Investing in Self Service Car Washes

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The paving costs depend not only on lot size, but on whether one uses concrete or asphalt. Competitive bidding on concrete should hold the cost between $1.50 and $2 a square foot. Although it can vary quite a bit regionally, asphalt typically is about 30% less expensive than concrete. The amount of overall paved lot per bay involves a minimum of 1,000 square feet of surfacing. Around 1,500 is adequate. Going over 2,000 square feet usually begins to pile on excessive land and paving costs. Let's consider some examples of per bay costs across the ranges given.

First, for a unit with no bay floor heat, no freeze protection, and put on fairly tight lot paved in asphalt. Building $17,500 Per Bay Equipment $10,000 PerBay Paving $1,500 Per Bay Total Cost $29,000 Per Bay Put the same building on a generous sized lot in an area requiring bay floor heat and freeze protection and then pave the lot in concrete and you can see the costs go up to $35,000 a bay. These cost figures indicate that a theoretical 6-bay (one grossing $1,200 per bay a month, operating on 40% or less of gross revenues) could be placed on $7 a square foot land (in areas needing no bay floor heat) under the projected maximum cost of $43,200 per bay.

In areas requiring bay floor heat to have the project come in under those costs, the prudent investor would either find cheaper ground, more competitively priced equipment, or be convinced the per bay monthly income will exceed $1,200. The final option to still make the project go would be, of course, to settle for less than a 20% ROI. The essential message here is that costs matter a great deal. The primary task of the would-be carwash owner is to see to it that costs don't get out of hand. That can paint the owner into a corner where he must generate exceptionally high incomes to achieve a reasonable rate of ROI. Thrill Of The Frill And "Taj Mahals"

Make no mistake about it, a carwash owner/builder must monitor the construction costs very carefully. He should consult with the architect on the cost of each of the building's features. One architect I used kept adding features that I had to keep eliminating because of the costs. For example, he suggested concrete walls with brick facing. Sure, they were very attractive. But I chose fiberglass panels instead. It wasn't just a matter of my being a cheapskate. I decided against deluxe brick because I just could not see how it would substantially increase income.

In affluent suburban communities there may be a little more need for a really fancy building. Perhaps those kinds of customers are more sensitive to aesthetics than the typical carwasher. Still, I do not believe a carwash is like a restaurant where the atmosphere - "ambiance" is a major factor. I seek to have the most profitable carwash that is possible ... not the most lavish one. The ultimate profits and rates of return are influenced by the original investment in the facility. Let me offer a comparison on two 6-bay facilities. In the first case the owner paid $5 a square foot for 15,000 square feet of ground ... a total of $75,000. By carefully monitoring costs and rejecting lavish accouterments he spent $30,000 a bay for 6 bays of equipment, building, and paving.

The carwash and land was an investment of $255,000. In the second case, the owner spent $9 a square foot for 20,000 square feet so he could have an extra large drying area. He built a trendy theme type facility with the same services as the other facility, but a much more stylish building and very expensive decorating and landscaping. He wound up at $40,000 a bay and the total investment came out at $420,000. Assuming operational expenses at about 45% of gross income and $1,200 per bay monthly revenue, then each wash will gross $86,400 per year. Deduct the 45% operational expense and the net operational profit is about $47,300. On a $255,000 investment that's a return of about 19% .

But on a $420,000 investment that's only an 11% return. Which is more preferable? Put another way, to be equally good investments - to have equal rates of return on invested capital - the more expensive facility has to gross $145,000 to make a 19% return. While the less expensive wash had to generate only $86,400 in revenue to produce the same 19% return. The simple question is: will a lavish unit, with grand landscaping and a large drying area gross $145,000 a year when a comparable 6-bay (except for the extras, all the same equipment and services) grosses $86,400. that's $58,400 a year more or it has to do ... over 60% again what the more modest unit does. I simply don't think it will.

The SSCWN article on the construction of carwashes ("Summer "88") should be mandatory reading for anyone considering building a carwash. It should be read with the thought in mind that certain optional costs of construction must be evaluated with extreme care. Things like complicated exterior design, the use of brick where concrete block would do, large covered drying areas, trendy architectural themes - all these types of things drive up costs. The case I want to make is that each of these sorts of things must be carefully evaluated in terms of the extent to which they are likely to increase the gross income. I remain unconvinced that a wood shingle roof will bring in more business than a simpler, cheaper, and easier to maintain roof of composition shingles ... or a basic, flat roof with a mansard. Cost do matter. Failure to cautiously control them is risky business. An Encouraging Word

SSCWN: Frankly, your safe'n simple guidelines are not without complexity. Plus the variables and qualifiers leave room and opportunity for error. On top of that, these numbers sound like your tossing a cold, heavy Wet blanket" on some would be carwash ventures. Do you have any words of encouragement or reassurance for folks who feel like they want to get into this business ... folks who are really determined to own a carwash?

P.C.: I agree that's needed ... badly needed. I've never started a business that I didn't find plenty of people offering me friendly warnings about the possible dire consequences. there's never a shortage of that kind of thinking. Let it be known there is genuine joy in owning your own business. The sense of independence and of being your own boss is hard to put a price on. The financial feasibility of a new business is only one dimension of the decision making process for starting a business. there's lots more to it. Give me a person with fierce determination and a firm and confident attitude that says "I will make it work" and half the battle is won.

When that attitude is driven by a high willingness to work you have the makings of a successful enterprise. These human factors can overcome questionable numbers ... to some extent. People with such attitudes are usually resourceful and determined enough to see to it that costs are held down one way or another. They may build their own equipment, or pour their own concrete, or do some of their own plumbing. Simply put, they're high energy, resourceful problem solvers who get the job done ... they "make things work'". Their instincts are generally reliable, and what they may lack in terms of being able to make feasibility studies they make up for with these human factors. "The numbers" are seldom going to stop such people.

Hopefully those numbers will steer them in the right direction, provide them words of caution, maybe help them avoid some of the mistakes I've made or seen others make. Decisions about starting a business aren't perfectly clear cut and always depend as much on the personal entrepreneurial characteristics of the individuals involved as they do on those numbers. The use I see for stats and "bean counting" is to provide a realistic focus on how costs directly affect the rate of return on the investment ... from success to failure.

Although their survival rate is several times better than most new business start ups, carwashes can fail. I've seen income projections that I know were grossly exaggerated. When the numbers come from experienced owners I trust them much more than when they come from salesmen who have a vested interest in selling new carwashes or carwash equipment. I truly believe my perspectives represent a realistic picture of this business. Admittedly, my approach is to play it safe. I hope my conservative preferences do not discourage would-be owners ... just provide some balance to their enthusiastic desire to build a carwash. Not So Automatic

SSCWN: You are not alone in many of your points of view ... they do represent some not uncommon attitudes in this business. Yet there are many who would take exception to your self serve carwashing investment strategies - your insisting on simple, inexpensive design/construction ... your conservative income projections ... and then there's your apparent attitude toward in-bay automatics. You do not have any! Why is that?

P.C.: Clearly there are advantages to automatics. So I am tempted ... yet reluctant to take the plunge. And I sure would not suggest every new wash automatically get an in-bay automatic ... as it seems many do nowadays. There are two reasons I'm skeptical of automatics. The first comes from my long experience in the business. here's what I've seen happen to automatics ... at least in my neck of the woods. Of the first 6 carwashes I ever owned 4 of them had automatic bays. All 4 were removed. Why?

Well, first note that the time frame is quite a few years ago - more than 15 years. I saw automatics become very popular and then seem to fade away. Robowash was one of the biggest. I knew one of the founders. Robo went from a one room office to a multi-million dollar international company ... and then into the toilet. Expensive, hard to maintain equipment which did a marginal job of cleaning cars led to the demise of many of the early automatics. While that was the original basis of my skepticism, that's surely not true of today's automatics ... which are better in every way.

Now I'm skeptical for an entirely different reason. The reason for my current skepticism is simple. Competition ... oil company competition. I gather It's not true of all parts of the country, but in this area there are now many oil company owned automatics. It seems like each time I get serious about an automatic the oil guys make a move which discourages me. In the early days some of the gas station automatics were free. Not just the perception of being free while charging higher prices for gas. Not at all. I recall one in my area which gave a free wash with any purchase. You could literally buy a soda for 29¢ and they would wash your car without additional charge.

That was as free as free can possibly be! Others required a minimum gas purchase ... few if any charged over a dollar. To me that's stiff competition ... even if they did only a so-so job of cleaning a car. The more recent trend is to charge for the carwash while giving a substantial discount for gas purchases. But along with this trend the oil companies have gotten really serious about the equipment they are putting in these washes. In earlier years it was always a roll over, brush type ... lots of friction. These were known to sometimes scratch and haze the paint; rip off the antennas, mirrors, and moldings ... especially if they were poorly maintained ... which they often were. But now gas stations are going big time into state of the art touchless equipment.

Check out most issues of the Journal of Petroleum Marketing and you'll soon see that these oil folks are determined to get into carwashing in a more professional and ever expanding way. The good news - such as it is - can be found in that they are viewing carwashing as a serious profit center. The days of the freebee wash with gas are virtually over. We're now seeing a basic automatic wash typically being sold for $2 to $3 ... with gas purchase. The oil companies may be giving up on giving away carwash services, but their washes are still somewhat deceptively discounted ... and they sure are convenient. I know they are pulling traffic out of our bays - both wand and automatic. "McGas N Wash"

Another development worth noting is the recent teaming up of 2 corporate giants - McDonalds and Amoco. They are going to test market combination gas/car care C-store/fast food and, yes, carwash facilities in Chicago. The plan is to launch 50 to 75 more "McGas" stations in the next year. I'm sure these facilities will have top notch equipment, management, promotion, and instant credibility. Supposedly, they will be located on prime sites - locations probably too rich for self serve carwashing bays. And, therefore, not likely to offer too much direct competition to wand washes.

Still ... these guys warrant a watchful eye. I'm sure they'll impact the industry's future in more ways than one. Here and now - I'm hesitant to add automatics in my particular area because the oil company competition has gotten so fierce. I believe that competition is healthy. It's good for business and good for the consumer ... generally. For me when it comes to head to head with competition with the gas stations that surround me I have to believe as the wise man said, "discretion is the better part of valor".

So for the time being - in my markets" current competitive environment - I shall remain discreetly "automatic-less". Automatic Advantages Despite all my personal reservations about waging competitive warfare with gas station automatics, I am aware that they are a major factor in many if not most new washes, and many owners of existing self serves are considering adding them to wand bays. So let also offer some of the reasons why many self-serve owners might seriously consider an automatic ... or two.

In an area where there's not too many competitors chasing after too few of the right kind of customers, automatics at self serves can be an important profit source: Automatics have far higher income potential than wand bays - about 300% to 400% more income on average. They wash cars faster - about 4, 5 times as many cars per hour - a real advantage on really busy days! Automatics pull in new customers ... they broaden your market base. There are plenty of customers who will wash in an automatic who would never get out of their car and use a self service wand bay.

They could also attract customers who would use the self service bays. For example, during cold winter weather or when they are dressed inappropriately. You cannot deny those important benefits. On the flip side - they're much more expensive then self serve wand equipment. The equipment is more complicated and requires more maintenance. And most owners seem to feel automatics function best with an attendant ... so they're more labor intensive than self-service bays.

Then again, many operators say that an automatic justifies the expense of a full time attendant ... who can be a real asset to the self serve bays too. So where does that leave me? Pretty much right in the middle. They are not for me ... not yet anyway ... not at my current locations which are surrounded by gas stations. Plus there are reasons which are purely personal - my bad luck with employees in the past has soured to the idea of hiring attendants again. Also, I find myself busy enough with my current teaching schedule and wand washes.

I'm reluctant to take on another maintenance responsibility. And I have to admit it's also a matter of my own personal prejudice too. I believe self serve high pressure wand washing is the safest, most thorough, and best carwash value. I am very particular about my cars ... very protective of my automotive investments. I will wash them no other way!

In Summary

SSCWN: Sum all this up for us as briefly as you can. As you see it, what should a would be operator consider before breaking ground for a new self serve carwash?

P.C.:

1. Competition is growing ... it's keener than ever.

2. Tighter government regulations often caused by negative reputations of car washes have made them more difficult than ever to build.

3. There are definite spending limits to what can realistically be paid for carwash ground, buildings, and equipment.

4. I base those limits on projected gross income - the average price per minute carwash services are selling for in a given area and a realistic consideration of how many minutes per day each bay will operate. To exceed the maximum limits on costs there better be solid reasons to believe the projected gross income will exceed industry averages for the area.

5. To me, potential profit is far more important than any other reason for going into business.

6. If capital is tight, it's better to start on leased ground than not start at all.

7. Feasibility studies are an important consideration.

8. The cost of the facility must be monitored ... carefully. "Frills" should be carefully evaluated in terms of the increased income they may produce.

9. I have mixed feelings about automatics. Aggressive oil company competition, more maintenance and attendance cause me to shy away. But their real potential to attract new customers, broaden my market base, and generating additional revenues - perhaps 3 times higher than a wand bay - is all very appealing.

10. Hard work and determination - when based on the right numbers - are the stuff that produce the joys of entrepreneurship: solid financial reward and great personal satisfaction!

After Words Opinions, opinions - needs to be done - from Advertising to Zoning permits! The opinions expressed by Pat in this article are no exception. I think he hit upon an innovative idea with real potential value for this industry - namely, his Minutes Per Day approach to projecting site viability and cost guidelines. I, however, have some misgivings about the technique. every carwasher has'em. And so many opinionated approaches to much the same ends help make coin-op carwashing so dynamic. There is more than one right way to do whatever Unfortunately they (and a number of others) were not expressed in the body of the article ... as they really had been in the course of the actual conversations Pat and I have had on these loaded topics. This "Investing" feature (as printed) was allowed to be more of an exposition of Pat's "play it safe" philosophy and techniques than a true give-and-take debate on the points presented. For the record, I'd like to mention several key aspects of the article that need more development and could have benefited from more balance.

1.) MPD- key to Pat's evaluation of a carwash site is its projected Minutes Per Day each bay is expected to operate. The concept is excellent - a handy, easy to grasp tool when taking the measure of a carwash ... proposed or existing. It's shortcoming is found in its obviously broad generalities ... largely based on regional averages. MPD projections will become much more valuable when they can be applied much more precisely to specific site situations. That will involve a more comprehensive formula that factors in Traffic, Population Demographics, and Competition to predict those MPD. don't be too surprised when Pat at some future date finally nails down that formula and takes MPD's from his "convenient benchmark" to more of an industry standard.

2.) Return On Investment of 20% - Pat's litany of risks that a self serve might face ring true. And yet, I'd expect many operators and suppliers both to look a bit askance at someone insisting on no less than a 20% return. Manufacturers and distributors have sold a lot of wash packages over the last decade or so to operators with proforma that project "only" a 15% ROI ... not exactly an industry standard, but akin to it. And given the very nominal current return of 4%-5% on safe investments such as most Chides and T-Bills, even 15% returns have legitimate appeal - especially if that reflects labor/management costs. The investment can sweeten more if you consider the value of appreciating land astutely purchased in a desirable, growing area - what some investors call "warehousing the property" . That is, generating satisfactory-to-good income as an on-going business while anticipating the likelihood of the site eventually being too valuable for a coin-op carwash.

3.) Automatics - Pat's explanation as to why he has no in-bay automatics is understandable. And while the case for automatics was summarized fairly, the story would have been enhanced by referencing some of the numerous long time, multiple wash owners who insist that they would never build a wash (or rehab an existing one) without installing at least one automatic. The more successful wash chains/franchises are especially committed to automatics- "SpotNots" throughout the Mid-West; the "Wonder Wash" chain of about 50 facilities in Wisconsin; and "Super Washes" with hundreds of locations around the country. Admittedly, this installment of Investing In Self Service Carwashes" does fall short in providing formulas that factor in the basic hallmarks of site analysis of Traffic, Population Demographics, and Competition when it comes to evaluating the important role automatics can play in coin-op profitability. Look to future installments for that. And expect more articles in general about automatics. The ICA has begun to get very serious about its attention to this aspect of carwashing. The upcoming Las Vegas ICA convention this Spring will feature several days of seminars devoted exclusively to automatics. we'll be covering some of those presentations ... distilling and augmenting them for future SSCWN articles.

4.) Frills - one market's "frill" may be another market's "meat"- potatoes". This particular article pounded away relentlessly at the "Taj Mahal" syndrome and the "foolishness" of pumping bucks into cosmetic enhancements of a site and building. For yet another interesting and informative Ñ and very different! - take on one of Pat's fundamental guidelines ("no frills design and construction") be sure to check out the "On The Road To Tampa/St.Pete's" in this issue. Even you hard-core "just the basics" operators may very well rethink your bare bones approach to self serve marketing after taking one of the most colorful tours ever to grace the pages of the SSCWN. Do "frills" pay? You be the judge. Again, this "Investing" installment was hardly an end-all, be-all text book on the subject. But it does provide some innovative guidelines - handy, preliminary - for site analysis and financial feasibility. It was also a worthy effort to provide conservative balance to the claims that have been made by some, shall we say, "very enthusiastic" sellers of carwash packages and the giddy expectations some newcomers leap into the business with. We hope the bottom line message was not missed along the way: if you do your homework and play your cards right, this can be a great business ... providing both an excellent Return On Investment and special personal rewards too.

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