My thoughts on the $3 wash phenomenon
The question: "How do you feel about the $3 carwash phenomenon and what does it mean to other carwash business models?"
I almost said, "no thanks" when I was asked to give my opinion on the "$3 wash phenomenon." I know this topic hits nerves with operators like no other I have seen. But, hey, why not? After all, there are times that I'm a target on the forums for things I haven't even done. At least this time, I figure I'll give some of you a reason to take shots at me for something I really produced! In all seriousness, I know of no other topic that has cut so deeply into the emotions of the operator community. For that reason, I really think it is worth taking the time to discuss it. I also feel strongly about what I have witnessed. In fact, even the way the question was sent to me is interesting: "How do you feel about the $3 carwash phenomenon and what does it mean to other carwash business models?" There was no mention of "express" washing — just the price. Wow.
The view from here
To answer the question, I am going to take look at what I see happening in the industry, since this is just a small part of the whole picture. It's an important part that has caused controversy, but it's small just the same. After that, I'll discuss the models.
We find ourselves in the middle of one of the worst economic times in the last 70 years. We see arguments on the news all day long as to how long it will last. Whether things will get worse before they get better is hotly debated, and then there's the added pressure caused by the two wars we are involved in. To say these are uncertain times where our confidence is being challenged on a regular basis to me is an understatement. For a guy with four kids of college age, I hate the idea of sending them out into the world as it is today, with a job market that is… well… you get it.
With all that, let's take a look at our little corner of the universe: Carwashing. I began as an operator. We had 12 conveyorized washes. Eleven were full service and one was a "traditional" exterior. We did well with our washes. They all produced a good volume at a very nice ticket average. So trust me, I understand the importance of a holding price. Those days ended for me around 1992 when I shifted gears and began my new career on the vendor side of the industry. I have witnessed a lot of change since then. Change — a term many are not comfortable with. Let's take a look at what has happened since then and where we are today.
Then and now
On the tunnel side you really only had full serve and exterior washes. Sure there were a few guys with what we now look at as flex, but in real numbers there were just the two models of conveyorized washing. In fact, the ICA's published numbers showed there were 19,000 conveyorized washes at the time with 10,000 listed as full serve and 9,000 as exterior. Since then, we have seen the rise in the flex and express models. Although traditional exterior washes still exist, I am going to leave them out of this discussion, and exclude self serves as well.
The flex model seemed to make sense, but the express design hit a nerve when its $3 pricing hit the market with the added give-away of free vacuums. I'll give my opinion on the price later. First, I am going to look at the affect on the market and the other models as I was asked, look at what drove it, and, with conditions the way they are, why change may be necessary.
We have been hearing "cheaper, better, faster" in the industry for years now. In almost all businesses, these three areas are what management always looks at to remain competitive and deliver what the consumer (or should I say the ever changing, always more demanding consumer?) is looking for. Why would carwashing be any different? Once you add the environment we are in today, it becomes increasingly difficult to separate a consumer from his hard earned dollars. In fact, I constantly see on the news that the amount of saving is at an all time high right now. To me, the express model has done a great job of delivering "cheaper, better, faster." I didn't say it had to be at $3! But overall, the model hits these points. Like McDonald's, they are getting really good at delivering consistency. I also believe that like the touch free in-bay, they are pulling more customers away from our #1 competitor — the driveway.
How they affect other models
As for the affect on the different wash models, let's start with full service. As a full serve guy, I don't believe for a minute that full service washing is over. However, I do believe that express is making all the other models once again raise the bar on service. A 15 minute or less guarantee, a trained staff in uniform, a great facility and staff appearance, consistent delivery of services, greeters that don't oversell, and so on are now needed more than ever as the baseline, not the exception. That was always the problem with the full serve model, not whether it was desired by the clients or if there was a market for it. It was the consistency of delivery with the constantly changing labor pool that made the job so difficult. I still believe that in the right demographic area, this model will deliver the highest revenue. Yet, I can tell you, it's not for me any longer. I am too tired to deal with the labor issue anymore. I did it when I was younger and hungrier. I did it the only way I knew how. I worked seven days a week and never stopped pushing. We always strived for perfection knowing we may not get there, but believing that the minute we stopped trying we were done.
The successful operators I see today in this model are very driven, very hands-on guys. Also, I see full serve done right as having some great differentiation points to express. First, you have customer interaction. If you can make the customer experience great, you've got them for life. Secondly, you have the ability to offer a variety of offline extras. When you have exclusive menu offerings that can't be done elsewhere, they become a critical part of your revenue. It is through doing the above correctly, consistently, and professionally that you deliver value; not by competing at the lower price points. And today, if your service is not perceived as delivering value, you're done. I actually think express will deliver customers to a full serve site when they want other services not offered at the express site. These people are professional carwash customers. They like having us "do it for them."
For my purposes here, I will identify flex Service as express with the addition of offline services (that's another whole debate). I think this model is just getting started. If you saw the news release we did recently it showed that at Sonny's we saw in increase in 2009 vs. 2008 in this type of facility being built.
So my answer to how the $3 phenomenon has affected this model is this: I believe it will drive the flex model to new heights. This format takes the good points of express (come on guys there really are good points to express) and adds the services that many still want. As a flex serve operator, you can still have a life (I like that part), and get more of a return since you can offer services to a wider group of clients. Express hit the market and was an exciting new model. I think with time, flex will take share from new expresses being built and will certainly gain acceptance from full service guys looking to build more washes. In a high dollar demographic area, I would still (on paper) favor a full serve with an exterior lane so I could push more high ticket volume, but in general this model makes a lot of sense for a lot of sites.
The "phenomenon" factor
The express model needs to be discussed as a whole. The "$3 phenomenon" is just a small part of it. Look at the original question. The fact that some refer to it as a phenomenon shows that there has been an impact on the industry.
In my opinion (okay forum guys, get ready to attack) I think it has indeed had an effect on the industry. Express itself has addressed "cheaper, faster, better" and it received a response from the wash customer. To me, the only thing here that should warrant discussion is the price; not the model. Do you need to be as low as $3? Certainly, we are a price-sensitive business (the guy in Detroit proved that to all of us 15 years ago with his $2 pricing). But again, do we need to be at $3? I think we need to be at whatever the value number happens to be in our specific market. Is that the same as the pricing of the in-bay market in an area? Maybe. But there are other factors that need to be considered when talking about the phenomenon. For example, even at $3, I am not a believer in the "build it and they will come" philosophy. That's total cow manure in my opinion.
I am a believer in making a return on your investment. The last time I checked, we were in this to make a profit. I believe in sizing your investment (and wash) to the market you are going into, because not all expresses will wash 300,000 cars (you heard it here first!). I believe in sticking to the model as we see it, and providing that consistently clean, dry, shiny car as a way of delivering that value at the price point picked. I know that very few of my clients that started at $3, stayed at that price point. Most started there, and built the volume and moved up. However, I also know that I have clients that swear to $3, do huge volumes, make a very respectable return, and have no intention of changing. They are in all four corners of the country and continue to build or take over more locations, so I don't see this ending anytime soon. I also see that the most successful businesses in this area have something in common with guys in other models that are successful. They run great operations, and to get even more from their business, they open several locations in an area and leverage their brand.
In my opinion, the express model is not going anywhere. I think with time we will see some of these morph into flex serves to get a higher ticket and to offer the desired services to the client. And I also think, as stated before, it is forcing the other models to change and counter with what the new value proposition is in that particular model.
What about the IBA?
The in-bay model may hit another nerve. For most conveyor guys, the in-bay model isn't thought of as one they should be concerned with. They look at an area they are considering and look for other conveyorized competition to determine if the area is underserved. I'm not saying that is right or wrong, I'm just saying that is what we normally see. I thought like that for years. I see the industry differently now and have realized we are all washing cars. As with the other platforms, I think the express model, not to mention the $3 phenomenon, has definitely affected the in-bay market — which to me is ironic since I believe it is the in-bay model that helped develop the express model.
So again, when I switched gears in 1992, the in-bay market was booming. Touch-free was the rage and the number of units being sold continued to rise through about 2002. I would guess the in-bay market, measured by sales to the OEM, has been cut in half since 2003. I would also guess that at its height, sales were about 75 percent touch-free and 25 percent friction (some would say 80/20 but for our purposes this will do). Mark VII sent out a press release recently mentioning that their sales last year showed friction out-selling touch-free. That's a big change for that market and one we believe will continue. Personally, I believe the down turn in in-bay machine sales will end this year and we will see a slow climb of these sales in the future. So what happened?
The in-bay model, especially with touch-free, pulled clients in from the driveway. They convinced driveway washers that it was safe to wash professionally. Remember back in the early 90s there was the "free with a fill up" phenomenon (there's that word again) followed by a slow climb to $2, then $3 and now $5 to $8 as a base price depending on where in the country you are located. As the price rose, and the wait times grew, these clients that were now trained to be professional carwash customers wanted the service provided faster. I don't know that they needed it cheaper and with free vacuums, but from the end user's view, that's all good! So in an area where a well-run express has opened, even when priced the same as the in-bay, I have to believe the in-bay has felt it.
Speaking of change, the in-bay market is seeing a lot of it. Here again, will this model disappear? No way! I think we will see the gap of touch-free to friction change dramatically. But this unattended model fits so well with certain buying groups (gas, convenience etc.) that it will never go away. And as machines continue to improve, and as bays get longer and produce more clean cars faster, the tunnel guys should understand these units need to be considered when they look at new sites.
Remember when the hotels started putting chocolates on the pillow at night and we all thought that was a nice touch? Eventually, the piece of chocolate became an expected feature and no longer just a nice surprise. We are no different in our offerings to the wash client. Change is constantly needed to stay ahead — in any business. This year at Sonny's we are changing the software we use to run the company for one reason — you. It's part of an ongoing effort to give our clients what we believe they will need. As a service provider looking toward the future, we know that what we are doing today just won't be good enough going forward. Or as Frank Lash said in his presidential address at the ICA convention a few years ago, "someone moved my cheese!" (If you don't know what I am referring to, then go buy the book by that title. It is an easy read on change.)
I wasn't kidding when I started this piece. I really don't know of anything else that pushes the buttons of everyone in our industry quite like this $3 thing. I know I am just offering one opinion among many. I also know that although I was born into this industry, I am still learning. Whether you agree with me or not on the $3 phenomenon or otherwise, don't make the mistake of ignoring what is happening. It is our job as business professionals to watch and learn from what is happening within and outside our industry to try and find the next thing we can do to differentiate ourselves and move ahead in the market. This is one of those things that need to be digested and dissected. Then it's time to act!
Thanks for listening, and for you forum guys — ready, set, GO! Good luck and good washing!
Paul Fazio is the president of SONNY'S. For more information, visit www.sonnysdirect.com or call (800) 495-4049.