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Business Operations

The Big Box boom

October 11, 2010
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He’s picking up tools and some coffee, maybe filling up on gas, when he decides to zoom through the touchless PDQ in-bay automatic at Home Depot’s convenience store, Fuel.

She’s headed to Costco to stock up on diapers and groceries when she notices the MacNeil conveyor carwash on the lot.

They’re not pulling out of your carwash lines for a better price down the road; they’re simply drawn to the one-stop, got-it-all convenience of the big box carwashes. They’re not complaining about your carwash’s service or location, it’s just the big box is an easier destination — another “to do” on their list for the day.

But just how big of a threat is the big box industry? Do any of these companies stand a chance at knocking the professional carwash industry off its feet? Or are these new faces simply a reminder of the growing popularity of the commercial carwash — and an advantage in increasing exposure and consumer education?

The players
So far, three big box companies have entered the carwashing realm. Sam’s Club, Home Depot and Costco all currently operate carwashes and have intentions to open more.

Sam’s Club leads the way with 17 carwashes, although its carwashes are notably more scattered (in both type and location) than Home Depot or Costco. It operates tunnels and in-bay automatic washes and has used Belanger, Mark VII and Futura equipment. It has sites in 12 states, and is most concentrated in its Arizona market.

Costco has been the most cautious operator, opening its first carwash in April 2006 after a decade of research and one failed attempt in 2003. Its second facility is planned for the San Diego area, and was not open as this issue was going to press. Operators hope to have it running by early 2008. The company used MacNeil conveyor equipment for its first express exterior, and will use MacNeil again for the California site.

Home Depot has been the most forward about its plans, and also the most optimistic — the company hopes to have 300 convenience store locations, most of them with in-bay automatic carwashes, by 2010. The c-store/gasoline/carwash concept has been branded “Fuel” and will be built on the retailer’s store lots, attracting contractors and construction workers. PDQ touchless in-bay automatic equipment was used in the company’s first three washes and it seems likely the company will continue using that equipment at future sites. The c-store/gasoline/carwash combination makes it the most marketable big box operator.

With three operators already in the industry and many more who have certainly considered it, it is important for operators to understand what big box competition means for the carwash industry.

The beginnings of big box
Big box interest in carwashing is not new. Back in 1998, McDonald’s tried scrubbing vehicles at one of its fast food locations in Marion, OH. Four years later, the company told PC&D it had no intentions of opening any more carwashes and considered the venture a failed experiment. But that didn’t stop other companies from jumping in.

In 2002, BJ’s Wholesale Club, a retailer serving the eastern U.S. and Ohio, publicly announced its intentions to enter the carwash industry in a Boston Business Journal report. Although the plans were never realized, the announcement markedly affected the carwash industry. Experts predicted a wide-range of possible effects. In some scenarios, professional carwashes would benefit from the increased exposure. In others, carwash owner/operators (specifically, gasoline retailers with IBA carwashes) would buckle under the immense pressure of competition from big box. And in still others, the industry would suffer a tarnished reputation at the hands of shoddy big box operators.

While BJ’s dropped its carwash plans in favor of concentrating on gasoline retailing, Costco attempted to open its first carwash in Federal Way, WA in 2003. The big box retailer had a very mom-and-pop-type problem: the wash was halted in the permit process. At the time, Costco minimized its eagerness to enter the carwash industry and said it was not an integral part of its plan.

Later that year, in December, Sam’s Club became the first big box operator to wash cars. It opened its inaugural carwash in Chandler, AZ. Interestingly enough, the company chose conveyor equipment — a 70’ Belanger Enduro tunnel — despite industry predictions that big box operators would focus exclusively on in-bay automatic washes. A year and a half later, the company opened a second carwash in nearby Santan, AZ. This time, Sam’s Club went with dual-bay Belanger Vector Rapid Wash touchless IBA units.

A few months after the opening of its second carwash, Gregg Spragg, executive vice president of operations for Sam’s Club, said more clubs would be built to include fuel stations and carwashes in a shareholder’s newsletter. The company received approval to build two more carwashes, in Fayetteville, AR and Sandfly, GA, shortly thereafter.

Home Depot also threw its hat into the ring that year, announcing it would begin testing carwashes along with convenience stores and gasoline retailing. The company said it expected to open its first carwash by the end of 2005.

In December 2005, before Home Depot had a chance to open its first carwash, Costco announced it also had plans to break into the carwash industry. In 2006, Home Depot and Costco both opened their first carwashes. Big box had officially become a force in the carwash industry.

The situation today
Sam’s Club does not keep records of its carwash involvement, and so PC&D was unable to verify the accuracy of some opening dates, but the basic picture looks like this: in the next two years, the company opened 15 carwashes of various types in 12 states. Susan Koehler, a spokeswoman for Sam’s Club, said its most recent carwash opened Sept. 13 in Fayetteville, AR. The company will not shared a detailed plan as to potential other locations for carwashes, but Koehler said “it will depend on per club basis, location and market dynamics.”

According to a February 2007 article in Retailing Today, Costco’s first carwash in Seattle was averaging 350 cars per day earlier this year. The wash was retrofitted less than a year after its opening to remove the prepping process and is now an exterior-only facility featuring the latest MacNeil equipment. The company was encouraged by the success of its Seattle location, but waited nearly two years to open its second location and seems likely to continue a slow process into the carwash industry.

Home Depot is another stuck-in-molasses situation. The company may have halted growth all together due to a management change after it opened its third location. In July, Jim Stoddart, vice president of growth initiatives who helped launch the “Fuel” program, was replaced by Eric Peterson, formerly the senior vice president of merchandising services. Stoddart helped launch the program in 2006 and is credited with much of its early success. The company has had well-publicized setbacks in customer service and profit building, and Home Depot CEO Frank Blake has refocused all growth efforts on the core business.

“Entering into [the c-store/fuel/carwash] market fits well with our strategy to grow the company by enhancing and extending our offering to customers,” said Home Depot spokeswoman Paula Smith at the time the first site opened. “The convenience store industry is a $268 billion market. We see great potential in adding to our top-line growth while driving incremental traffic to our retail stories,” added Smith.

But Ron Holub, tunnel product manager for CSI, a carwash chemical company, and 30-year veteran of the carwash industry, said time will test Home Depot’s success in the carwash industry. He has watched the Georgia location carefully and thinks the company may pull out of the carwash industry all together.

Big box boom or bust?
In areas where big box carwashes have moved in, operators report the effects were small and short-lived. While it may put a dent in your volume for a few months, it seems a new investor carwash or an expanding local carwash chain is a bigger problem than Sam’s Club stealing customers.

If big box succeeds in going national, experts predict the effects would be a mixed-bag. Steve Robinson, marketing manager of Mark VII, a manufacturer of in-bay automatic and conveyor carwash systems, compares the situation to the convenience store wave.

“Over the past couple of decades, c-stores have been a major factor in causing home carwashing to decline,” Robinson said. “[They] introduced many consumers to the value proposition of a professional carwash.” Robinson said he felt the trend was likely to continue, with big box making more customers out of home washing consumers.

But Robinson also points out the negatives of big box involvement. “Of course both c-stores and the big box retailers will also increase competition for independent carwash operators in the same market area, but that’s the nature of free enterprise,” he explained. Robinson said independent operators should carefully consider the strengths and weaknesses of their competitors and strive to fill the gaps that exist in their offerings; whether it be the style of washing, the range of services offered, the quality of service provided, or a combination of these factors.

The biggest difference between big box operators and individual operators may prove to be the professional carwash industry’s saving grace. Size, although limiting in some respects, will also help individual operators stay ahead of the game.

“Given the high margins of carwashing compared to margins generated by other profit centers at a big box, you would logically expect c-store and big box retailers to put a lot of focus on carwash operations. But in the real world many of them are pulled in so many directions that they fail to fully realize the profit potential of the carwash,” Robinson explained. Good news for the independent carwash operator who has good management and marketing skills plus a focus on execution and a commitment to customer service, he said.

Holub agreed, saying he feels the threat to the industry will fade once big box retailers find out just “how much work and personal dedication it takes to keep the carwash running smoothly and on a profit.”

So while big box operators may have the capital necessary to keep washing cars into the next few decades, they won’t have the staying power to truly dominate the industry. They have been hesitant players to begin with and will continue to be for at least a few more years. A quick look at what big box operators have done to supermarket, pharmacy, and gasoline industries and it’s not hard to see the potential fall-out, though. Operators will need to stay positive and alert because manufacturers are sure to encourage big box operators no matter what the consequences. But if operators keep the vibe positive, the industry will stay strong and benefit from the big box boom.

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