Industries, like businesses, have a life cycle. The four phases of industry life are introduction, growth, maturity, and decline.
There are signs the car wash industry is well into its growth phase if not the beginning of maturity.
Consumers have come to understand the value of the products. A handful of players has become apparent. Business processes are improved. Geographical expansion is common. Companies are entering through acquisitions and development.
Experts say the maturity phase begins with growth slowing, shift towards expense reduction, and consolidation occurs. Some firms achieve scale economies that hamper competition. Barriers to entry become higher.
According to IBISWorld, between 2012 and 2019 industry wash revenues increased by 39 percent. Since then, annualized market size growth has been 2.1 percent whereas market size growth in 2022 was 0.8 percent.
Arguably, headwinds to future growth would be recession, high interest rates, and decline in disposable income.
Pundits describe the target market for exterior car washes as consumers between the ages of 25 and 64 years and households with income of above $35,000 per year.
Millennials, Gen-X, and Boomers have all suffered economic loss. The younger generation has suffered the most. Many are saddled with student debt, have been priced out of housing markets, and inflation is eating up their paychecks.
On the other hand, the need for vehicle maintenance is greater.
According to Kelly Blue Book, the average price for a new vehicle in August 2022 was a record high $48,301.
Americans still drive a lot. FHWA says the average is 14,263 miles per year. AAA reports the average cost of car ownership in 2022 was $894 a month inclusive of depreciation, loan interest, fuel, insurance, maintenance, and fees.
Over the last 10 years, the average age of a car increased from 11.4 years to 12.2 years. Arguably, the need to clean, shine, and protect vehicles will remain strong regardless of whether cars are powered by gasoline, diesel, or electricity.
As for consolidation hampering competition, it’s hard to determine because the activity has been a mix of acquisition and building new sites. For example, here is a blip of activity published in the October 2022 issue of Auto Laundry News, News Line: Modwash acquired Home Team, Club Car Wash acquires Tidal Wave, LUV expands in NV, FL, and GA. Take 5 grows in Midwest, Champion enters Des Moines, Tommy’s opens more stores.
As for economies of scale, there are few: primarily supplies, advertising, and brand awareness.
Thus, smaller companies can still compete successfully by choosing good locations and focusing on marketing and customer service as differentiators.
In the final analysis, a large portion of industry growth over the last several years can be attributed to digital transformation. This includes creation of digital car wash networks, growth of monthly wash plans, and mobile payment.
For example, EverWash was recently named to the Inc. 5000 list. The company is described as a car wash network with more than 800 locations, providing sales, marketing, and customer support.
There are also other networks and consolidation. For example, DRB recently acquired Beacon Mobile. Beacon makes software solutions to manage car wash memberships.
As for barriers to entry, the height has more to do with the cost of entry rather than the competition. There has been a 20 percent increase in the cost of construction materials, site work cost about twice as much, and equipment is more expensive. What used to cost $4.0 million to build is now closer to $5.0 million.
Extending the maturity phase requires strong marketing efforts stressing product features, product innovation, technological changes, and constant improvement.