I have a simple business formula that guides me to success every time. I use it to navigate any situation: When will inflation stabilize? When will interest rates normalize to meet the unmet demand for express car wash tunnels? How long until electric vehicles and stronger fuel economy regulations forever disrupt petroleum fuel sales? What will be the next supply chain disruption affecting the automotive industry?

            The funny thing is, the answer is always the same: explore, evaluate, and execute solutions to boost revenue and maximize efficiency to ensure the quickest and highest ROI. It’s business 101: Increase revenue and reduce costs to enhance profit. The Federal Reserve has raised interest rates to slow down investment. That’s mainly out of our control. As an investor, when rates rise, we must increase revenue and reduce expenses to maintain ROI. But before you can do that, you must identify the opportunities available to support your goals. 

            One way is through express-exterior wash subscriptions. Subscription wash clubs can capture a larger share of customer spending, foster extreme loyalty, and significantly boost lifetime value. Over the past decade, a well-run, well-located express-exterior car wash has generated more revenue with less inventory and labor than other “Internet-proof” retail uses of commercial land in many markets.

            With recurring subscription revenue, express has been a compelling investment opportunity that is driving significant growth. Building a full-sized express exterior car wash with 30-plus free vacuum stations requires large parcels, sufficient traffic, and higher debt to finance the project. Rising interest rates have guided some investors to pivot.

            Recently, I helped my son break ground on a second traditional express-exterior wash with 35 free-vacuum stations. We had to work harder to find the right property, but the numbers worked. It’s the best use of the land he bought.

            We would have done the project without hesitation at the low interest rates of early 2021. Today’s higher rates demand more diligent proforma analysis. With more than 40 years of experience doing this, I have absolute confidence in the project. I understand the slowdown in large investment projects like this, which is, after all, part of the Federal Reserve’s goal. Interestingly, smaller in-bay automatic conversion to mini tunnel projects haven’t slowed. They’ve accelerated. 

Life Finds a Way

            For Jurassic Park fans, I’ve always loved that line about dinosaurs finding a way to reproduce despite being genetically blocked. Entrepreneurs find a way, too. Specifically, professional car washers find a way.

            If you’re an in-bay automatic owner and exploring options to convert to a mini express tunnel with an unlimited monthly plan, you’re not alone. It may be the right move to increase revenue, but not always, so please read on for some things you need to evaluate.

            Ditto for the automotive dealers reaching out with open land, shell-shocked from the lack of inventory caused by chip shortages, and looking to diversify profit centers with a retail car wash. There’s more to this than installing a mini tunnel and a pay station and hoping customers will come.

            The same goes for regional brands exploring options to protect their markets with strategically placed lower-cost mini tunnels for underserved areas of their core market. It, too, may be the right move, but the math may make more sense to build fewer, more prominent locations with the operational efficiencies they afford.

Converting Bays to Tunnels

            With their free vacuums and low prices, express-exterior washes have revolutionized the industry. New wash technologies and methodologies have produced equipment with reduced labor and even the possibility of unattended operation while delivering cleaner, shinier cars at higher speeds on smaller footprints.

            POS systems can seamlessly integrate with smartphones and fuel pumps, allowing customers to join and manage memberships easily. Modern car wash investors have greater flexibility to fit smaller tunnel washes into existing bays on smaller properties, opening new possibilities for growth.

            The past decade’s technological advancements have condensed full-sized tunnel performance and features, including tire dressing and extra services, into a standard 40-foot bay. Smaller retrofit projects that don’t require significant construction need less debt. Many markets have automatic bays with sufficient traffic to generate higher profits with a small footprint and high-throughput tunnel. These factors explain why investors are exploring an in-bay conversion to a mini tunnel. But not every site works.

The Devil Is In the Details

            The formula for exploring, evaluating, and executing solutions to grow your business may be simple in concept, but its implementation is very detailed. Start by determining your investment objective, doing the math, and ensuring the numbers make sense. Get expert help to run a demographic analysis and break-even proforma. Here are some considerations for making the right decision.

            Research all competition. Map out every competitor within an eight-minute drive from your location. Note the wash type, pricing, services, and any competitive features. Visibility and access are crucial. Visit the local city hall to check all permits in process and verify if anyone else is opening a wash in your selected market. Knowing the landscape helps you make informed decisions. Some operators succeed by leasing and converting underperforming bays at petroleum sites due to neglectful maintenance, quality, pricing, or marketing.

            Evaluate the potential. Even if you own the bay, do a complete analysis of its investment potential. Evaluate several sites, including ones you own. Measure all known variables to select the most viable location. Check all retail anchors to see who is there, who is coming, and who is leaving. Determine if the market is growing, improving, or degrading. Visit the site at different times to observe car counts on weekdays and weekends. Assess traffic congestion and visibility angles. These factors influence layout decisions, equipment, signage, and landscaping.

            Traffic counts are critical. Aim for a two-way car count of 25,000 to 45,000 cars daily, with local traffic typically weighted as more valuable than commuter traffic. Capture rates vary based on market conditions, pricing, services, marketing, and competition. Regional car wash associations can provide insight into expected capture rates. Prepare a proforma evaluation of a proposed location. Consider the daytime population and other demographic factors that can significantly impact hours of operation, pricing, and anticipated throughput. Stick to generally accepted indicators to identify locations that will support your project. An investor with deep knowledge of a particular market may know when a location is more viable than it looks on paper, but that’s the exception, not the rule.

            Pay attention to ingress and egress. Evaluate the distance to the nearest traffic light, exit directions, and entrance options. Check for median cuts with legal U-turns and sign restrictions. Ensure the building or signage (ideally both) will be visible to passing cars. Converting an in-bay to a mini-tunnel capable of processing 60 cars per hour must justify the investment with sufficient wash volume.

            Execute your plan. With high interest rates, detailed planning is essential to ensure project completion is on time and within budget. Carefully select partners with experience to get the job done. Ensure you have the capital to complete the renovation and properly market the site with engaging signage, landscaping, and a grand re-opening launch. Research potential surprises, such as sufficient electric and water supply or reclaim tanks under the bay. Compact solutions exist for nearly any situation or obstacle, but you need to plan for them, not react to them. Thorough research before investing is crucial.

Separating the Wheat From the Chaff

            The fundamentals haven’t changed, and unmet consumer demand for express tunnels and monthly club plans hasn’t changed. Higher interest rates merely demand that we focus more accurately on those fundamentals to identify projects that meet or exceed our ROI requirements. So, following my formula for success, which car wash owner-operators will be best positioned to grab their unfair market share once interest rates normalize?

            Those who explore, evaluate, and execute solutions to boost revenue and maximize efficiency to ensure the quickest and highest ROI. It works every time.

Joining the company in 2000, Anthony Analetto serves as the president of Sonny’s CarWash Equipment Division. In this role, Anthony leads the innovation of new products to drive client success and oversees all operations, engineering, and supply chain management. Washing cars for more than 30 years, Anthony was the director of operations for a 74-location national car wash chain prior to joining the company.