Trade area is the geographic area that car wash developers and operators use to assess location (market) and sites (property).

Typically, what is being assessed is the opportunity to build a new store in an area, the opportunity to generate more sales, or the likelihood of a competitor building


An analysis of each scenario requires an estimate of retail demand. Retail demand is the amount of products or services consumers need and want in a particular area. Conversely, supply is the amount of products or services currently being distributed in an area.

Total demand is a function of the size of the area, the number of potential customers in the area, and the purchasing power of those consumers. Demand is usually measured in total sales, the number of stores in an area, or square feet of retail space. Supply is usually measured by taking inventory of retail space in an area.

Two methods commonly used to measure demand in an area are threshold analysis and market potential.

The threshold approach is useful as a screening tool to help identify market opportunities. Analysis provides an estimate of the number of stores within a particular category that could be supported in an area based on population. Threshold is calculated by dividing total population by total number ofestablishments.

Shown left is a cross-sectional analysis of data using a spreadsheet to prepare a threshold analysis by product class.

Units is the estimated total number of establishments by product class, POP is the U.S. population, and demand is the trade-area population divided by column three (POP/units).

The market potential approach to demand is different from the threshold method in that it provides an estimate of the total demand for a product in a given business environment.

Market potential refers to the total trade-area demand for a product or service in terms of total sales or number of businesses based on history.

Estimates of demand by store type (product class) can be obtained by using data on sales per capita and average sales per store.

Potential sales are estimated sales that could be achieved if all the people living in an area only shopped within that area. Actual sales are compared to potential sales to determine if there is a surplus of sales or sales leakage.

Surplus implies either people travel from outside the area to shop or people living in the area consume more than would be typically expected given their income levels. Whereas sales leakage implies people living in the area shop outside the area or people living in the area consume less than would be expected given their income levels.

Total trade-area demand can be expressed as a function (product) of population in an area, spending per capita, per capita income index, consumer behavior modifier, and proportionate share.

Here, spending per capita is industry wash revenues divided by the U.S. population. Per capita income index is per capita in a trade area divided by U.S. per capita.

Consumer behavior modifier is a variable used to account for demographic or socio-economic factors that may influence consumers’ likelihood to purchase in a particular business category.

Proportionate share is a measure of current activity based on the number of stores in the area expressed as a percentage.


The supply side of a market is determined by creating a database of “all” existing car wash businesses for each product class located within the trade area. Such a database of stores should include business name, street address, and, if possible, a rough estimate of store size and sales range.

The database of stores can be created by taking a driving tour of an area, purchasing a business list from a national data provider, and using a web mapping service. Such services provide satellite imagery, aerial photography, and street maps that are crucial in identifying and documenting the competitive marketplace environment.

Determining if there is a realistic market opportunity in an area requires an analysis of the demand/supply balance. For example, the threshold approach can be altered to compare the number of stores in an area with other similar-sized areas. Whereas gap analysis can be used to calculate consumer spending and potential demand and compare each with actual levels.


Although these methods seem simple and straightforward, there are a number of things to consider before putting them into practice.

One is non-local business. For example, the analyses discussed involve trade area population. Consequently, adjustments may be necessary if there is significant change in daytime population.

Another factor to consider is trade area boundaries. Pundits often think of trade areas in terms of physical boundaries such as distance radials, driving time, and census tracts. However, these boundaries have little meaning to consumers aside from, possibly, the notion of economic distance. For example, in major cities, 90 percent of customers may come from within one mile of a site, whereas in sparsely populated areas such as West Virginia, people often travel great distances to shop.

And finally, another factor to consider is that retail markets do not stay the same. For example, when I moved to Pinellas County, FL over 30 years ago, you would have thought that a food buffet was a great business to be in.

Buffets stores were everywhere including mom and pop, regional chains, and franchise stores selling Chinese, Thai, Mexican, seafood, southern style, and meat and potatoes. Today, there are only a small handful of freestanding buffets in a county of almost 1 million people.

The same can be said for convenience stores and gas sites with car washes. A great many of them are now gone and in their place are large scale stores that can make a lot more money selling express coffee and made-to-order sandwiches than washing cars.

In the car wash industry, the emphasis for many operators has shifted from washing cars to selling subscription memberships where 30 percent or more of a site’s total car count may be generated by only 10 percent or so of the customer base.

Consequently, revenue once dependent on a moderate number of customers has greater dependency on a much smaller number of customers.

It follows then, an assessment of opportunity to build, expand, or enter a market needs to include a realistic estimate of retail demand and analysis of demand/supply balance.

Bob Roman is president of RJR Enterprises — Consulting Services ( You can reach Bob via e-mail at