Equipment vendors and other proponents often boast that carwashes are recession proof. This claim continues to be made in equipment sales literature and investment seminars. Is a carwash recession proof? If so, does this attribute afford investors and carwash operators with the same level of comfort as it has in the past?
What is a recession?
The standard definition of a recession is at least two consecutive quarters of negative growth in gross domestic product (GDP). Economists measure the scale and scope of a general downturn in the economy by keeping tabs on employment, income, sales and taxes over time. During a recession, most of these factors will take a nosedive. The occurrence of a recession is thought to be the result of extraordinary events (i.e. war, severe oil shocks, etc.), politics and the change in the collective mood of businesses and consumers.
During a recession, consumers tend to change brands, the mix of products and services they purchase and the price they are willing to pay rather than reduce the amount of what they need. However, it takes a long time for the composition of the fleet to change from a change in sales. Income may drop during a recession, but consumers have the ability to purchase with credit and/or substitute for lower quality goods and services at lower prices. As such, we can make the argument that a carwash is somewhat recession-proof.
Many economists believe that businesses and consumers are affected unevenly by a recession and that the magnitude of the effect depends largely on whom you are, where you are and what you do.
Economists also believe that outsourcing, increased productivity and the shift from a manufacturing to a service-based economy with lower paying jobs are primarily to blame for a shrinking middle-class. Common experience suggests that the redistribution of income in this country has reached the point where it has altered who sells what to whom.
At one extreme of the carwash market is full-service which continues to flourish in many markets by satisfying the more affluent or personalizing shopper for whom price is less of a concern. Full-service is reported as the smallest segment in terms of size in outlets. However, average sales volumes have remained stable and average revenue has risen steadily from about $10 a car in 1990 to nearly $20 a car in 2005.
Our middle of the road company, wand-bays combined with in-bay, flourishes by satisfying the middle to lower classes for whom wash format preference, convenience and price is more of a concern. This segment is the second largest in size. However, sales volumes have softened recently from lower in-bay volumes and average revenue for combined self-service has gone up by only $2.00 a car from 1990 to 2005.
Discounters like express exterior are flourishing by satisfying primarily economical shoppers who are more concerned with process speed, quality and price and are less concerned with personal attention. Exterior is the second smallest in size but is considered the fastest growing segment of the industry. Exterior sales volumes have remained stable but average revenue has gone up by only a $4.00 a car since 1990.
In the final analysis, our economy has undergone so many changes that good GDP data cannot assure an increase in the standard of living. As such, being recession-proof may no longer provide the comfort as it was once thought to.
Robert Roman is an analyst and lead consultant for RJR Enterprises, a consulting firm based in Clearwater, Florida (www.carwashplan.com) and is a member of PC&D’s Honorary Advisory Board.