Forecasting fast lube volumes
Adding a fast lube facility to an existing carwash business or new carwash project is often touted as a good way to leverage the carwash operation.
Building a two- or three- bay facility allows carwash operators to provide customers with a quick and convenient OEM-recommended service that can be effectively cross-merchandised with carwash and detail services.
What are the investments?
The typical cost to build a three-bay fast lube facility is about $600,000. This investment brings the project to a commercially operable state including land, buildings, equipment and operating capital. Adding and integrating this amount of equity into a new carwash project or an existing carwash business requires careful consideration.
Since most fast lubes are financed through the proceeds or cash flow generated from the business, the fundamental task is the analysis and estimation of the quantity and durability of the anticipated future income generated from the fast lube facility.
There are differing opinions about the best way to do this when the project combines carwash and lube on the same site. Several tools can be used in this analysis, including: the car count approach, capture rate, lube/wash ratio, gravity model and retail sales approach.
Car counts & capture rates
The car count approach is based on the assumption that car counts in a particular area can be refined by multiplying vehicles by the number of oil changes and dividing by the number of locations that offer oil changes in the area. Using this approach, sales volumes are calculated as a function of car count, oil change frequency, market share and competition within a 3-mile radius from the site.
Capture rate is based on the assumption that there is a strong, positive correlation between fast lube volumes and the amount of traffic that passes the site. Capture rate is the ratio of fast lubes to average annual daily traffic (AADT). Sales volumes are calculated by multiplying AADT times the daily capture rate.
The lube/wash ratio is based on the assumption that there is a strong, positive correlation between lube volumes and the number of washes generated from the carwash facility. The lube/wash ratio is annual lube volume divided by annual carwash volume.
Sales volumes are calculated by multiplying the anticipated carwash volume at the site times the lube/wash ratio. Capture rates and ratios can be derived from industry surveys or observed data.
Gravity models quantify the relative advantages and disadvantages of demography, highway traffic and access as well as consumer appeal of the facility on the site. The model measures these variables in terms of adjacent sites that offer competition and it predicts the anticipated revenue the site will generate and how much revenue will be captured from each competing site.
This model is based on the assumption that people tend to gravitate to the most easily accessible location to buy their commodities. The gravity approach is often used to predict sales volumes for carwash and fast lube when they are combined with a retail gasoline and convenience store outlet.
Sales volumes and success
Fast lube sales volumes can also be derived from estimates of retail sales dollars based on census data at the block group level. Using this approach, sales volumes are calculated as a function of expenditures, households, market share, average price and competition.
No matter what method is used to generate estimates of fast lube volumes, the major barometer of success in forecasting is accuracy. This is most often the investor’s bottom line for evaluation.
Accuracy can become an issue if the models are not adjusted to account for local market conditions such as average price, competition, transients, fleet sales and leakage/surplus of retail sales dollars within the trade area. In some cases, like having carwash and lube on the same site without gasoline, it may be necessary to combine methods to reach an indicated value of sales volumes that makes sense.
Forecasting fast lube sales volumes combines historical information with judgment. A certain amount of common sense or reasonability is always involved. Therefore, we should constantly question whether or not the estimate is reasonable given past evidence, present conditions and future expectations.
Bob is president of RJR Enterprises – Carwash Consultants, www.carwashplan.com, and is a member of PC&D’s Honorary Advisory Board and the International Carwash Association (ICA). Bob can be reached at: email@example.com.