Author: Samuel A. Maldonado, CBI
Car Wash Industry Breakdown
Is a Car Wash Investment Appropriate for
Car Washes are Capital Intensive!!! • So how much Gas is required? • Answer: $500,000 at minimum for a wash with no land, no lube and limited working area • Note: It could take up to $1,500,000 to get involved with a Car Wash that will suit your desire but may not suit your needs!
How do I know if I’m looking at a profitable Car Wash??? • Car Wash volume alone will tell you as an investor nothing significant! • Utility bills alone will tell you nothing significant! • Demographics and or traffic counts alone will tell you nothing significant! • Sitting outside and counting cars will just tell you nothing at all—especially if it’s just for an hour or two! • The quality of the equipment or the length of the tunnel will also tell you nothing significant!
The Answer: • First find a Car Wash in which you can handle financially • Than find a demographic that you want to service i.e. urban car washes are substantially different than sub-urban car washes, exterior washes are different than full service washes and full service washes are substantially different than washes with ancillary services, such as an oil lube or gas station. • PREFORM A THOROUGH DUE DILIGENCE!!!—That is the only answer!
Rules of Thumb • Tax returns are not easily available and estimating is generally the rule; therefore using water bills, chemical bills, utility bills, payroll/cash, car counts, promotions, POS systems, distributor confirmations, etc. to figure out the sales is one common method • Car washing is a total cash business—strongest figure to be used is Gross Annual Sales in determining strength of business
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6 times EBITDA 1.5 to 2 times Annual Sales plus Inventory A car wash should be worth double its yearly gross, no more 4 times SDE without land 2 times SDE + land & equipment Net Sales are 30% to 40% of Total Sales
Expenses as a Percentage(%) of Annual Sales • • • • •
Cost of Goods Sold Chemicals Payroll/Labor Costs Occupancy Cost Profit Estimated
20% 5% 25% 25% 38%
Start Up Cost Data • Full Service
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Exterior—Only
• $2.2MM to $2.8MM • Facilities are 10,000 sq ft to 20,000 sq ft • $200 a square foot costs to build • Plus Start up CAPITAL • Labor rates are around 25— 35% • 10,000 facilities • Annual Advertising Expenditure on average is $17,300
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$1.4MM Facilities are 8,000 sq ft $200 a square foot costs to build Plus Start up CAPITAL Labor rates are around 18— 21% 5,000 facilities Annual Advertising Expenditure on average is $7,900
(with LAND, SITE IMPROVEMENTS, CONSTRUCTION AND EQUIPMENT)
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with LAND, SITE IMPROVEMENTS, CONSTRUCTION AND EQUIPMENT)
Start Up Cost Data • Self –Service
(with LAND, SITE IMPROVEMENTS, CONSTRUCTION AND EQUIPMENT)
• $1MM • Facilities are 25,000+ sq ft • $200 a square foot costs to build • Plus Start up Capital • Labor rates are around 8% • 30,000 facilities • Annual Advertising Expenditure on average is $761 Source: Professional Carwashing &Detailing Magazine
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In—Bay Automatic with Gas Station
(with LAND, SITE IMPROVEMENTS, CONSTRUCTION AND EQUIPMENT)
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$2.5MM plus Facilities are 30,000+ sq ft $150 a square foot costs to build Plus Start up Capital Labor rates are around 0% 30,000 facilities Annual Advertising Expenditure on average is $0
The Growth of the Industry • “Research shows that 52% of Americans wash their cars less than once a month—and 15% never wash their cars. An estimated 37 million cars even smell because of interior garbage, according to a consumer survey conducted by the International Carwash Association (ICA).”
FINISHED PRODUCT—A CLEAN AND SHINY VEHICLE!!!
Cars get dirty when it rains, snows, ice is on the roads (SALT a.k.a. WHITE GOLD), Pollen, street dust and dirt and human accidents (inside and outside the car
Cars get washed at the local car wash
The Life Cycle of a Car Wash Customer
Urban Cars Just Get Dirtier!!!
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Cars that are parked on the street are exposed to human contact, street debris and other cars. Exterior Detailing is more available in an Urban area due to constant contact to the unthinkable!!! • Car Services are also in great abundance so the volume of vehicles are typically higher. • Also many governmental and commercial fleet contracts maybe procured in an urban environment—those cars are also susceptible to the same conditions.
Volume vs. High ($) Avg. per Car • When looking for a car wash facility choose volume or a high dollar avg. per car • There are facilities that give you both but these facilities including the land will be a high total investment—somewhere in the neighborhood of $4.5MM plus. • The facility that one should look for will either have high volume and a low ticket avg. or low volume and a high ticket avg.
Improving a Car Wash and What to Look for??? • Competition will dictate the area norm for a standard car wash package and regular exterior wash. • Facility appearance will assist in higher averages along with equipment condition—customers will be convinced that a newer facility will wash their car better. However, some areas do not have nicer facilities and that happens typically within urban areas • So if you can find a newer wash in an urban area you should buy it or if you find a facility with good revenues but a poor appearance you should buy that too.
Reclaim Systems and Well Water/City Sewer • City Water is softer on a car surface. However, it is more expensive than well water, but similar in expense level when a reclaim system is implemented to recycle the water. • All Car Washes at least have a reclaim system—that is the law of the land where you are looking for a business!!! • A Car Wash only uses fresh water in the beginning of the wash with the pressure guns and at the final rinse. All other water that touches the car is recycled and reclaim water.
The Apron vs. tunnel size • The longer the tunnel the better! However, the larger the wipe down area the better??? – The length of the tunnel allows a car wash owner to process more cars in an hour. The average car wash takes 5-7 minutes from start to finish and the length of the tunnel helps for more equipment to clean the car. – Big Aprons allow for more cars to be finished and compensates for shorter tunnels. The longer the tunnel the less employees. The shorter the tunnel the more management needed in order to help process the cars to get them off of the lot.
Equipment and Maintenance • The average automated car wash maintenance and repair for the year is between $5,000 and $10,000 for the year. • An automated car wash has a lot of motors and moving parts that need constant maintenance and occasional repairs. • The conveyor belt for a car wash is the most important moving item within any facility and for revenue purposes must never breakdown—cars can still be wash if the conveyor breaks, however, creates a logistical nightmare when you process a car! • A Hand wash has no equipment but is labor intensive.
Hand Wash vs. Automated • •
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Hand Washes have no equipment except for pressure guns and blowers. Hand Washes have a larger payroll than automated washes. However, Hand washes allow the car wash owner to wash vehicles with low clearance i.e. BMW M3, Ferrari, Lamborghini, etc. or vehicles to big to get into an automated tunnel such as larger Conversion Vans, Buses, and Specialized Commercial Trucks. It takes less employees at one time to do the same volume as an automated wash. However, the staff numbers are larger i.e. an automated wash might have 0 employees to as many as 15 for a wash that handles at least 50,000 cars a year. The same volume is handled by 25 hand wash employees, but shifts are more common in hand washes than they are at automated facilities. At any given time there might be less employees at a Hand wash than an automated wash facility. Customers perceptions: Hand Washes are better for their car than an automated wash. FALSE, because hand washes may lead to more paint scratches than an automated wash, because employees could wash from the bottom of the car to the top of the car, hence, dragging the street debris to the top of the car causing the blemish. Automated washes prep the car in a way where dirt is isolated to sections of the vehicle leading to less damage. Permitting is also easier to get than for Automated washes due to issues that could develop with the EPA and DEP in regards to Environmental Phase I. Car Washes are viewed as a pollutant by every area of politics and government.
Labor rates and the amount of employees needed • • • •
Car wash workers get paid typically between $6 per hour to $10 per hour depending on the area of the facility. Urban car washes because of the ease of finding employees can pay employees $6 per hour because the worker may live down the block or in an area where mass transportation is abundant. Suburban car washes may have to pay a worker $10 per hr because of the cost of living within the area plus the ease of finding a worker to report everyday for work and covering his/her expenses of traveling to work everyday effects labor rates. The INS also will play a significant role in maintaining your car wash employees and depending on the area, density of immigrants maybe high and effect profits in a positive manner. Or low income people may drive your staff which would be an advantage (cash salary for government programs). Suburban washes have difficulties in keeping payroll at a minimum, keeping employees or getting workers to work after a bad rain shower. (It may only rain in the morning and stop in the afternoon, and there still is 5 hours left over in the business day to wash cars: If the workers live close no problem if they are far away, problem.)
Ideal Street Locations for a Car Wash •
An ideal location for a car wash is the following example: – LOC #1 • • • • • •
In between to traffic lights Located on the corner 35 mph street speed limit Easy left and right hand turns No concrete road median Two lanes with a turning lane
– LOC #2 • • • •
Three lanes with a 200,000 car plus car count Highway with speed limit of 45 mph with a lane to slow down High Visibility Near many landmarks or highly visited businesses
Busiest times • •
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The busiest seasons for a car wash are Pollen (March to May) and Snow Season (November to February). Pollens creates dust on cars and the snow forces cars to drive thru salt a.k.a. White Gold. Many people still think salt rusts cars. However, cars are not made of metal anymore. Many people just wash their cars for image purposes because they think a clean car is a reflection of ones self. The busiest times for a car wash are on the weekends, particularly Friday, Saturday and Sunday Sometimes during the busy seasons car washes could be extremely busy in the pm hours between 3pm and 8pm. The Summertime could be a very busy time during good economic times and when gas prices for regular gas are underneath $2.50 per gallon. Gas prices increase and decrease the amount of disposable income available to many people who wash their cars regularly.
How do I know the dollar average is correct? • Typically a car wash customer orders a basic full service exterior wash within an automated facility and almost 100% of the time orders tire shine on the vehicle and for the inside to be cleaned. Almost all car wash add on items are $2.00 more than the price of the car wash package that they originally picked. • So if a car washes basic exterior is $8 than a good guess at the average car wash should be $11 which is $3 higher than the basic exterior wash. Note: Please keep notice on whether or not sales tax is included in the pricing or is it additional.
Oil Lubes •
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Oil Lubes are an ancillary service provided by many car washes and equip the owner with many promotional tools used in order to generate more revenue and keep revenue flowing even when it is raining outside. (Historically Oil Lubes do not do as much business when it is raining because customers want the “free car wash”) Most Oil Lube and Car Wash combinations sell their Oil Change packages with a full service car wash attached to the service. The basic cost for oil is typically 2/3rds of at least $18 and most oil changes at most car washes are being sold for at least $25 and $30 for larger vehicles that take more oil. So is the Car Wash really FREE. Answer, NO! Regular oil and synthetic oil hold two different costs hence giving two different retail prices. Synthetic oil is almost 2 times as more expensive than regular oil and most new cars use synthetic oil within the engine. Synthetic oil holds a higher profit for an oil lube owner than regular oil. Transmission flushes, Radiator flushes and Engine flushes are the most profitable up-sells for any oil lube. All it contains is additional labor time and more fluids which is cheap compared to $150 plus for the service. The additional costs may only be $20 more for double the profit. Urban areas make more money than suburban areas because urban areas tend to see older cars with more miles on them than suburban areas which typically have newer cars. Older cars will indulge in additional flush services while newer cars may not be even owned (leased), therefore, leaving an owner to care less about taking care of his/her car. Older car owners take care of their cars more because that might be their only asset besides their home depending on even if they own one. Urban areas put more strains on vehicles due to the constant stop and go traffic plus people within urban environments tend to buy vehicles that are American based which means they must service their cars more often. The average oil change in this country as of 2006 was $68 per vehicle.
Gas Stations • •
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Gas Stations are not the best when linked on the same property with a car wash unless the two businesses are separated by entrance and exit, and by traffic markers. The major reason being is that Gas Stations obstruct the flow of traffic for a car wash. Too many cars on one piece of land is no good unless the land is one and a half acres big. Car washes are more profitable than pumping gas, so if a car wash customer is prevented from entering the car wash than he or she will visit the next car wash rather than get into an argument with a gas customer (NJ Full Service and NY Self Service). Customers also have a perception that gas station car washes are cheap and not the same as a car wash that specializes in just cars. There are minimal promotions that an owner can give using gas because gas is so expensive and the profit made on every gallon is so minimal it may break you even with the cost of washing the car.
Convenience Stores • C-Stores are great in Full Service car washes because the owner can sell impulse items to the customer as they wait 5-7 minutes for their car to be cleaned. • Coffee, waters, beverages, food, lotto, snacks, candy, cigarettes and many other items can be retailed to a waiting customer.
General Stores •
Car wash customers love their cars a little more than the average car owner. So they tend to want to decorate and fumigate their car often. These folks typically spend a lot of time within their vehicle and want their vehicle to look and smell good. So a car wash owner can sell to them: – – – – – – – – – – – –
Steering Wheel covers Air Freshners Car Accessories National Flags Bumper Stickers Cleaning Products Car toys Tires Rims Tint Stereos Etc.
Chemical Costs and Car Wash Costs • It takes $0.32 to $0.40 soap and water to wash a car. • The other overhead factored in should leave the average cost of washing a vehicle to be about $5 per car.
List of Some Distributors • • • • • • • • •
Zep Aura Gleem Jobe Industries EcoLab. For the retail stores distributor is Lilana. SOPUS—Shell Oil OK Petroleum Etc.