first choice, and not many of them are very knowledgeable about the process that gets it there. They do prefer a very marketable site that is clean, fresh looking, and that, at the end of the day, really cleans their vehicle without damage.
I think that the street presence of the site is very important, but so is the performance of the equipment, if one is to develop a base of satisfied customers who return to the wash site frequently. I also think that the speed of the service is very important today since time is so important to most of our customers. In essence, we don’t believe that the express wash business model fits in a lot of places where they are being placed, and do believe that our InBayExpress model has viability across the spectrum. There are numerous sites today in the market that are just not cash flowing with the investment in real estate, equipment, and energy that it takes.
I believe there are two elements driving the wash formats of today: value and time. Time is everyone’s most precious commodity. No one has enough of it. Therefore, wash speeds are critical. Getting through the wash quickly is important. With that said, consumers are much more sophisticated these days and, while they want to get to their next appointment quickly, they still demand quality or value for the money paid for the wash. In our industry there are three niches: the tunnels, the rollovers, and the old reliable self-serve. All three have a place in the industry, and each plays an important role. All of the equipment on the market will clean the car well these days. Today, the consumer also expects clean wheels, bug-free headlights and windshield, and total surface protectant as part of the value proposition. Washes that provide a “show” of foaming products and lights for the customer are also enhancing the overall experience of using the wash. Car wash operators who provide not only a clean car but also these additional services are setting their washes apart from the competition.
My partner has been in the business for 30-plus years. He told me long ago, “When it is all said and done, all the customer wants is a clean, shiny, dry car.” I think that holds true today as much as it did in the 1980s when he started.
Manufacturing consolidation should continue in 2014. Merging complementary expertises should mean better services and products to operators and distributors. For example, combining a team that has expertise in friction, touch free, and chemicals with a team that has expertise in conveyors, rollovers, and point of sale should mean better products for the market. Synergy at the manufacturing level should produce economies of scale in terms of labor, advertising, and purchasing power, which should also translate into greater revenues. Lastly, single-source manufacturing should provide for lower costs through operations and logistics, helping improve margins for distributors and providing lower cost to operators. Our industry is faced with many challenges; there are many under-performing sites. A diverse and focused manufacturer in tune with its distribution and customers is ideally positioned for developing positive market driven solutions.
In anticipating our industry moves through this important part of its lifecycle over the next 10 years, I do not believe that consolidation will overtake the common operator or manufacturer, nor do I think it will impact most industry stakeholders. The reason I believe this is that with the rapid changes I outlined in the economy discussion, above, historically the larger, more cumbersome entities will be the ones to fall behind, and will be the slowest to adapt to fast changes in format, technology, and market needs. Rather, these large consolidating entities may be overcome by up-and-comers who quickly adapt and execute new processes and technologies in this stage of rapid growth and change. Consolidation works in an industry that’s already reached commoditization and where the business model and formats have been perfected and polished. It’s too early for our industry. Changes and advancements to the current business model will give the newcomers and small, agile operators an edge of quickly jumping on board with new technologies and systems. Take, for instance, Blackberry or Kodak, market leaders that lost their leadership spot due, in part, to being big, early, in quickly advancing industries. I believe the larger consolidating entities will be playing catch-up.
In the petroleum business, the consolidation of sites has been devastating. What really happens is that as the organizations get larger and larger, management seems to get further and further away from the important operational issues of a business like washing cars. We saw that with major oil, originally, and the effects of the decision-making at the store level that was concerned only with the profitability of the site today and with no concern for the long-term life of the car wash equipment or the satisfaction of the customer. We have seen sites that were generating $20K to $25K per month reduced to an income level of $5K to $6K per month, strictly through trying to save money on service to the detriment of the site, the equipment and, ultimately, the profitability of the site —in the process alienating a very happy (at one time) customer base. In many industries, consolidation is good for the industry, but in my 30-plus years of serving the car wash industry, it has seemed to be proven difficult to achieve the efficiencies that consolidation could bring. Maybe someone a lot smarter than I can come up with a business model that allows large-scale consolidation, but in all of the industries we serve, we just have not seen that yet. I have met with many of the larger companies that operate car washes and, to date, not a single one really knows or understands just what their car wash business is doing at this moment. Maybe at the end of the month, they may get a comprehensive summary, but to maximize car wash revenues, one needs a real-time reporting mechanism on every site — and to the very largest consolidators, what is happening at a single site is not of consequence. They are all looking at the bigger picture. To the customer, car washing involves the care of one of the largest investments that the customer makes, and to most customers it is really important today. Consolidation just appears to be a tough concept in the car wash industry.
The depression that hit the industry in 2009 was awful. It was scary, as many companies did not survive. Car washes, distributors, and OEMs went out of business. Those of us in the food chain have had to get better. I tell people all the time, I hope I never have to go through another downturn like the one we went through. But, while it certainly took its toll on D&S, we have gotten stronger as a result of it. We took the time to create an exciting new in-bay automatic called the IQ, and revamped our manufacturing process to be much more efficient.
We feel that from the car wash owners’ perspective, economics of the wash are becoming more important as operating costs keep rising. All of our equipment is designed or being designed to work proficiently with less cost to the operator. Providing optimum cleaning levels by reducing power, water, and chemical consumption are driving the changes we have made in equipment. You are even seeing newer technology in lighting and other measures operators are taking to help them conserve energy at their facilities.
I am very excited about where we are as a company and where the industry is these days. There is still plenty of diversity in products out there for the car wash operator to choose from. Every industry has a combination of merged companies and independents. Regardless of size, it comes down to value. Consumers are very educated these days, they will sort out what works for them. If you make a good product or provide a good service, your customers will buy from you. If you don’t — well, your business will become another statistic.