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    Slippery When Wet

    Consumer demand is up, but supplier moves, site saturation and environmental concerns muddy the water.

    The news in the car-wash industry is a bit bubbly, a bit gritty.

    Opposing market conditions are giving manufacturers, distributors and operators mixed signals in their quest for a share of the consumer car-care dollar. While drivers drop their garden hoses and swing over to professional car washes, speculation about realignment of equipment makers, questions about convenience car-wash operators and worries about site saturation have clouded the crystal ball.

    Fifty-six percent of car owners surveyed by the International Carwash Association say they usually use a professional car wash, noted Mark Thorsby, executive director of the Chicago-based International Carwash Association. "That is a 6-percent increase in professional washing from three years ago."

    While a single-digit leap may not sound like cause for celebration, when multiplied by the number of cars on the road, and how often they are washed, that increase translates long term into billions of dollars, he said.

    The time-starved populace's desire for a professional wash should be good news for c-store operators who hope to increase profits by cleaning cars. From 1996 to 1999, the ICA recorded a 33-percent increase in the number of people saying they usually wash their car in an in-bay automatic car wash — the model preferred by c-store chains.

    That realization has prompted manufacturers to enhance in-bay designs and features. "The equipment makers were catching up with the demand," Thorsby said. "There is no question c-store operators have improved the quality of the washes and had a dramatic impact on the car-wash industry."

    Supplier Shuffle

    Today, there are 25 to 30 makers of touch-free equipment doing business in the United States. A handful of them also offer friction equipment. But the desire to satisfy both friction car-wash operators — which make up 30 to 50 percent of the industry by some estimates — and those favoring touch-free technology, has led to what some industry players predict is the first of many supplier alliances, mergers or buyouts to come.

    At the end of March, Mark VII Equipment Inc., a major player in the c-store touchless wash business, became a master distributor for Germany-based Wesumat Cleaning

    Technologies' WashTec friction car-wash systems in the United States.

    "If there is a preference for friction, we want to be able to deliver it," said Rick Green, president and CEO of Arvada, Colo.-based Mark VII. "More customers in a smaller area translates into a higher-performing service business and a more profitable distributor."

    Reliable service has become one of — if not the primary — deciding factor in the c-store industry's equipment buys. As car-wash makers all make use of the latest technologies, and smaller equipment manufacturers closely mimic the big players'equipment moves, in the end, the manufacturers with the strongest distributor networks may end up with the bulk of the c-store industry's business.

    "There is an opportunity for further consolidation because the industry is very fragmented," said Thorsby. "While being all things to all people will not be the only road to success for car-wash suppliers, that type of strategy should be considered.

    "The one-line approach has served the car-wash manufacturers well. But in the future, their lines need to be more nimble to meet the needs of their customers."

    Another factor in Mark VII's alliance was the continuing globalization of the petroleum/car-wash industries. "Major oil is consolidating more and more and a material amount of car-wash purchase decisions for corporate oil are being made in Europe," Green said. "Shell is a friction company. BP historically has been friction. More regionally, Speedway SuperAmerica is [becoming] a friction player."

    Investing for the Future?

    Despite active courting from suppliers, the c-store and petroleum industry's current investment strategies are decidedly mixed. While the c-store/car-wash relationship has matured over the past 15 years, from little more than promotional tools (fill up and get a free car wash!) to full-priced profit generators, some retailers are not investing as much in the latest car-cleaning technologies.

    "The business in the petroleum industry has slowed down quite a bit," said Tom Hobby, president of Autec Inc., the Statesville, N.C., provider of soft cloth and combination touch-free and/or touch car-wash systems. "There is uncertainty about gas margins that has affected the desire to invest $2 million in a new c-store/car-wash site. With the consolidation of [major oil] brands, some of these sites don't know what they will be next week. As oil companies have combined, they have corporate sites across the street from each other and are closing."

    Despite questionable commitment from major oil, the automatic in-bay segment continues to grow, said Hobby, thanks to unbranded players incorporating car washes into their site plans.

    That's not meant to completely dismiss the major integrated oil companies and refiners. Several, including ExxonMobil and BP, have integrated car washes into their design plans on larger lots. And others, notably Valero Energy Corp. and ConocoPhillips, are aggressively upgrading their existing car washes and investing in new locations.

    "We are looking for more revenue generators so that we don't have to rely so much on gasoline margins," said Larry Taylor, car-wash specialist at San Antonio-based Valero, which has committed "sizable resources" to modernize its fleet of 215 car washes. "We have shown by upgrading our sites and taking a harder look at car washes, managing them closer and making them standalone profit centers, we can get a [great] return."

    "When a system is set for six, seven or eight years, quite a few changes come into the market. Some sites are not old enough to replace, but we have added features that have become important to the consumer."

    The chain's PDQ car washes, for example, were upgraded to offer a triple-foam wash, virtual treadle and spot-free rinse. "We are not interested in tunnel or full-service washes, but are upgrading our touch-free offer for people who enjoy those services," Taylor noted, adding he also works with Ryko and Mark VII. "The new machines are more water-efficient and have less maintenance costs. We look for that, even if the upfront costs are higher, because of the increased revenues and savings on chemicals, water and maintenance."

    While some 80 percent of Valero's car-wash transactions are paid for by the consumer at the pump — "I think those customers come to the site for the gasoline because it has a car wash," Taylor said — the chain has put new coin and bill acceptors in many car-wash locations and has seen a slight increase in payments made at the entry of the car wash, suggesting those customers are purchasing the wash, without gasoline.

    But not everyone sees a shiny future in the car-wash business. In May, Leesburg, Va.-based Precision Auto Care Inc. sold its Hydro-Spray subsidiary, which designs Rainmaker automatic touch-less car washes, to a group led by previous owner Ernie Malas. Precision Auto Care executives cited a desire to focus on its roots in the car-care franchising business.

    "The constraints that corporate ownership put on us really hurt the company for the last years," Malas was quoted as saying at the time of the sale. Precision's "financial problems," he said, held the car-wash business back.

    In May, North America Small Business, a commercial insurance company handing more than 1,500 car washes in the United States, began a year-long pullout from the car-wash industry, pointing to mounting losses in the segment. Losses came from low-cost physical damage claims, liability claims and large losses from property and fire claims.

    In some markets, site saturation also has become a concern. The bottom 10 percent of retail washes need to close, ICA's Thorsby said. "It would be good for the industry to do that."

    He acknowledged the failed attempt a few years back for operators to consolidate locations. But Thorsby blamed that effort on the financial market. "People were trying to roll up a bunch of car washes and take a company public."

    Former c-store operator Shay Gregorie of Jack Flash Car Wash in Mt. Pleasant, S.C., is not consumed by thoughts of oversaturation. Gregorie is very much aware of the second-class status washes carried during his days operating a Southern chain, which was eventually bought by The Pantry. He said of his first car-wash foray, "I combined operating the car wash with my desire to make money on real estate. I wasn't sure if the income potential was there. I thought I might just be buying real estate, but it turns out there is money in it."

    Today, he operates five Jack Flash car washes, in-bay friction automatics housed in glass buildings. Indeed, Gregorie, who draws 30 percent of his business on the top-flight $12 wash, said he plans to have seven or eight open by year's end. "When I operated the c-stores, the car washes were always trouble," he said. "Big Oil wanted us to give them away. I hated that. I didn't focus on it because it wasn't a profit center; it wasn't a direct money maker."

    While Valero's Taylor believes many markets are overflowing in car washes, the c-store operator will continue to grow the business because, he said, "the business is site- specific."

    He added: "Customers coming to our car washes are looking for the convenience of one-stop shopping — their cold drinks, their car wash, [then] they're gone. We've had standalones built across the street or down the block that have not affected our volume at all."

    The retail executive expects more car-wash operators to be weeded out more for environmental issues than competitive ones. "Just as many petroleum marketers closed their doors rather than meet underground storage tank requirements, many may opt out of the car-wash business, rather than meet increasingly stringent permit demands.

    "Anything new will have to be built with water reclamation," said Taylor. "The car-wash industry will have to adapt and develop systems to protect the environment better. The suppliers we work with are up to that task. If suppliers don't stay up with this, they won't survive."

    No doubt, the next few years will bring change in both the retail and supply end — an unsettling reality, admittedly. "Change is not a natural act," Thorsby concurred. "People will be concerned. But it will happen whether people are concerned or not. I try to encourage our members to embrace change and help stimulate it, instead of constantly responding to it."

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