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The cover story on tough markets featured in the August issue of Professional Carwashing & Detailing® described some of the issues most troubling to carwash operators located in metropolitan areas. They include overcrowded markets, aggressive price competition and the influx of low-priced express exterior carwashes.
How these issues will play out in areas like Chicago and Detroit is difficult to predict. However, a recent study of 11 metropolitan statistical areas (MSA) in Virginia by Xiaobing Shuai, a senior economist with Chmura Economics & Analytics, provides compelling evidence that cause and effect ties may be related to a dynamic shift in regional economic development.
Shuai’s award-winning paper finds job growth of cities lags behind suburbs and has no significant effect on suburban employment growth. The statistical tests indicate the suburban economy is on the verge of becoming the leader of the city economy.
The study also shows that population growth of both cities and suburbs has a strong influence on their employment growth. It supports the “jobs-follow-people” theory in regional development, representing a significant shift in regional economics.
Chicago case study
Chicago is home to more than 700 carwashes. Within a five-minute drive from the center of the city, there are more than 130,000 persons; median household income exceeds $70,000; employment and population are projected to grow annually by 1.5 percent; and 86 percent of households are classified as affluent, upscale and aspiring contemporaries.
Within a 10-minute drive, there are more than 500,000 persons; income drops by 30 percent; employment and population are projected to grow annually by only .5 percent; and the lifestyle mosaic drops to 65 percent.
After a 20-minute drive, there are more than 2.4 million persons; income drops by 15 percent; employment and population are contracting; and the lifestyle mosaic drops to 37 percent. The 20-minute-drive trade area is home to over 180 carwashes (20 percent hand washes and 5 percent express-exterior). This is about twice the national average of carwashes based on population density.
As we move outward to the newer suburbs which border the interstate highway system surrounding the city of Chicago, the demography and composition of the carwash market changes dramatically.
For example, in a suburban market like Westmont, population and employment are growing; median household income exceeds $70,000; and over 75 percent of households are classified as affluent, upscale and aspiring. The carwash-to-population ratio also drops significantly as compared to the city.
What are the implications for carwash operators and investors in city centers of large metro areas?
Unless there is a positive change in employment, there will be little or no economic growth. Carwash operators may experience stagnant or slowly eroding carwash volumes and a tendency for the market to compete on the basis of price.
This situation is very similar to Detroit and other metro areas which have experienced significant employment loss and no significant population migration from the suburbs to the center cities.
Conversely, there are carwash operators who appear to have benefited from the shift in regional economic development.
A good example is Mike’s Express Carwash chain. Mike’s has located its facilities near the interstate system surrounding the city centers of Indianapolis and Cincinnati.
The company’s sites are in suburban communities growing in population and the number of service-based jobs. Mike’s does not compete on the basis of price, and the company washes a lot of cars.