The starting point for a new car wash or expansion project is to estimate the potential size and/or potential value of a particular market.
Market size is the total number of potential buyers of a product or service within a given market and the total revenue that these sales may generate.
Market size is often characterized as shown above. Here, TAM is the total available market for a product. SAM is the serviceable available market, which is that portion of the market that a business can possibly acquire. SOM is the service obtainable market, which is a subset of SAM that can be realistically achieved.
Start-ups and existing companies can use market-sizing techniques to estimate how much profit is possible from a new venture and to decide whether to move forward or not.
Two methods to market sizing are a top-down and a bottom-up approach. According to pundits, the top-down approach is less reliable and less accurate as compared to the bottom-up approach.
To illustrate, sources such as IBISWorld, Grandview Research, and others peg the size of the U.S. car wash industry at between $11.5 and $15.0 billion and consisting of around 54,800 establishments.
Critical elements of methodology employed in such research include preliminary data mining, statistical modeling, and preliminary validation.
Applying simple math gives the industry average store sales of between $210,000 and $270,000.
However, these values are difficult to reconcile when you consider revenues for a typical self-service approximate the latter value. Moreover, conveyor operators are reporting robust volumes. For example, in its IPO filing, Mister Car Wash reported average store sales for exterior washes as $1.6 million and $2.6 million for exterior/interior washes.
Recently, the International Carwash Association said it had answered the question of how many car washes there are in existence. According to the ICA’s research team, there are an estimated 28,999 in-bays automatics, 17,487 conveyors, and 16,182 self-service or total of 62,668 car wash locations in the United States.
Wash bays by type number 72,703 spray bays, 33,801 in-bay automatics, and 17,836 conveyors or a total of 124,340. The importance of this information is it allows for a more refined top-down approach.
For example, if we apply averages published in the industry surveys against ICA’s location counts, market size is $24 billion. If we apply averages against wash bays by type, market size is $23 billion.
Moreover, there is the recent trend in subscription economy to consider, such as the unlimited wash option. According to an Auto Laundry News survey, in the express category, 94 percent of respondents report operating an unlimited wash club with membership averaging over 3,800.
According to Mister’s IPO filing, unlimited represents 70 percent of the company’s total wash volume and more than 60 percent of total wash revenues.
Arguably, the industry is larger than a $24 billion business. Anecdotal or coincidental, industry wash revenues of $11 or $15 billion just don’t seem to make sense.
Why does it matter?
As stated earlier, determining a market’s value has traditionally been the starting point for new ventures and expansion projects. Consequently, the starting point has to make sense.
To illustrate, stores per capita in the fast-food industry is between five and six per 10,000 people and in the convenience store industry it is between four and five per 10,000 people. By comparison, stores per capita in the car wash industry is around two per 10,000 people. In the field, we find the ratios hold for fast food and c-stores but not for car washes.
Quite frankly, I can’t remember the last time I evaluated a market that didn’t have at least two washes per 10,000 people. Usually, it’s more like four. The exception is remote areas where there may only be one or two washes in range. Moreover, as mentioned earlier, there is also 10 percent to 15 percent of a store’s customer base that may subscribe on a monthly basis to consider.