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Surviving the ride

Gas retailers turn to carwashing and other offerings for security in today’s up-and-down market.

August 27, 2012
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All around the world, roller coasters frequently rest. Their cars sit silently as twisting tracks jut defiantly towards the sun and cast shadows longer than many farm fields. During slumber, the coasters can be appreciated as massive engineering marvels. But, when they awake, many seem to spawn nothing more than wholesale dread and anxiety.

In the retail world, there is one roller coaster ride that many people find particularly terrifying — undulating and upsetting gas pricing. Much like a thrill ride, gas prices roar up and down; quick pricing dips only exist to accentuate the next steep pricing peak. Much like the cranky, creaking coasters of old, this ride causes worry and confusion for consumers of all ages.

Pesky margins

For gas retailers, the price fluctuations cause multiple problems as well. In 2011, the average gross margin on fuel sold was approximately 18 cents per gallon, according to Jeff Lenard, vice president of industry advocacy with the National Association of Convenience Stores (NACS). From the 18 cents generated, about 5 cents of the margin went to credit card fees while another 7 to 10 cents went to operational costs. This left gas retailers with a scant 3 to 4 cent per gallon, pre-tax profit.

While gross margins have averaged 16 cents over the past five years, wholesale prices have jumped by 5 cents, 10 cents and even 20 cents in a single day. Assuming that a retailer can stay ahead of these pricing jumps and can average the 3 cent per gallon margin, how much profit do gas sales actually provide? Lenard said the average store sells about 4,000 gallons of gas every day, so profits run roughly $120 daily.

Along with the low margins and unpredictable pricing, gas retailers face other challenges including fierce competition and increased governmental regulation, Lenard noted. Also, gas demand has decreased every year since 2007. While the number of c-stores selling fuel has increased, fueling outlets in the U.S. have actually decreased from 172,000 in 2001 to 157,000 in 2011.

Succeeding … with a carwash

Due to the scary profit tight rope that gas retailers are now traversing, many are looking to drive customers to on-site services and products that are more profitable. Lenard stated that the most successful retailers use gas as a traffic driver for their c-stores and other offerings. Simply put, they hope to lure fuel customers inside the store to buy items or services that have more traditional profit margins.

Enter carwashing. “[A] carwash is certainly a great profit driver for a lot of retailers, and it can really tie into the one-stop shopping concept that convenience customers crave,” Lenard said. Still, fuel retailers must often consider a number of factors before getting into the business.

  • Do they have enough land for the wash?
  • What type of carwash will offer the most profit?
  • What is the locale’s carwashing competition?
  • How does it tie into a location’s overall offerings?

If the factors fall in carwashing’s favor, an owner may be able to encourage gas sales with carwash customers by promoting and focusing on the value of one-stop shopping. Further, gas prices may also be a tool for encouraging carwash sales. One common offer is a discounted fuel price per gallon with the purchase of a carwash, Lenard explained.

Case in point

One good example of a fuel retailer that encourages carwash sales with a fuel discount is Zarco 66 Inc. Owner Scott Zaremba said Zarco 66 currently has eight combination c-store, gas station and carwash locations in the Kansas City, KS, area. At Zarco locations, customers receive a 10-cent per gallon discount on fuel if they buy any carwash offering. This 10-cent discount is applied automatically at the gas pumps with a wash purchase.

Zaremba stated that Zarco 66 locations have included carwashes from the beginning. The company is in the process of converting their washes from touchless to touch washes, and, currently, three retail locations have touchless washes while five have touch washes. The stations provide carwash customers with free vacuums, and a few add-on offerings, like a spotless rinse and a hot wax treatment, are available as well.

Even so, carwashes are just one of the services Zarco 66 offers. Now the chain is entering the food service market with its own Sandbar Subs, and the stations feature the franchised Scooter’s Coffee House. In addition to these offerings, the locations have a stand-alone Beach Dog hot dog program, the branded Hurricane Carwashes and the traditional and renewable fuel offerings. Zaremba revealed that this wide variety of selections has led to a change in Zarco 66’s branding; these all-in-one stations are now known as the Oasis.

“We’re an Oasis for the customer with everything,” Zaremba said. “You can wash your car, you can fuel your car, you can buy food. There’s a variety of things. You know it’s one big package, but we work each one of them individually. And, you know, carwashing is a big part of our business. So we concentrate a lot on the carwash business.”

Encouraging sales

Since carwashing is a major piece of Zarco 66’s business, they utilize some marketing programs that many customers are used to seeing only in stand-alone carwashes. One example is a fundraising program. “Being in the business world, we get a million requests for those types of things. And so, you know, it’s just a good fit,” Zaremba stated. “And it gives them an opportunity, whoever that non-profit is, it gives them an opportunity to go out there and sell something of value that’s not fattening.” The chain now uses pre-sold tickets, but they are hoping to move to an automated system in the near future.

Zarco 66 also has carwash packages that let customers, families and groups pre-pay and buy carwashes in bulk. When the pre-paid washes are purchased, a discount is applied and the customer is given a code that is only good for that specific account. Here, individuals only need to input their code before they can wash their vehicle. Customers can add or subtract users from their bulk wash programs, and the chain gives municipalities and government institutions the option of tracking all their wash purchases.

One other marketing idea Lenard added was “POP” signage that retailers can use at the gas pumps or in the stores to communicate offers or couponing. Also, the last few years have given retailers a number of new options that involve social media or partnering with local groups and charities to sell coupon books.

Lenard again stressed the success gas retailers have seen with gas pricing discounts. Tying anything into the gas price is one strategy, and simple discounts like 5 cents off per gallon with carwash purchase or other in-store, discount items “really feel like a huge savings to customers and they will reward you.”

Importance of upkeep

Two of most vital things that contribute to Zarco 66’s carwash success are regular equipment maintenance and wash quality, according to Zaremba. “If you don’t have the quality of the wash for the consumer, you know they’re not going to come back. And so, we concentrate a lot on that. We concentrate on keeping our washes clean and making sure they’re always operational,” he said.

This includes not just operating, but functioning properly using good, quality soaps that will actually cut road grime. “I’ve seen a lot of people with touches, and they neglect the soaps and the chemicals and you end up with poor washes even though you’re touching,” according to Zaremba.

While the staff maintains the washes, the chain also keeps a maintenance contract with its carwash supplier. Zaremba said that Zarco 66 has a factory maintenance agreement with its carwash equipment supplier for every location.

Cooperation outlook

As carwashing has fallen in and out of favor with gas retailers many times over the past few decades, what does the future hold for c-store and carwash cooperation? “I think the future is bright. More municipalities have restrictions on how you can wash your car at home, so the value of carwash has increased,” Lenard said. “While no one is rooting for a drought, we’re in one in much of the country, and carwashes and their modern water recycling systems are very popular.”

“Second, people spend more time in their cars, whether they like it or not,” Lenard continued. “Carwashes can be a low-cost insurance policy to make sure [a vehicle] looks and acts just like the day you drove it off the lot.”

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