OEMs say they don’t always know where car washes are being acquired or built, and this causes them to take on a new role as referee and facilitating dialogue if clients are willing to talk to each other.
Why is this?
The current mix of investors has been described as mainly family-owned concerns with a territorial mindset and the private investor, who is strictly business.
The family-owned concern is usually an established brand, well entrenched, expanding slowly, and looking to reposition sites or build an express exterior.
The strictly business types look for opportunities to move fast and are willing to build next to existing car washes. The practice of building a new retail store next to an existing retail store — or “piggy-backing” — isn’t a new approach to site and location strategy.
For example, where I live just about everywhere there is a CVS pharmacy you can almost bet there will be a Walgreens pharmacy located on the opposite street corner.
However, Publix grocery got into the pharmacy business and then Walmart did so too with its Neighborhood Market and “in-store” pharmacy within earshot of the competition.
These developments caused all pharmacies to “up their game” and focus more on the retail “experience” than ever before. To combat lower prices at Walmart and grocery offerings at Publix, CVS repositioned its 12,000-square-foot stores. This included adding a MinuteClinic®, photo shop, optical center, and an Extracare® rewards program (and phone app) as well as removing all tobacco products from its shelves.
CVS’s walk-in medical clinic is staffed by nurse practitioners and physician assistants who specialize in family healthcare for children and adults, every day, no appointment needed. Unable or unwilling to keep up, Walgreens closed one of its 14,000-square-foot stores in the area.
Arguably, building a new pharmacy does not create new demand for pharmaceuticals in an area. Does the same apply to car washing? To find out, I examined an express car wash chain in the southeastern United States that launched in 2011.
The developer’s stated objective at that time was to find a recession-resistant, value-oriented business to invest in and the express exterior car wash format seemed to fit the bill.
Reportedly, a lot of planning and thought went into the creation of this business and yet the developer advised to look for only three things when analyzing sites for a potential express car wash: traffic count, demographics, and purchase price.
Today, this car wash chain consists of seven locations in the region, a major metropolitan statistical area (MSA). However, in examining the site location characteristics of each store in the chain, there is no evidence of hierarchical or sequential diffusion or other approach to site location strategy.
Rather, the network expansion policy for this chain seems simply to be to build close to existing washes. For example, I found three of the chain’s locations built within 1,000 feet of existing washes whereas the other four locations are built within one mile or so of existing washes.
I also found this chain usually locates new stores closest to the most formidable competitor, which happens to be, in this case, the region’s largest car wash chain.
COMPETITION FOR COMPETITORS
Of course, there are consequences for those who dictate to OEMs rather than listen to suggestions before deciding. For example, since the expansion of the subject chain, competitors have repositioned certain washes including renovations and the addition of a $4 ride-through wash to help normalize the competitive environment.
Moreover, another “strictly business” investor moved into the region and built new similar express washes within a mile of several of the subject chain’s locations.
Arguably, the role of the OEM as referee may not be playing out in this region like it does at a football or basketball game. Consider what has occurred in Atlanta, GA, an area where I once operated car washes and later spent considerable time as a consultant working with folks developing washes in the region.
Up until the economic downturn, developers built car washes in Metro Atlanta like hot cakes and then the party was over. Subsequently, new construction was almost completely halted for six to 18 months and the pool of available high-quality assets stagnated.
Conditions eventually began to settle down and cause the prospects for retail commercial real estate in the Atlanta Metro to look better than it had in years. According to investment activity data from CoStar Comps Analytics, the number of car wash sales (126) was up in the fourth quarter of 2010 over the year-earlier period (103) for all such properties surveyed. Moreover, car washes were trading at higher average-per-square-foot prices ($160) in the fourth quarter of 2010 than they had one year earlier ($148).
Nevertheless, industry veterans such as the Alford family that owns and operates Benny’s Car Wash in Baton Rouge have watched the market in Atlanta become so saturated that car washes will do anything to set themselves apart.
According to Justin Alford, one operation, known as the Auto Spa Bistro, doubles as a bar so that customers can eat and drink while they watch their car get cleaned.
In an article in the Baton Rouge Business Report, the Alfords opine that Baton Rouge may also be at risk of getting too many car washes considering the demand.
Like the narrative provided earlier, Benny’s is family-owned, an established brand, well entrenched, expands slowly, and has a territorial mindset. Benny’s nemesis is the new investor type looking to master the express market and then get out quickly in about five years after opening five washes costing between $2 million and $3 million each.
Bryan Guillot, co-owner of Bozeman Distributors, a car wash equipment company in the area, is pragmatic on the question of saturation: “The more car washes you put in a market area, the more you are splitting the pie.”
Of course, Benny’s has been around for a long time (51 years) and isn’t likely to just fold up the tent and move on. Like in our first story, the stalwart plans to counterpunch. In this case, it will be a new $5 million Benny’s location that will be able to handle even more volume than the new guy down the road.
This is the risk of managing a network of stores and finding new sites. For example, if Benny’s new store doesn’t perform as expected, there may be nothing to do but watch the high cost of developing it impact the firm’s bottom line.
Conversely, if Benny’s maintains the status quo, the door would remain open for the possibility of the other guy to become trade-area dominant. For example, Benny’s competitor also agrees the Baton Rouge market is getting too diluted but still has a sixth location in mind for the city as well as plans to expand to other nearby communities.
In the final analysis, a market can only support so many stores.