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Declining car counts? Try a fast lube.

October 11, 2010
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If consolidation has been the predominant business trend for the past 20 years, then diversification surely has been a strong contender for the number two spot. Diversification is a byproduct of adaptability. And adaptability means letting go of old, preconceived notions and embracing new ideas on how your business should work.

Ultimately, if done well, diversification can set your business apart from competition in the high-stakes battle for the hearts and minds of consumers. In the case of the carwash industry, this trend is being manifested in any number of ways. If you need proof, just look at the growing revenue stream greeting card companies have found in the carwash industry.

As rising fuel costs put more pressure on consumers’ household budgets and slowly erode the available pool of discretionary dollars, services like a weekly full-service carwash often take a back seat to the need to pay for household expenses. This has helped contribute to a very real and serious trend of declining car counts in several sectors of the automotive service industry.

The climate of shrinking household budgets is also beginning to push consumers away from SUVs toward smaller, more fuel-efficient models. However, it has made them more understanding of the value of preventative maintenance, particularly the role it plays in helping to protect and preserve their automotive investment. Though we anticipate high gasoline prices will be here for some time to come, there is a silver lining if you’re willing to leverage complimentary revenue streams, such as a fast lube, against your current business model.

Successfully integrating a fast lube into your carwash operation will require you to stress the preventative maintenance argument with customers. For example, they must be taught to realize that OEM-recommended fluid changes are not discretionary choices, they’re vital for total automobile “health.” By doing so, you will help position your business as a partner, help them protect their automotive investment, and save money.

As an operator, it may require you to change perspectives and focus on the preventative maintenance aspects of your business first and the carwash second. By doing so, you may actually help drive carwash counts if, for example, you offer a wash at a discounted price with every oil change.

From a strictly operational perspective, as I wrote in previous issues of Professional Carwashing & Detailing, adding a fast lube requires you to perform several key tasks to ensure long-term success:

  • Develop a business plan. This is an essential foundation when beginning any new business venture. It defines your business, identifies your goals and serves as your road map to success. The two key elements of a business plan are a financial proforma and managerial plan.

    The financial proforma should include facility costs (e.g. real estate, lease, rent,) cost-of-goods sold (COGS), labor costs and operational expenses. It allows you to determine your primary cost drivers and indicates the revenue you need to generate in order to turn a profit.

    The managerial plan helps structure a leadership team. It should include strategies for recruiting, hiring and retaining your core management team.

  • Analyze your cost of entry. Getting into the fast lube business can carry some significant up-front costs. You really need to ask yourself, “How much capital do I need to get into the fast lube business?”

    Begin by determining if there is a need to expand your current lot and evaluate the financial requirements of building a facility. Based on the services you’ll provide, you need to determine the cost of goods for your inventory and overhead costs. Your labor costs will include the core management team, facility personnel and ongoing employee training initiatives.

    Finally, you’ll need to consider your overhead expenses, i.e. your costs of doing business. Your financial proforma will help you assess ongoing cost drivers, but it’s also important to evaluate start-up business costs, in effect, your cost of entry.

  • Get a site evaluation. The location of your site can either yield the greatest rewards for your business or potentially be your greatest challenge. Considering the importance of location, it’s an absolute necessity to perform an initial site evaluation. Begin by consulting with your fast lube program provider, as most fast lube programs can offer site evaluations as a fundamental element of service.
  • Analyze facility options. Determine which building options are available for the fast lube, standard brick-and-mortar versus modular. A brick-and-mortar structure can require a considerably larger financial investment and time commitment. A modular facility offers a variety of advantages to carwash operators who are looking to add a fast lube to an existing business. However, drawbacks to a modular facility include limited workspace and storage.
  • Operations are fundamental. The operational requirements of a fast lube differ greatly from those of a carwash. Whereas the primary concern of a carwash operator may be ongoing facility maintenance, a fast lube facility is a more labor-intensive business that requires full-time staffing during hours of operation.
  • Choose a service menu. Put yourself in your customer’s shoes. Understand they are looking for quick, convenient, competitively priced OEM-recommended services. Avoid getting caught up in recommending unnecessary services, as these offerings can negatively impact the trust you have built with your customers.

    Also, determine if your staff will need specialized training to perform the service. Training can impact your labor costs, hiring criteria and employee scheduling.

    Adding additional services means you will also need to consider the capacity of your bay. You need to be able to perform the additional service without interrupting the flow of your fast lube – a business that thrives on quick and efficient oil changes.

  • Put an inventory management system in place. The key to keeping inventory costs down is to operate “just-in-time” inventory. In other words, only order product when you need it. By not overstocking your inventory you are keeping your costs down and, in effect, you are optimizing your operating capital. Managing your inventory can be very elusive. It’s not something you calculate every day and can have a significant impact on the bottom line.
  • Promote your business with a “point of difference.” You can differentiate your facility from the competition by identifying a valuable offer that addresses your customers’ maintenance needs. You should continually adapt your promotions by taking into account industry trends, changing lifestyles and your customers’ needs. Understand the seasonal needs of your consumer (wiper blade replacements during the rainy season or a radiator flush when the temperatures rise).

    To drive this to your customers and entice them, provide timely promotions throughout the year. Identify valuable bundled offers to combine services from your fast lube and carwash and offer graduated savings as the total service cost rises. Continually alter your promotions to keep the offers fresh and your customers engaged.

  • Open a dialogue. Who better to learn from than your consumers directly? Begin a two-way communication with your customers to better understand their maintenance needs. Before adding a service, your customers can help you evaluate whether there truly is a need for the service in the market. By connecting with your customers, you can also determine which promotional strategies work best.
  • Bundle services. Utilize your carwash facility to package valuable bundled offers and cross-promote the two businesses. For example, on service reminders offer a free “basic” car wash or discounted “premium” wash with the purchase of a preventive maintenance procedure. A bundled offer allows you to combine valuable services and provide consumers with graduated savings as the price of the package rises.

Diversification need not be daunting or difficult, provided you do your homework and fully understand the commitment you are making. Once you do, the payoff can be healthy and sustainable.

David Kunkel is the retail/installed/private label sales and marketing manager for Automotive Lubricants, CITGO Petroleum Corporation.

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