January 18, 2021
As you consider diving into a new industry, you want to know that you’ll get a good return on your investment. You want an industry that’s stable with an upward trajectory. And maybe you want to have some fun in the process.
Many investors have found that the car wash industry checks all those boxes. Let’s take a closer look at the car wash industry and why it might be a good choice for your next business venture.
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The car wash industry has gone through a massive period of growth, driven largely by the popularity of unlimited wash plans and the rise of the express exterior tunnel business model. From 2013 to 2018, the industry achieved a 3.6% compound annual growth rate (CAGR) in revenue, according to an industry report by Grand View Research. The industry’s growth is expected to continue, with a predicted CAGR of 3.2% through 2025.
The express exterior tunnel model has been particularly attractive, piquing the interest of private equity investors. In fact, half of 2020’s top 20 car wash chains are owned or backed by private equity, and the industry is one of the hottest for mergers and acquisitions.
Of course, growth is driven by consumer demand. Car washes provide a service that will always be needed as long as there are cars on the road. While drivers always have the option to hand wash their cars, they are increasingly turning to the convenience and speed of automatic car washes.
According to the International Carwash Association, the number of drivers who wash their cars at home has dropped significantly over the past decade. In 2019, 77% of drivers reported that they frequently washed their vehicle at a professional car wash, up from 48% in 1994. It is estimated that the total annual car wash sales revenue exceeds $24 billion.
The ridesharing (Uber, Lyft, etc.) trend has also created a whole new customer base for car washes. These drivers wash their cars multiple times a week to maintain customer satisfaction. They can be some of your best customers and brand advocates.
Optimization and Scalability
When done right, a car wash business can be automated, optimized and scaled to provide steadily increasing revenue. Car wash technology is constantly evolving, offering new efficiencies and ways to boost throughput. The car wash point-of-sale (POS) specifically offers data that can be leveraged to further improve your operations for increased profits.
And then there is growth through expansion. Once a car wash owner sees the profitability of their first location, they are eager to add more sites. Many end up with several sites, building a strong regional car wash brand.
Typically, car wash investors spend about $2-4 million in capital with the biggest variance being in real estate costs. Fortunately, you have options for getting your startup capital.
There are three main ways to finance your investment: SBA 7(a) and SBA 504 loans and conventional loans. SBA 7(a) loans can be attractive to new car wash investors because they require a lower down payment, have lower interest rates and allow longer repayment periods. These are also good for new car wash investors because the SBA can guarantee a loan based on projected income rather than a documented track record. The one drawback is they can take longer to be approved, but you end up owing less. SBA 7(A) loans can be used for working capital, car wash equipment, new car wash construction, buying an existing car wash and refinancing debt.
If you’re looking for a business you can easily sell for a profit or as a retirement strategy, a car wash is a good option. Investors love the predictable, recurring revenue that unlimited wash programs provide. A decade ago, weather controlled the car wash business. These plans allowed car wash operators to seize more control and create a stable revenue stream. For that reason, a healthy unlimited wash program can increase the value of our business by 10 times or more.
If “flipping” your car wash is in your plans, make sure you put as much effort – or even more – into building a strong plan membership as you do into remodeling or upgrading equipment.
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Variety of Options
With a variety of business models to choose from, an investor can select the model that best matches their needs as well as those of the local customer base. There are four main types of car washes:
- Self-Serve – The driver pays for use of the chemicals and equipment to wash their own car. This is a good choice if you want minimal day-to-day involvement, lower maintenance and little/no labor costs.
- In-Bay Automatic (IBA) – This is where a customer drives into a bay and the equipment moves around their vehicle to wash it. This type of wash may require more oversight and maintenance, but not as much as an express exterior tunnel or full-serve wash. You can also run an IBA with no employees.
- Express Exterior (EE) – Vehicles are moved through a tunnel as equipment washes them. This model requires more maintenance and oversight, so you’ll either need to be more involved or hire a good site manager. However, EEs can wash more cars because more than one vehicle can be washed at a time, so the revenue potential is higher.
- Full-Serve – The vehicle is usually driven into the tunnel by an attendant and washed. After the wash, the vehicle is hand dried and the interior is cleaned by hand. This is the most labor-intensive and requires the most involvement on your part.
There are also hybrid models, such as the flex serve, where customers drive their vehicles through the tunnel and have the option to add manual interior and exterior services. There is also the mini tunnel, which is a much shorter (as short as 35 feet) express exterior tunnel, good for sites that don’t have a large footprint but have the potential to handle higher volume.
Don’t underestimate the personal fulfillment you can get from running a car wash. Many car washers thrive on the challenge of dialing in their equipment and chemicals to deliver the best wash. And there are always adjustments you can make to technology, pricing, marketing, etc., to help you squeeze more profits from your business. There’s just something about it that gets in a car wash owner’s blood. Once you start, you may not want to stop!
Of course, no investment is free money. Here are a few risks to keep in mind:
- Weather – Weather is the Achilles’ Heel of the car wash industry. One bad month or season can have a major impact on your annual revenue. Fortunately, the rise of unlimited wash plans has significantly reduced this risk by giving operators guaranteed recurring revenue every month.
- Location – You’re going to make a lot of decisions for your car wash, but the location is the one you can’t change, so it’s important to get it right. You want a site that has a healthy traffic count and doesn’t have too much nearby competition. A car wash consultant can discuss other factors and help you do a thorough site analysis.
- The Learning Curve – There’s a lot more to car washing than meets the eye. Depending on the car wash model you choose, you may find yourself being a salesperson, marketing expert, technician, chemist and more. Try spending time with car wash operators and consider working at a wash for a period of time to make sure it’s right for you.
Take the Plunge – With Caution
Car washing can be a lucrative business, but it’s not for every investor. Do your due diligence. Line up a consultant. Make sure you do a pro forma analysis. And then if all signs point to a future in car washing, dive on in!