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The discount dilemma

October 11, 2010
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There’s a good reason that many small towns will fight the addition of a Wal-Mart, according to Bruce Milen, owner of the legendary Jax Kar Wash chain in Detroit: they fear the predatory pricing of the discount giant will drive them out of business.

That same fear has become very real in many carwash markets throughout the United States over the past few years, as discount conveyorized carwashing is starting to become a major carwash format.

Detroit — and its famous chain The Original $2 Car Wash — may be the birthplace of high-volume discount washing, but the concept has spread like a brush fire to many other carwash markets throughout the Northeast and Midwest, in particular.

In fact, according to a recent straw poll on Professional Car Care Online (www.carwash.com), just under half of responding operators said they were facing competition from discount express washing.

This development is causing some hand wringing by experienced carwash operators who wonder if express exterior washing really is the future of the carwash market. And, if so, how will carwash operators compete with these high-volume washes that sell on price and build their volume by taking market share from their competitors?

The set-up of these lower priced washes

According to some industry members, these discount, express washes are typically conveyorized, one-tunnel washes that have either one attendant or an automated entry system, free vacuums and very low-priced services.

The concept is not much different than the discounted in-bay washes that carwashes have been competing against for years, except the express exterior format is built for volume.

Chuck Howard, of Autobell Car Wash in Charlotte, NC, believes if you have the right location — with ample stacking space, high traffic and a good capture rate — you have almost all you need for a successful discount wash.

“It’s a people-less business,” according to carwash consultant Robert Roman, president of RJR Enterprises, Clearwater, FL. “Essentially, what you are doing with an express exterior is outsourcing the labor and customer service function of a full-service carwash to the customer.”

While some markets in the United States are clearly still committed to full-service washing, there are a great many markets where heavy demand exists for a cheap, quick carwash.

According to Pete Nani, director of operations for the country’s largest wash chain, Wash Depot Holdings, the company had to adjust some of its full-service locations to accommodate the demand for lower priced, exterior-only washing.

Experts believe carwash entrepreneurs have already become adept at spotting regions of the country where demand exists for fast, no-frills carwashing, and carwashes that don’t offer the option are creating a high-volume niche for those who will.

How loyal are your customers?

How do carwashes survive charging just a few dollars per wash? It’s simple: they need to do at least twice as much volume, and some of that volume is going to come from courting your customers.

The average full-service wash may wash 70,000 cars a year at $12 gross revenue per car, for total revenue of $840,000. If a discount wash can wash 200,000 cars (and many do) at $4 a wash, the wash is coming out ahead because it does not have huge labor costs.

These simple economics could profoundly change the face of carwashing. Most of the conveyorized carwashes on Power Inc’s 2004 Top 50 list that offer an exterior wash have a basic wash price of around $5 - $7 dollars.

That number is almost double the price that may soon be charged by the Rãpido Rabbit Car Wash franchise, based in Beverly, MA, that is currently being rolled out by industry veteran and Rãpido President Steve Gaudreau.

Gaudreau said that this high volume, exterior-only model was the best bet for a nationwide chain, which is his goal for Rãpido.

“The only way that we could see to do this was to have a value option for consumers that they would respond to in large numbers,” Gaudreau said.

If Gaudreau’s wash provides a high-quality $3 wash down the street from your higher priced carwash, how do you compete?

Milen, who has been operating in competition with lower priced carwashes for years in the ultra-competitive Detroit market, said that discount washes create perceptions among consumers that anyone charging more than a few bucks for a carwash is charging too much.

If existing carwashes don’t respond aggressively to this perception, they run a real risk of losing their customers.

There are three main ways a carwash needs to respond when a discount wash moves into their town:

1. Compete with quality

According to Roman, when a discounted wash moves into your area, one of the best ways to compete is to stick with what you do best and resist the temptation to lower prices on your other services.

If your carwash is offering extra services, you will maintain business with customers who need more than a quick exterior wash.

A discount wash that moved down the street from Milen dropped its price to $1 a wash, but Milen’s location was able to hold its volume.

This is a feat that Milen said is due to his wash quality and a “fairly aggressive advertising budget.”

After all, you’re dealing with a battle of perception. You’ll need to market actively and shore up community support by getting involved in high-visibility charities and fundraisers.

2. Remember there are two types of convenience

A cheap, two-minute carwash is convenient, but so is a location that can offer today’s busy consumer many services at just one stop.

The carwashes that Jax Kar Wash competes against have shorter tunnels that don’t leave room for gift shops or extra service areas, so if a location similar to this moves into your town and you up the bar with additional offerings, you are creating unique value.

Milen suggests adding gift shops or detailing stations, or leasing excess land to an operation that will attract more customers, like a fast food chain or quick lube.

Although there have been many operators jumping on the bandwagon and offering just an express wash, Coy Lind-blom, The Carwasher, Mesa, AZ, said that he thinks that the public, in many markets, wants one-stop shopping.

“They may not need the inside (of their car) cleaned every time,” he said, “but people still want the inside and outside of their cars cleaned.”

This is why Lindblom suggests that the best scenario for carwashing is to offer a combination of express washing and full-service carwashing. This model may prove to be the most profitable for competing carwashes.

3. Lower your wash price

Let’s face it — sometimes carwashes are going to have to play hardball with discount washes, when all other options fail.

Lindblom and Nani have both said that if they did lower their prices to compete, an option they would not relish, they would not want to go below $4 a wash.

With competition like the Rãpido Rabbit chain that is rolling out at an incredible rate — Gaudreau said that it has agreements to build 62 units in seven states, 23 of which are contracted for and being built this year — keeping at or above Rãpido’s $3 base price may prove difficult for some operators.

Bob Paisner, owner of the Scrubadub Auto Wash Centers in Massachusetts, Rhode Island and New Hampshire, said that the main questions to ask before lowering your price are:

  • How much volume would you have to gain?
  • How much can you afford to lower your price?
  • Where’s the offset in labor?

“In the Northeast,” Paisner added, “the bigger challenge is utility costs and higher land costs.”

Lowering your price is a tough decision to make for any carwash owner and it is a gamble. If your wash is not built on a location that is meant to produce volume, it will inevitably fail.

“There are going to be people who try to lower prices and find out that they can’t maintain their business,” Milen said.

Possible price war?

When a discount wash moves into a market and competing washes lower their prices, a price war is often in-evitable. In Detroit — and other markets in the Northeast and Midwest — it has not been uncommon for carwashes to be sold for $1.

The long-term problem, according to Roman, is that once a market loses pricing power it becomes very difficult to gain it back.

“I hope sanity stops carwash owners from participating in price wars,” Lind-blom added. “Nobody wins a price war.”

Roman said that the Detroit market — which now has approximately 100 discount washes — is a mini version of what could happen throughout the US.

If so, many carwash operators will be faced with the decision of either moving upstream into higher-value markets with greater pricing power and higher margins or moving down-stream into lower-value markets where price competition will eventually dominate and drive down margins.

According to Roman, if enough operators choose the latter, the exterior-only segment of the business is in danger of becoming an ultra-low margin commodity-service business.

Historically this hasn’t been much of a threat because gas stations, c-stores and self-serve washes have been washing cars with lower capacity in-bays and exterior-only conveyors have been confined predominantly to the Great Lakes and Northeast regions, where the demand is greater for more frequent exterior cleaning.

But labor issues and the opportunity for high-volume has begun to spread discount washing into full-serve strongholds like California and some Southern markets, like Atlanta.

Some carwash pros believe that price wars are destructive because a lower price point demands higher volume, and there just is not enough volume to go around. Ultimately, if you get dragged into a price war, you’d better be sure you can win it.

Bringing them out of the driveway

Supporters of discount washing say they are not just out to lure customers from competing washes — they think their wash format could entice the nearly 50 percent of the driving population that still washes their cars in their driveways.

Detroit is not a growing city, Gaud-reau points out, so “the only way to explain these huge jumps in volume is to say that people are coming out of their homes and into the wash more often.”

Ideally, discount washes would serve as a gateway product, bringing masses of new customers into the market. Eventually, these new customers could try more sophisticated services like full-service washing, according to Autobell’s Howard.

Is this possible? Yes. But so is the idea that these home washers might stay at home and the volume gains experienced by discount washes will come at the expense of competitors.

Discount washing is no picnic

One thing that might temper the growth of discount washing, experts say, is that it functions better on paper than in reality.

These washes have to contend with the issues that accompany a high volume wash, such as high chemical expenses, large utility bills, and accelerated wear-and-tear on equipment.

Unlike gas stations that have offered discount washes for years, the new express tunnels do not have additional profit centers and can not use the wash as a loss-leader.

That’s the problem that Jerry Kezayha, owner of My Car Wash in Plano, TX, has with this concept.

“It’s not cheap to build a carwash today and I just can’t imagine anyone building a facility that is going to do a great job cleaning cars at a cost of $1 or $2 a car — it would be 100 years until payback,” he said.

Leveling or booming?

Kezayha points out that as the price of land continues to escalate and with the price of equipment still on the rise, discount washing has the potential to eventually level off.

Lindblom believes plenty of operators could go broke on high-volume, discount washing.

“There’s certainly no capital or revenue to properly maintain the carwash,” Lindblom added.

However, Gaudreau said all market indicators point to a surge in the express exterior market that will last for some time.

“Conveyor manufacturers, from what I know, are building more of these than anything else,” Gaudreau said.

Milen believes there are enough good operators with solid locations that will make it almost impossible for a lower priced wash to infiltrate their area. It may affect business at these washes, but they’ll overcome the problems.

“They always say the competition makes you a better operator,” Milen said. “It makes you stand up and look to make changes to your business that will improve your business.”

Associate Editor Lindsey Blanchfield and News Editor Chris Reach also contributed to this article.