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Business Operations

Finding a good location

October 11, 2010
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One of the critical elements involved in selling is having a way to get the product to the customer. This means having an appropriate location. Unfortunately, the retail climate has changed dramatically in many communities and retailers have faced a rough road in terms of finding appropriate locations. The availability of land for carwash development is being affected by price, strategy and competition.

According to a report published by a leading real estate development company, the sale price for a 1-acre pad site suitable for a bank, drug store or restaurant in a suburban area in Oklahoma City is about $12 per SF. However, in a high growth area like Phoenix, AZ, the site will cost $31 per SF.

Fundamentals of location
Mixed-use and lifestyle centers are becoming increasingly popular with the investor class. Mixed use combines retail tenants and dining and, in some cases, residential and office components. This concept is particularly attractive to families with children. However, carwash investors may find it difficult to convince property developers to place a see-through wash-bay (and its inter-workings) near their tenant’s brand new “formula” businesses like Macaroni Grill or a Barnes & Noble.

Traditionally, small retailers would locate a new carwash in a small to medium-sized community center that offered good accessibility, 5-10-minute travel time, recognized brands and a population of at least 30,000. However, many of these locations have come under pressure from hypermarkets and consumer spending is being lost due to the increase of convenience center dominance from the likes of Wal-Mart.

In many areas, strip centers, traditional grocery anchored shopping centers and enclosed malls no longer have the critical mass or sufficient variety to generate the door swings necessary to maintain or grow market share. Consequently, this has had an adverse affect on the attraction rate for some carwash facilities.

Since the success of a new carwash site will depend on how many customers you can attract, investors need to focus on the fundamentals of location.

Do your research
What is the quality of the marketplace where you want to compete? What does the competition look like? Are there measurable gaps in the supply-side or does the area already appear over-populated with carwash outlets?

If it is expensive to build, are there opportunities to share a site with a complementary business? Are there opportunities to expand or redevelop an existing carwash business? Finding meaningful answers to these questions requires a fair amount of research and soul searching.

For example, one rule is that an area can support one wand-bay for every 1,500 persons living in the area. If the population is 30,000, we would expect that the market would support 20 wand-bays or an average of 4 carwash facilities. However, if we apply the national average density of 9,200 persons per facility, our prediction would be 15 wand-bays or 3 facilities.

In the final analysis, no one will win in an overpopulated carwash environment. In order to avoid the consequences of a poor location, investors need to search for the combination of circumstances that provides an advantage meaning a good possibility of success.

Bob is an analyst and lead consultant for RJR Enterprises, a consulting firm based in Clearwater, Florida, and is a member of PC&D’s Honorary Advisory Board.

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