Carwash industry growth and emerging competition signals profits for existing owners - Professional Carwashing & Detailing

Carwash industry growth and emerging competition signals profits for existing owners

The industry, consumer spending and competition continue to surge.

In many ways, the face of this industry is changing. For decades, the popular wash formats of full-service, in-bay automatic (IBA) and self-serve dominated the competitive carwash landscape. Now, as express exterior and flex-serve carwashes close in on your market radius, what steps, if any, should you take to move forward in this industry?

The professional carwash market is currently experiencing staggering growth, which is fueled by consumers with more disposable income and investors who are interested in our industry’s minimal labor, high volume and quick return on investment business models.

Attributing industry growth factors

According to IBISWorld Industry Report 8119a: Car Wash & Auto Detailing in the US, our industry’s annual revenue over a five-year period through 2016 is anticipated to increase at an annualized rate of 3.1 percent to $10.2 billion with $1.9 billion in profit. And, according to the report, annual industry growth will continue through 2021 at an estimated 1.7 percent.

While there are many contributing factors to this industry growth, added the report, disposable income is expected to boost the industry’s revenue mark by 2.3 percent this year alone.

“Moreover, average industry profit is expected to rise from 16 percent of revenue in 2011 to 19.1 percent in 2016. In line with rising profit margins, the number of carwashing companies is expected to increase at an annualized rate of 0.9 percent to 63,150 operators over the five years to 2016,” reported IBISWorld’s research.

More cars on the road, with passengers carrying more discretionary loot, should provide a winning formula for your business. However, according to those we interviewed for this article, as more carwashes pop up in your area, success is not a given for veteran carwashes who practice complacency.

On the investor side

The professional carwashing industry has historically proven to be a steady business with spikes in highs and lows based on the economy, the weather, interest from new investors and several other variables. Still, veteran carwash professionals are noticing variations in our current industry growth from past spikes on the investor side of the business.

Steve Gaudreau, president of Brink Results LLC ([email protected]), explains how highs in consumer spending and investments from entrepreneurs is a recurring event in this business. “It comes in cycles,” he says. “Word-of-mouth contributes to huge spikes in investor interest — carwashing suddenly gets hot and trendy.”

But, as Gaudreau adds, major business dealings in our industry, including such notable acquisitions as the 2014 sale of Mister Car Wash to Leonard Green & Partners, “has raised the profile of the industry.”

According to Robert Andre, vice president of training and education for SONNY’S The CarWash Factory, while interest from new investors in professional carwash businesses is nothing new, the reasons why more new investors are being drawn into the market today have changed.

“When our industry would lose a lot of investors is when it came to the labor aspect of carwashing,” says Andre. “When full-serve was the model of choice, investors would eventually lose interest when they found out that it required anywhere from 20-50 employees.”

Today, this hesitance to invest and stay in the carwash market is being quelled by customer demand of convenience, automation and express services.

On the consumer side

As mentioned, there are more cars and customers passing your business — and hopefully visiting as well — than ever before. However, the steer volume of cars in operation today is not strictly what is causing our industry growth at this time. Consumer spending and carwash habits are also changing dramatically, which present huge opportunities to professional carwashes around the country.

Andre notes that our industry’s long-term rival, also known as weather conditions, will continue to play a big role in a carwash’s day-to-day car counts, even though unlimited wash programs are helping many carwashes stay consistently profitable regardless of the outdoor climate.

In addition to competing with Mother Nature, Andre notices a substantial shift away from another major traditional competitor of professional carwashing.

“Driveway washers are definitely a major competitor for professional carwashes, but we are seeing that [practice] shrink as people are making a switch to do-it-for-me,” asserts Andre.

More consumers have jobs with money to spend. But, more importantly, the public is more educated today about our country’s vital natural resources and how certain activities, such as driveway carwashing, can negatively impact our world.

As supported in IBISWorld’s industry report, the average household carwash uses 140 gallons of water, compared to 45 gallons or less used at professional carwashes. Many customers are also aware that forward-thinking carwashes have been using water reclamation systems for years, which further minimize environmental impacts.

The International Carwash Association’s (ICA) research confirms this trend of customers migrating away from driveway carwashing. In 1996, notes ICA data, 47.6 percent of consumers washed their cars at home; in 2014, only 28.4 percent of consumers noted the same.

As this number continues to shrivel, there will be more opportunities for professional carwashes that implement modern, proven processes and systems that are recommended by our industry’s top minds and innovators.

“The bottom line is that consumers are going to carwashes more than ever before, so the market is expanding,” concludes Gaudreau. “Still, any individual carwash in any individual market could be very impacted by the competition.”

Keeping an eye on close competition

While some carwashes might feel threatened by new, emerging competition infringing on their customer base, other proactive carwashes are making investments to capitalize on the increased traffic. New carwash competition is undeniably emerging in many areas of the country, and carwashes cannot afford to rest on their laurels.

Daniel Pecora, CEO of Erie Brush and Manufacturing Corp., offers blunt advice to long-standing carwash owners who feel threatened by close competition. “They should concentrate on improving, or continuing to improve, their [own] operations and not worry about others,” he advises. “If existing locations [continually] improve, they will do just fine; if they don’t improve, they go downhill as per the skill of their competitors.”

New investors or owners looking to build a new site should research the area, carwash trends as well as the competition to forge the right strategy from the start. Many experts credit the express exterior wash format as a reason why new investors are being drawn back to our industry.

“The number of express carwashes is growing. That is a large, and growing, portion of the carwash volume,” explains Pecora. “[Therefore,] some of that volume is brand new and some of it is coming from other poorly run existing locations.”

With lower labor requirements and a focus on higher volume, investors are attracted to and staying in this market. These investors are seizing the moment, and veteran carwash professionals have taken notice.

“Today’s investors move quick,” notes Andre. “The pace at which they are moving today and opening up [carwash sites] is very fast. The amount of carwashes being built is definitely higher than at any time in the past. But, I will also say that the need is there as well.”

Express opportunities

As noted in this article and in industry research, the express exterior carwash model has made a significant impact on our industry. Experts confirm the surge in new builds for this format as well as the flat growth in such traditional carwash models as IBA and self-serve.

“Express has had a huge impact on the carwash industry. At SONNY’S in 2015, for example, 81 percent of the new washes we built were express, 13 percent were flex-serve and 6 percent were full-service. While we do believe the flex segment will grow, the overwhelming majority of new sites are going with express,” educates Andre.

While some of the experts we interviewed for this article say a level of market saturation seems to be occurring in small pockets of the country, there are still major opportunities for new sites in the majority of the U.S.

According to Andre, there are many areas of the country where the express wash model still has not really taken off in popularity yet. He also adds that competition radiuses throughout the U.S. can continue to shrink in order to meet demand.

“In the past, we traditionally looked at competition radius at about three miles,” recalls Andre. “Today, we don’t even know what that number is. We’re now seeing carwashes being built one and a half miles away from one another and both are doing extraordinary volume of over 20,000 cars a month in some cases.”

Standing out from the crowd

Carwashes that will be successful moving forward are the ones that can meet the customers’ needs. Convenience, professionalism and a positive experience are now the leading factors for customers.

“A carwash to most consumers is viewed as a commodity, so differentiation, while challenging, can be met in two principle ways,” adds Gaudreau. “One is how you build your facility and the second is to raise the level of customer service.”

Many customers now expect a high-end, retail customer experience when visiting your carwash. When it comes to building or improving your site, Gaudreau advises owners and operators to ponder these critical questions:

  • Is the location and site attractive, safe and welcoming from the street?
  • Is the site easy to navigate?
  • Is signage free of obstructions?
  • Is the site well maintained, clean and professional?

According to Gaudreau, improving and developing the physical appearance of your carwash site is easier than meeting the second principle way to differentiate your carwash from competition.

“Raising the customer service bar is challenging for any retail business,” Gaudreau explains. “It involves employee buy-in. Employees must smile, be professionally dressed and clean-cut, attend to customers’ needs and interact with customers. All of those customer interactions make a huge difference.”

Meeting demand and maximizing your profit potential is dependent on your commitment to continually upgrading your site and its level of service. High profits are not guaranteed, and set it and forget it thinking will not work. Build on your industry knowledge by attending industry trade shows and events, reading trade publications and websites and speaking with consultants and experts in the field. You can build strong business numbers with the tools of the trade and the right business know-how.

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