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Water, land, labor, and... the other guy

October 11, 2010
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There’s a lot going on when looking at a carwash, whether investing in an existing one, planning to build a new facility or running the one you have. Carwashers need to look at the many types of equipment available, where to get their ongoing supplies and merchandise and what to pay the help.

Carwashes across the country are encountering similar problems, and just about every section can consider itself “A Tough Market.”

How do you get bugs off the windshield? That’s a tough question in the South.

Up North, road salts raise other issues.

And the high cost of gasoline eats into profits across the country.

This month, Professional Carwashing & Detailing® magazine takes a look at four markets and what makes them “tough.”

That’s not to say Detroit is the only place with competition and that desirable land isn’t also scarce in Arizona or Minnesota. Water issues are a special concern to everyone operating a carwash and paying competitive wages to keep good workers is on every businessman’s list.

But over the years, some areas have taken on a reputation. The Southeast, for example, has faced a years-long drought and with a rapidly increasing population, water concerns are on every municipality’s punch list for new projects.

You can say a lot about Southern California. There’s lots of people and lots of need for lots of land. But the price of a lot — Whew!

Chicago is “that toddlin’ town,” where full-serve washes are becoming scarce because the cost of labor keeps on rising.

Detroit gained the reputation as “Home of the $2 Carwash” long ago. Now, they’re washing for a buck.

This month’s cover story is just a brief glimpse at these four areas and what makes them “tough.”

If you don’t live and work in one of these areas, be thankful you only have to worry about your own issues with water, land, labor, and watching out for the other guy!

Them thar hills is gold!
By Bruce A. Scruton, Managing Editor

Back in 1849, people dug through the dirt, seeking California gold. If only they knew that 150 years later, that dirt they were sifting through would be the valuable commodity.

With little land left to develop, unless you want to build where jackrabbits play in the sagebrush and cactus, Southern California property values are soaring.

In Los Angeles, one expert notes the cost of land is approaching the equivalent of nearly $100 per square foot. With 43,560 of those feet in an acre, the price tag is just under $4.4 million.

“Carwashes are desirable targets,’’ said Delores Conway, director of the Casden Forecast at the University of Southern California’s Lusk Center for Real Estate. “There’s less (environmental) clean-up than with things like garages.”

She notes an interesting quandary for potential carwash investors. The cost of vacant land is so steep, it probably puts the bottom line for any development project into the red.

Yet, trying to buy an existing carwash is fraught with its own complications. “Developers would probably outbid them,” Conway said. “Condos, office buildings, apartments. Those are all multi-story. Land is just too valuable for a one-story project like a carwash.”

She said from her own hometown of Manhattan Beach, there are just no new carwashes. “All are 15 years old, at least,” she said.

However, she has seen a new trend, carwashes being built as part of a parking lot complex for office buildings and condos.

Randy Cressall, owner of Valencia AutoSpa, said he is seeing more of those types of developments. “It’s a decent concept, but, I think, limits itself to the more upscale clients,” he noted.

And while there are still new carwashes under construction, Cressall notes there are a large number of them closing down. “Then someone buys them for 80-90 cents on the dollar, and they close,” he said. “By the third time around, the price is down to 40-50 cents on the dollar and those seem to be staying in business. But a lot of people lost money.”

And that, he notes, is mostly because of the cost of land. “If you can buy an acre for a million, million-and-a-half, you’re doing very, very well,” he added.

Existing wash owners, and even potential investors, need to keep up with the times, he said. “If you’re already built, you’re already invested with the land. Remodel. Modernize,’’ he advised. “Stop being the dinosaur.”

Cressall, who is president of the Western Carwash Association, said he is also concerned about competition from mobile carwashers and those who are taking advantage of immigrant workers.

“Labor and environmental concerns; those are as big as land. Neither are declaring incomes and they’re undercutting the rest,” he said.

There are still opportunities to be had, however. They’re literally, just over the horizon.

“Twenty miles out, over the next 20 years there’ll be development in the outlying areas,’’ Cressall forecast. “Even if you don’t build right now, get the land and get ready. They will come.”

Labor costs in Chicago
By Kate Carr, Associate Editor

Those washing cars in the land of the deep dish better have deep pockets to keep up with labor costs, according to operators in the heart of Chicagoland.

Washes that once thrived on the popular full-serve and hand wash platforms are now turning to express exterior and flex-serve offerings. Cutting down operating expenses is the name of the game, and that chiefly means reducing the size of staff it takes to run the carwash.

A concern of minimum proportions
“A lot of full-serve operators are basically labor intensive, and they’re looking at other avenues,” Richard Koche, a Chicago carwash operator and former president of the Chicagoland Car Wash Association, told Professional Carwashing & Detailing®. “They’re going to exterior and flex-serve. Less labor any way they can do it. I know that’s the talk by a lot of people.”

Koche said a concern is Illinois’ minimum wage, currently $6.50, but most likely to be raised to $7.50 if Gov. Rod Blagojevich is re-elected.

Earl Weiss, owner and operator of four Uptown Carwash locations in and around the Chicago area, agreed with Koche. His washes focus on an express exterior platform, for which he charges $3, with an additional 25 cents on Fridays, Saturdays, Sundays and holidays.

“The labor has pushed many operators such as myself away from the full-service-type wash to either an express exterior or a flex-serve, which cuts way down on the labor,” Weiss said.

According to Weiss, this then leaves more labor available for the few operators who remain dedicated to the hand wash market, and also pushes the remaining full-serve customers to support those washes, ensuring the now meager full-serve market will thrive. Weiss said this still leaves plenty of customers who are interested in the more convenient and less expensive express exterior and flex-serve carwash market.

“It’s a shifting, as opposed to one operation cannibalizing another,” Weiss explained.

Another Detroit?
But will the sudden leap from full-serve/hand wash to flex-serve/express exterior cause a Detroit-like situation? According to Weiss and other Chicago operators; no — the price of land is too high.

Over the past decade, the number of tunnel washes in Chicago has dropped dramatically, according to Weiss and Koche. Now the successful operators are those that add ancillary services to their sites.

That’s right, multi-profit is the name of the game in Chicago, too. It might be that this city’s operators are already preparing for the dastardly effects of a market oversaturated with express exteriors, or it might be it’s the only way to get a return on investment in the ultra-expensive Chicago real estate market.

New operators are focusing on getting the most use out of their land, and also the most use out of a smaller-sized staff. These new tunnel washes are almost exclusively express exteriors with the bare minimum number of employees.

According to the majority of Chicago operators interviewed for this article, the bigger factor in their success is weather.

Weathering out the storm
They have a saying for those who don’t enjoy the weather in Chicago — stand around for an hour, it’ll change.

For carwash operators in the Windy City, it’s a gamble. You can keep your wash open and suffer the operating costs for a meager day, or you can place your bet that the weather will constitute a total loss and throw your “Closed” sign on the door.

There is no real solution to this problem, so operators suggest Chicagoans simply ride out the storm. This is more difficult for new operators, but Weiss pointed out there are fewer start-up projects within the Chicago area due to the high-cost of land.

For established operators, such as Weiss and Koche, it’s easier to weather out the weather. Operators reduce staff numbers on rainy days and carefully plan maintenance schedules around seasonal changes.

An association to help
Chicago operators have one trick up their sleeve not afforded to many other large-city operators — an association exclusively designed for them. The Chicagoland Car Wash Association offers its members a chance to network and discuss the unique tribulations they face as operators in this ultra-competitive, ultra-expensive market.

“For instance, several of us within the association, we have contracts where we wash the City of Chicago vehicles at our locations,” Weiss said. These contracts are somewhat complicated because operators must use only city-approved suppliers, which are difficult to locate within the carwash industry.

“So we get to talk to each other and say, ‘Hey, what are you using for this?’ and you say, ‘Oh, well I’m buying de-icing salt from this hardware store and he’s a minority.’ Or ‘I’m buying litter bags from this woman and she’s minority-certified.’ So we can talk about those types of issues,” Weiss explained.

Association members also discuss legal issues that arise within Chicago, learning from others and benefiting from their experiences. They can also share ideas for cutting labor and controlling costs.

It seems the only thing these operators can’t fix is the weather.

Maybe extending a free membership to Mother Nature wouldn’t hurt.

Competition in Detroit
By Kate Carr, Associate Editor

Ahhh, the Motor City: Full of motors, full of carwashes. Perhaps a little too full of carwashes. This year even those outside the industry are taking note. In March, The Detroit News devoted a feature article to the subject (“Hurtin’ at the car wash,” March 8) and Detroit customers are noticing the painful price of an oversaturated market and cutthroat competition.

Indeed, the birthplace of the $2 carwash is now home to a staggering split of washes that either attempt to squeeze more cars through the line ($1 expresses), or pump-up their tunnels with additional services for a larger price tag (the unprecedented $5 and $6 washes.)

The factors are clear: a lousy winter, a slippery economy and an oversaturated market. It seems these forces have combined to stack the odds against Detroit operators, especially tunnel and conveyor operators. No salt on the roads meant no dirty cars in the carwash lines in January, and tens of thousands of jobs leaving America’s Steel City meant fewer customers with the means to pay for a scrub.

“A lot of it was the auto industry,” Donn Eurich, executive director of the Midwest Carwash Association (MCA), explained. “The fact that you’ve just seen so many large changes in the industry; lay-offs, plant closings and other things, that really affect the Detroit market more than they affect Michigan.”

Competition overdrive
The biggest concern seems to be the proliferation of express exterior washes which started three years ago. Bob Waldron, MCA president and owner of Pro Car Wash in Detroit, said many new operators didn’t know what they were in for.

“What occurs when people see successful operations; they think, ‘Okay, let’s go ahead and get in that business,’” Waldron explained. “That’s what happened three or four years ago. Everybody was saying, ‘Oh, that’s the business to be in,’ because we were having some good years and they were seeing some lines and they thought, ‘Boy, just stand there and collect the money.’”

The competition came at precisely the wrong time. The washes barely had time to develop before they were hit with the onslaught of bad weather, a lousy economy and skyrocketing gas prices.

The real problem, according to Eurich, is the way in which these operators are solving their problem. Many operators are using a Band-Aid to cover a gaping wound, he said. They’ve become afraid of the extreme competition and think the only method of luring a customer in is to lower their prices.

“We’re seeing guys who feel that price is all the customer sees. So if the guy down the street lowers the price to $4.99 from $6.99, they run out and do that as well,” Eurich said.

“I mean, this is like Business 101,” Waldron added. “All the utilities are going up, your labor is going up, your volume is dropping off — so what do you do? You drop your price?! I mean, it’s like, why don’t you just cut your throat?”

The solution, Eurich and Waldron said, is to add extra services to the carwash site, such as food and fuel, and raise pricing.

“They’re going to have to diversify their services, because carwashing alone won’t pay the bills,” Eurich said. “Or some of them are going to be sold or closed.”

“It’s depressing.”
Even operators who have been in the industry for years, with carwashes long established in their neighborhoods, are finding themselves stuck between a rock and a hard place.

Ken Prange is one such operator. His wash has been servicing the people of Shelby Township and Sterling Heights for 16 years. This semi-affluent, mostly blue-collar market on the outskirts of Detroit had afforded Prange a nice market until about three years ago, when the rise of the express exterior washes reached his area.

“In the last about three-and-a-half years, we’ve had eight new exterior washes go up in about a three-mile radius,” Prange said. “It’s crazy.”

Crazy is one word to describe it. Cutthroat is another.

“It’s just depressing, that’s what it is,” Prange added. “To come in every day and realize it’s happening.”

Now Prange is considering a change in his menu pricing. He wants to lower his express exterior price and raise the pricing for his full-serve offerings. He thinks about adding ice cream or some ancillary business, but hesitates to rush into anything.

“We’re a little reluctant to borrow that much more money, especially with rising interest rates and everything else, to make that jump, so to speak,” Prange explained. “But we probably will have to do something like that to try and bring things around because the numbers have been unbelievably low.”

On the other side of the fence are operators who raise their prices and hope for the best. Waldron charges $5.99 for an express exterior. He reckons this is the highest in Detroit. His site has a convenience store and a fuel station. The plan is to add a drive-thru coffee shop in the nearby future.

“The idea is to keep them coming through; keep them coming across the driveway,” Waldron said. “What we’re finding is more people want to go to the place that gives you like the one-stop shopping.”

He offers rain checks for customers who fill-up on stormy days, and hopes his c-store and fuel station will keep the carwash afloat on days when the weather won’t cooperate.

No crystal ball
Many in the industry are wondering how this situation will end. As Prange told Professional Carwashing & Detailing®, there is no crystal ball. But most are predicting the worst.

“I would imagine, and I hope I’m wrong, and it’s not just carwashes, I think you’re going to see, at least for the Michigan area, and I know a lot of the country is doing okay, but here, we’ve been hit,” Prange said. “As anybody that reads the papers, with the number of jobs that are being eliminated, it’s not just the Big Three, either, it’s all those that supply the Big Three. It’s all the employees that used to go to all the other businesses that were around those facilities. Whether it’s restaurants or the dry cleaners or whatever, it’s just small businesses are being hurt in general. And I think you’re going to see a lot of people, a lot of carwashes, go out.”

One thing is clear. For this market, the necessary measure is to reduce the number of carwashes. The economy may improve, gas prices might fall, and this coming winter could bring more salt and snow, but no matter how much matters improve, there still isn’t enough business to support the amount of carwashes crammed into the market.

Water, or scarcity of it, in the Southeast
By Todd Horneck, News Editor

Ah, water. Good ol’ H2O. For the carwash industry, it’s the most valuable part of the business.

Of course, states like Arizona, California, Colorado and Nevada are constantly struggling to boost water supplies and for the Southwest carwash industry, it is an obvious part of the business.

Yet it’s not just people out west that are forced to deal with limited water resources. Across the United State, every region, at some time or another, gets hit with water restrictions.

So the questions is, how do you deal with it; what can you do to prepare for water shortages; and, more importantly, how do you deal with the high prices that can accompany limited water supplies?

Offsetting the cost of water
Dealing with the high cost of water often forces wash owners to increase prices. Most customers can understand that boost, but even they have a limit.

One way to offset water costs is to invest in a water recycling or water treatment system, something Chuck Howard, owner of Autobell Car Wash, Charlotte, NC, believes is a must.

Not only does a water recycling system cut water bills and detergent costs, it gives a carwash a good chance to show the community what it is doing to protect limited water resources.

Tom Magazzine, owner of Station Auto Wash, Leesburg, VA, agrees that investing in a good water treatment system is one of the best things an operator can do.

But how do you perform a quality wash and manage to save water at the same time and if operators cut back on the water they use, does the value of the carwash go down?

It’s a double challenge where the key is water technology.

Magazzine has taken a long look into the industrial water treatment market instead of focusing on just what carwash suppliers have to offer for water recycling and treatment.

“I’ve been talking to companies that have been dealing with water problems that are much worse than what a carwash deals with,” he said. “I talk to them about technologies that can be used to clean and polish the water so I, as a carwash owner, can get greater and greater reuse out of it.”

According to Magazzine, his goal is not only to reclaim water, but clean the water as well, an objective he believes other washes should aim for as well.

Dealing with water restrictions
Water restrictions are becoming more common; if not year-round, then certainly in the summer. The question becomes how to handle it.

According to Howard, the answer is simple — get involved with local officials, go to town meetings and get a spot on the agenda to speak on behalf of the industry. The most important thing is educate people about what’s going on.

Misinformation can sometimes be detrimental to a carwash owner. Because carwashes are visible water users, times of water restrictions sometimes hurt a carwash business. Potential customers think the restrictions apply to commercial washes as well as to so-called “driveway washers.’

“When the city starts talking about water restrictions, carwash operators need to get involved and speak out on behalf of their industry,” Howard said.

Water restrictions and droughts aren’t all that bad. If the carwash owner owns a water recycling system, then they’ve got it made. Right?

Well, not always. In extreme cases water restrictions can actually hurt a carwash business, Howard said.

“When stage two water restrictions go into affect people don’t know that they can still use local carwashes,” he said.“Most just assume that the washes are restricted.”

Magazzine agrees that it’s important to educate the local community and city representatives. “Part of it is educating the counties and local municipalities regarding the approaches we’re taking to conserve water in the carwash industry, and the amount of the water we’re using,” he said.

In cases like this, Howard explains, he has had to increase marketing to offset the loss on income. According to Howard, this is yet another reason why owners and operators need to make an effort to educate the public.