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Building the perfect fast lube: Part II

October 11, 2010
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From the car a person buys to the food they eat, life is full of choices. Making a decision to enter the fast lube business is no exception. The choices made now will dictate a lube shop's success in the future.

Whether an individual adds a fast lube to an existing carwash business or builds one from the ground up, there are several key factors and costs he or she will need to consider before making any final decisions.

Real estate

As many people already know location is everything. The overall quality of the real estate undeniably influences profitability.

Traffic flow, lot position (e.g., corner vs. street-facing), and infrastructure improvements are all considerations which will need to be addressed before building a fast lube.

The first step in building a fast lube is getting a site evaluation of the proposed property.

The evaluation will help:

  • Determine the overall potential of the location;
  • Assist in the design of the facility;
  • Illustrate how the building should be configured;
  • Evaluate the revenue and income potential;
  • Help determine if it is better to buy or lease the property;
  • Analyze population density and growth in the area surrounding the facility;
  • Collect automobile registration information in the immediate area;
  • Calculate household income data for the surrounding area; and
  • Utilize traffic count statistics for the area surrounding the facility.
Once the site evaluation is completed, the owner will need to consider construction options. Whether he or she decides to build a conventional brick and mortar building or a pre-fabricated modular facility, it is important to fully investigate all options.

When it comes to construction, two primary considerations should be the length of time the owner is willing to wait until the doors open and overall cost.

Regardless of the building option finally chosen, remember that any new site can take months to mature and start producing consistent cash flow, so budget wisely to cover initial start-up costs.

This is very important to note because a common problem with many start-ups or expansions is undercapitalization.

Consult a financial institution's retail loan department for advice, as they will be able to help provide a clear picture as to the size of the overall investment which will need to be made.

Cost of goods

Typically, inventory and equipment expenditures can consume up to 34 percent of the total yearly revenue. As with a carwash, managing the cost of these goods (COGS) is vital to the business' success.

Before opening the facility, expect to spend up to $10,000 - $15,000 for an initial inventory of filters, various oils, parts, greases, gear lubes and transmission fluids.

Initial start-up costs for equipment should cover:

  • Tools;
  • New/used oil tanks;
  • Compressors;
  • Hoses;
  • Meters;
  • Guns;
  • Fluid replacement equipment;
  • Waste oil filters; and
  • Filter storage — a typical three-bay fast lube will cost between $65,000 and $85,000.

Though COGS are the single biggest expense area for most fast lubes, it also offers one of the best ways to save money in the long term.

The key to keeping inventory costs down is to operate just-in-time inventory. In other words, only order products when they are needed.

By not overstocking the inventory, an owner will keep costs down and better manage the inventory carrying costs over the long term.

Try minimizing long-term supply agreements. These agreements typically don't protect an owner from price increases, and lock the business into relationships that might have short-term benefits but long-term headaches.

Find a supplier that offers the best price and financing flexibility; one that will periodically review the market options available.

Once the facility is fully operational, another way to control COGS is to regularly review the marketplace of suppliers, get bid proposals, and review alternative supply sources.

Operating systems

One good way to noticeably reduce COGS on a yearly basis is to invest in an inventory management operating system.

Several software programs are currently available that can help optimize inventory levels and manage costs. A fast lube provider should be able to explain all the options.

Inventory management systems use historical data to set benchmarks and look for inventory trends to help determine what inventory levels should be maintained and when product restocking should occur.

Managing inventory is a continuous balancing act, and is essential to maintain a consistent level of necessary products and minimize the possibility of outdated or obsolete inventory in the future.

These systems also help increase inventory turns daily and may help lower inventory carrying costs, thus preserving cash flow for other areas of the fast lube.

This historical data can also assist in working with suppliers to establish the needed minimum and maximum levels to maintain adequate supply stocks between order cycles.

Other operating systems available to fast lube operators help monitor individual customer buying preferences, build promotions, manage cash, and track labor costs and performance.

A complete integrated software package, one that links the fast lube with the carwash, will cost between $8,000 and $18,000, depending on the number of features.

The saying "you get what you pay for" truly applies to operating systems. Spend as much as the budget allows and do not cut corners. The long-term benefits the operation receives will be significant when compared to overall profitability of the operation.

Labor

Identifying and selecting individuals for the core management team is crucial to the success of the facility because they will carry out the daily operations needed to provide the services the fast lube will offer.

Finding the right people with the right skills is one of the biggest challenges.

It's important to set recruitment standards in order to find confident, professional people with strong communication skills.

Budget up to $600 initially for recruitment costs including ads in local papers, and background checks on managerial candidates or other personnel — specifically people with cash handling responsibilities.

Once the staff is in place, develop employee training plans that cover technical service, customer relations and communications.

The objective is to ensure all employees have detailed knowledge of the various products and services offered. Additionally, training will help them communicate the value and necessity of services to customers.

Employee training should not be a one-time occurrence, but an ongoing educational process, and continue the training process throughout an employee's tenure.

The business's success often depends on the quality of the employees and the level of service they provide to customers.

The fast lube business can be very rewarding, both personally and financially. Though there are a lot of planning and budget considerations that need to be made before even breaking ground, the time and money investments made now can pay off ten-fold in the future.

David Kunkel is the Retail/Installed/Private Label Sales and Marketing Manager for Automotive Lubricants, CITGO Petroleum Corporation.

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