Washing away lost margins

The car wash has matured from an ancillary service to a major profit center that could easily exist on its own.

Matthew Jadali has it all figured out. Operating his third different Mobil location in the past dozen years, like most convenience store owners, he’s doggedly battling the deterioration of gas margins. His weapon of choice: car wash.

Much like the early 1990s, when c-store marketers embraced the fuel element of the industry, car washes are popping up everywhere, from the old faithful of was hes the coin-operated, self-service bay—to the granddaddy of car care, the touch-free, automatic rollover.

Gone, however, are the days of receiving a free car wash with a gas fill-up. These are the times of an evolving marketplace, when operators like Jadali are raking in mind-boggling margins—70% to 80%, in his case, on a car wash that serves about 120 vehicles per day. And the best part of the car wash is it’s a low-maintenance profit center.

Car care choices

From Mark VII to Belanger to Ryko, carwash manufacturers-offer retailers a diverse menu of equipment from which to choose. The cost can range from $100,000 for a single self serve bay to more than $2 million for a conveyorized, automatic wash, once real estate, construction and equipment are factored into the equation. The automatic carwash itself runs anywhere from $120,000 to $250,000.

“There are certain models designed for low-level sites,” says Steve Robinson, director of product strategy and communications for Mark VII. “But, if you’ve got the money and you’ve got the real estate, carwash totally makes sense.”

Just ask Jadali, who last spring installed a Mark VII GT700—a touchless carwash—at his Mobil in Fountain Valley, Calif.

“At first, everybody bought the carwash with the brushes, but then they realized it was damaging to the car. Then they came up with touchless,” Jadali says. “Now a lot of people are converting their entire base to carwash—at least that’s the trend in Southern California.”

Jadali is adamant about the quality of equipment being a crucial ingredient to carwash success. He spent nearly $150,000 for his unit, which is completely self-serve, aside from general maintenance and cleaning.

“If your carwash is like five or six years old, it’s like a car—a machine that needs maintenance,” he says.

That’s exactly why Barb and John Mosher, c-store owners in Thompson Falls, Mont., opted for touchless rollover when looking to upgrade the two self-service bays already in place at their Feed & Fuel store. The couple spent $150,000 on the automatic wash, with $96,000 going toward the equipment. Located on Thompson Falls’ main street, Feed and Fuel is the only automatic carwash within a 70-mile radius, and supports a mountain town of 2,100 people and many grime scarred vehicles.

The Moshers have operated the 30-year-old store for the past three years. A growing demand from the largely retiree-populated town triggered the installation of an automatic wash. The results haven’t disappointed, as Feed & Fuel washes about 32,000 vehicles a year in the automatic wash and its two self-service bays.

“It’s still a little intimidating for older people who maybe haven’t used an automatic carwash,” Barb Mosher says. “But it’s definitely been great for business.”

Recovering margins
The Moshers’ 2,000-square-foot store loses money each month on fuel, so carwash, they say, has helped recoup some of those lost margins. Though the relatively new c-store owners spent a healthy chunk to install the automatic wash, they expect a return on their investment within the next five years.

To help their cause, the Moshers like many of their entrepreneurial peers in the U.S.cross-promote the carwash. For example, when customers make an in-store purchase, their name goes in a weekly drawing for a free automatic wash, which runs from $5 to $8.

“Fuel is a loss leader,” Barb Mosher says. “So, for me, it’s a benefit if I can promote my items from the c-store or the feed store.”

Jadali likewise runs cross-promotions at his Mobil and, to say the least, they’ve been successful. Customers who purchase a carwash at his store receive an enormous 16-cent-per-gallon discount off gasoline, a significant savings considering the ever-fluctuating cost of fuel. Since starting the promotion six months ago, Jadali’s gas volume has tripled, to nearly 300,000 gallons a month. And even though the discount puts his fuel margin in the red, the $1.60 discount on a 10-gallon fill-up is more than made up for in supplementary sales.

“I’m not losing anything because the people who are coming to my station are spending in the market and going to the carwash,” he says. “And I have loyal customers people who come back again and again. It’s changed the whole idea of how to buy a carwash.”

Return on investment
Cranston, R.I.-based East Side Enterprises operates 31 c-stores and gas stations under the Shell brand. Fifteen are equipped with carwashesa blend of Ryko, Belanger and Mark VII brands. On an average month, each site washes about 5,000 vehicles.

Like the Moshers in rural Montana, Andrew Delli Carpini, co-owner of East Side, expects a full return on his chain’s investment within five years. Carwash, according to Delli Carpini, has matured from a gas-sale add on to a major profit center that undoubtedly could exist on its own.

“We pretty much all started out just trying to generate some revenue, but were mainly in it for the increase in gasoline volume,” he says. “It’s definitely evolved from something that was an item used as a gas draw into a huge revenue-generating structure.”

Return on investment, Delli Carpini says, in large part hinges on a carwash’s proximity to competitors, a factor that also dictates the price an operator can charge for a wash.

“We can obviously ask for more money if the town only has one carwash,” he says.

Bob Reid, manager of carwash operations for Ontario, Canada-based Pioneer Petroleum, knows something about competition. His is a fierce market. Consider Applebee Road in Burlington, Ontario, just outside of Toronto. On one three-mile strip of road, Reid says, there are 10 carwashes.

Pioneer Petroleum has offered carwash since the 1970s, but it wasn’t until the late 1990s that the 150-store chain pushed all-in and truly committed to car care.

“Like anything else, you want a return on your investment, and our goal is a three-to four-year payback,” Reid says. “I think the focus now is you can’t just be in the gas business, and it’s tough to survive in just the convenience store business. Carwash has become such an important component of our day-to-day service.”

Why not carwash?

The trend of relying on carwash to offset lost margins elsewhere is here to stay, says Mark Thorsby, executive director of the International Carwash Association. And why shouldn’t it?

Carwash, by nature, is less labor intensive; in higher-end models, the only required maintenance is replenishment of chemicals and the cleaning of equipment. In addition, advances in design have made it simpler for customers to load themselves onto a carwash conveyor belt. And, as carwash continues to evolve, Thorsby says, employees who once prepped a vehicle before washing will be replaced with an automated pre-wash. On the back end of the carwash, drying systems are becoming increasingly towel-free, meaning one less employee to pay.

The transition from c-store to carwash is a challenging shift, Thorsby says, particularly because it forces operators to move from being product and margins-driven to being concerned most about service. Newbies to the industry shouldn’t be disappoi nted.

“What they’re going to find is No. 1, it’s a really fun business operate, and, No. 2, you can make a hell of a lot of money doing it,” Thorsby says, “a lot more than selling gasoline.”


Speak Your Mind