1. Carwash Investment Seminar
Presented by
RJR Enterprises
Carwash Consultants
February 2019

2. Copyright Robert Roman RJR Enterprises February 2019

3. Introduction
Carwash industry includes commercial establishments that provide car washing, interior cleaning, polish/wax, and truck/bus washing
Households account for 76 percent of industry wash revenues
Corporate sector accounts for 24 percent the bulk of which comes from delivery vehicles, taxi cabs, and rentals

4. Product Class
Self-service consists of coin-operated spray-bays and self-service vacuums

5. Product Class
Conveyor – fully-automated wash system with computer-controlled equipment

6. Product Class
In-bay automatic – vehicle remains stationary as robotic equipment moves back and forth over vehicle cleaning it

7. Industry Size
According to International Carwash Association, the U.S. carwash industry is a $24 billion business
Product Class Units
Self-service 25,500
Conveyor 24,000
In-bay 29,000
Other 2,000
Total 80,500

8. Trends
Carwash industry revenues are expected to grow at an average annual rate of 1.6 percent through 2023
Consumers continue to move from do-it-yourself (DIY) to do-it-for-me (DIFM)
Washing vehicles at home as overall percentage has dropped from 48 percent in 1996 to 28 percent today

9. Customers
ICA defines carwash customer as anyone who is over the age of 16 and has a driver license and access to a vehicle
Blue collar workers and minority groups are more likely to use less expensive car washes such as self-service
White collar workers and moms with kids tend to use automatic washes
55 percent of carwash customers are women

10. Demand Drivers
Demand for carwash services is heavily influenced by climate and weather
New vehicle sales has influence on demand because people tend to wash newer cars more frequently than older ones
Disposable income has influence on demand because carwash is a nonessential service.
Generational change has influence on demand because consumer attitudes and habits change over time

11. Opportunity Carwash industry is fragmented
Most operators own one or two locations
Trade area for commercial carwash is relatively small
Typical trading area is between 3 and 5-miles from the site
Most operators compete against two or three locations

12. Self-Service
Suited for rural areas and satellite communities and isolated areas with heavy duty vehicles and equipment (i.e. snow removal)
Trend is to build larger washes than in the past. Typical new site may have 4 to 6 wand-bays, two or three in-bays, and free-use, self-service vacuums

13. Self-Service Building 4,400 SF $750,000 Equipment $750,000
Site work $200,000
Land acre $500,000
Project cost $2.2 million

14. Self-Service Sales revenue Wands $150,000 In-bays $300,000
Total sales $450,000
Expenses $250,000
Net operating income $200,000

15. Conveyor
Express exterior cleans only exterior of vehicle and provides self-serve vacuums so customers can clean the interior of their own cars
Full-service cleans exterior of vehicle and provides assisted-services such as vacuum, hand wax, carpet/seat shampoo
Flex-serve is like express exterior but it also provides limited selection of assisted-services (i.e. express detail)

16. Conveyor Express exterior is more suited for high volume locations
Full-service is suited for areas with higher incomes and more affluent neighborhoods
Flex-serve is suited for both of these environments
Mini-tunnels or short conveyors (i.e. 50’) are suited for areas that cannot support a more substantial conveyor

17. Express Exterior Layout

18. Express Conveyor Building 4,500 SF $1.5 million Equipment $1.0 million
Site work $500,000
Land acre $1.0 million
Project cost $4.0 million

19. Express Conveyor Sales volume 125,000 Average revenue $9.00
Sales revenue $1.125 million
Cost of goods $281,250
Operating expenses $375,000
Net operating income $506,250

20. Strategies Purchase/lease land and build a new carwash
Purchase going concern business-only
Purchase existing wash and renovate/retrofit
Create regional network of 4 to 5 locations
Long-term hold or sale-leaseback

21. Investor Base
Mom and pop - family-owned and operated, minimum number of employees, smaller volume, typically not franchised, open for business only in a single location
Family-owned, territory minded, multiple site operators
Strategic/hybrid – large industry players consolidating
Private equity – financial sponsor, sell 3 to 5 years

22. Requirements Self-Service Requires 20 to 25 hours per week
General housekeeping duties
Routine preventative maintenance and minor repairs
Customer service response
Plus administration and oversight

23. Requirements Express Exterior Conveyor Management - 50 hours per week
Staff – minimum 200 hours per week
General housekeeping duties
Routine preventative maintenance and minor repairs
Support marketing and promotional initiatives
Customer service
Recruiting and hiring
Training
Administrative oversight

24. Requirements Flex-Serve Conveyor Management - 50 hours per week
Express staff – 200 hours per week
Flex staff – 400 hours per week
General housekeeping duties
Routine preventative maintenance and minor repairs
Support marketing and promotional initiatives
Customer service
Recruiting and hiring
Training
Administrative oversight

25. What is it like? Self-Service Open 24/7, rain or shine
Difficulty is keeping site very clean and functional
Handyman skills are a must
Breakdowns and malfunctions require site visit
Occasional vandalism

26. What is it like? Express Exterior Conveyor
Open 7-days/week, rain or shine
Intense – potential to process 100 or more cars an hour
Staff must work outside in the elements
Manager responsible for open/close duties, operations, QA/QC, and maintenance and repairs
Potential for morale issues due to monotonous work

27. What is it like? Flex-Serve Conveyor Open 7-days/week, rain or shine
Contact sport – staff must perform services and interact with customers
Centrally-controlled teams versus division of labor
Staff works inside building enclosure
Requires developing personal relationships with customers

28. Building a Carwash
1. Chose business model that coincides with financial goals and objectives
2. Select team of advisors
3. Solve the location problem
4. Tie up the land and perform due diligence
5. Obtain term sheet from bank or lender
6. Develop preliminary plans and seek conditional approval

29. Building a Carwash 7. Obtain final approval and permits
8. Pre-construction meeting
9. Obtain bids/quotes for construction and equipment
10. Develop business/marketing plan
11. Obtain training during construction
12. Soft opening prior to launch to work the bugs out

30. Location Problem
Finding suitable property for a new wash is crucial for success
Common method of identifying alternative locations is with the help of commercial real estate agencies
To accomplish the final store site choice, models of sales assessment are used
Location problem should be divided into trade area and site evaluation

31. Trade Area Evaluation Determine trade area boundaries
Estimate market size (industry sales)
Determine competition quality
Calculate index of retail saturation based on analysis
of demand/supply balance
Identify level of sales leakage or surplus

32. Trade Area Boundaries Techniques
Distance radials (i.e. 3 to 5-miles from the site)
Driving time (i.e. 15-minutes from site)
Zip Code tabulation
Point-of-sale and panel data

33. Total Market Size Estimate market size Define retail trading area
Define target customer
Estimate number of potential target customers
Determine penetration or take rate
Market volume = targeted customers / penetration rate

34. Competition Quality Evaluation Factors Distance from store in miles
Product class or type
Base price
Curb appeal
Brand/image (i.e. franchise, chain operation)

35. Retail Saturation
Index of retail market saturation (IRS) is a technique that retailers use to determine the number of supportable stores in an area
IRS = (A X B) / C
A = population within defined trade area
B = per capita expenditure for particular product class
C = square footage of retail space of facilities in product class (including the proposed store)

36. Market Characteristics
Local economy should be growing or stable
Climate should be favorable for frequent washing
Market segment should be strong
There should be sales leakage to warrant a new site
Leakage occurs when local people spend more money on goods than local businesses report

37. Site Evaluation
Evaluate property characteristics (i.e. accessibility, configuration)
Evaluate demographic and traffic characteristics
Evaluate competition (distance, attractiveness)
Estimate sales turnover for each potential location
Turnover is used as basis to select sites and determine store size, layout, implemented services

38. Site Evaluation Sales Turnover Methods
Capture rate Industry benchmark or panel data
Analogue-model Estimate based on location factors
Discriminate Average performance of store group is used as prevision for new store
Gravity model Huff’s retail probability model
Spatial interaction Combines math and statistical models

39. Site Characteristics Property should be highway-oriented and at grade
Access to traffic on frontage road in both directions
Excellent visibility in both directions
Multiple ingress/egress
Signalized intersection
Shopping-based and residential traffic

40. Timeframe
Building a new wash can take between 18 and 24 months and one to two years to ramp up to speed
Purchasing a going concern with transitioning seller may take six to nine months
Purchasing existing site and renovation can take between nine and 12 months and one year to ramp up

41. Investment Risk
Political – can entitlements be obtained timely and economically
Environmental – is there toxic contamination from prior use
Construction – can project be built on time/on budget
Leasing – once built, can project be leased
Re-sale – will future market conditions allow sale to 3rd party at expected price

42. Business Risk Competitive – will the site generate sufficient sales
Operations – can adequate staffing and management be maintained to ensure effective, customer-centric operation
Development and investment risks and operations risk for new-to-industry is considerably greater compared to what they are in a traditional carwash project.
Principal reason for this is new-to-industry’s lack of management and ownership experience

43. Risk Mitigation Ensure property has been approved for carwash use
Engage 3rd party to prepare highest and best use analysis
Partner with person that has management and ownership experience
Match development cost with market potential of area
Invest in franchise and follow model
Purchase going concern carwash

44. Risk Mitigation
Establish volume levels needed for loan pay-off and recovery of investor’s equity
At 50 percent of sales projections, selling price should pay off the loan
At 67 percent of projections, price should pay off loan and return all invested equity
At 75 percent, price should pay off loan, return all equity, and adequate return on invested equity

45. Purchase Carwash Carwash can be purchased with or without real estate
Without real estate, the buyer typically pays a sum for the goodwill of business and assumes triple net lease
Lease requires payment of rent, property insurance, and property taxes.
Without real estate, borrower must use opportunity loan
Opportunity loan is more restrictive than real estate finance

46. Purchase Carwash Mitigation for New-to-Industry
Seller financing or seller carryback is a loan the seller of a business gives to the new buyer to cover all, or a portion of the total purchase price
Typically, the buyer must make up a difference of between 20 and 30 percent
A strong credit score of between 680 and 725 can increase the chances of getting seller financing

47. Purchase Carwash Price or Market Value
Without real estate, market value of carwash is function of available free cash flow
Cash flow is earnings before interest, taxes, depreciation, and amortization (EBITDA)
Whereas value for 100 percent of company requires adjustments for assets (building, equipment, land) and any liabilities

48. Purchase Carwash Price evaluation
Capitalization rate = net operating income / price
If NOI is $250,000 and asking price is $2.5 million, cap rate is 10 percent
If comparable sales indicate average cap rate is 12 percent, then expected price would be $2.0 million
Consequently, key to purchasing going concern is income verification

49. Purchase Carwash Income Verification Requires cohesive information
Three years audited financial records and tax filings
Sales and labor reports, data bases
Real estate documents, legal agreements
Equipment list, inventory

50. Finance Loan Structure
Principal loan amount is the total investment minus loan-to-value (LTV)
LTV is the percentage of the total investment the bank is will to lend based on perceived risk in the venture
Typical LTV is 80 percent
Other factors are loan interest rate (fixed or variable) and loan period (i.e. 20 years)

51. Finance Cost Structure Site work $200,000
Building construction $750,000
Equipment $750,000
Install, tax, freight $100,000
Soft cost $150,000
Total project cost $1.95 million
Real estate $750,000
Total investment $2.7 million

52. Finance Loan Structure Total investment $2.7 million
Loan-to-Value (80%) $2.16 million
Equity (20%) $540,000
Interest rate 6%
Period years
Monthly mortgage $15,475

53. Finance
Equity
In the example, the equity requirement or cash injection was $540,000
Equity can include personal cash savings, gifts from friends and family, unencumbered land, CD’s, or venture capital (stock purchase)
Sources of equity must be disclosed
Equity should not be borrowed (credit cards, line of credit)

54. Finance Raising Capital
Mom and pop have difficulties raising capital because this type of business venture does not have the potential for significant growth
Small businesses may provide good standard of living and job satisfaction but this isn’t sufficient to attract the attention of private equity investment

55. Finance
Mitigation
Smaller scale project can reduce equity by 50 percent
Instead of new, buy going concern with seller financing
Purchase existing wash that needs rehabilitated
Prepare “investor-ready” venture capital proposal

56. Finance Venture Capital
Venture capitalist may provide funds for new start-up but will want significant portion of ownership in the business (i.e. 40 percent or more)
Venture capital proposal requires an “investor-ready” project
Investor-ready meets the eyes of venture capitalists and angel investors

57. Finance Investor Ready Project
Professionally prepared document that demonstrates
Letter of intent, civil drawings, permit approvals
How and when the money will be spent
How investors will receive return on investment
You are expert in the industry

58. Finance Venture Capital Proposal
Maximum one page in length plus one page of charts
Investors expect return within three to five years
Exit opportunity must be realistic
Key factor is management’s ability to deliver the business plan

59. Finance Mitigating Lack of Expertise
Partner with someone who is an expert in the industry
Provide equity equal to proof-of-concept funding
Seek angel investors rather than venture capitalists
Work in the industry as manager and then raise funds

60. Marketing
Market share is function of customer attraction rate and customer loyalty rate
Attraction is the rate at which consumers enter storefront
Loyalty is the rate at which customers return to the storefront
5 percent increase in loyalty rate can increase profit by 25 percent
Attracting customer cost five times as much as keeping one

61. Marketing Attraction Rate Factors
Build and maintain pride-of-ownership property
Use building tower component to gain perspective
Create a “monument” effect with street sign (LED)
Contrasting color scheme
High quality landscaping and cleanliness

62. Marketing Loyalty Rate Factors Clean car guarantee Free use vacuums
Customer phone app
Subscription program – monthly unlimited wash option
Customer satisfaction survey (i.e. mystery shopper)

63. Marketing Virtual Store Responsive website (internet, mobile device)
E-commerce capability (pay online)
Mobile marketing strategy (pay by mobile device)
Social media (i.e. Facebook)
Public outreach (community involvement)

64. Operations
Carwash is 20 percent splash and 80 percent how well customers are treated
Carwash is 20 percent equipment and 80 percent how well the employees are treated
Carwash is 20 percent show and 80 percent how clean, dry and shiny cars exit the wash bay

65. Sanity Test
Sanity test is a way to quickly evaluate whether a claim of the result of a calculation can possibly be true
For example, maximum monthly mortgage payment a home buyer can afford is function of their monthly income (salary) and monthly obligations (debts)
The same principal can be applied to determine how much carwash an investor can afford and if the proposed business concept makes financial sense (i.e. napkin analysis)

66. Sanity Test MAP = expected net operating income / 1.5
If projected mortgage payment to build wash generating NOI $12,000 per month is less than $8,000, the project probably makes financial sense
If mortgage payment is greater than $8,000, it probably doesn’t make sense

67. Sales Turnover
Most common questions people new-to-industry ask are how many cars to expect and how much is it going to cost
Development cost is dependent on per-hour requirement of the site at peak times
Consequently, developing accurate estimates of store sales turnover is crucial to success

68. Sales Turnover
The simplest technique for estimating sales turnover is the checklist method
This method starts by identifying location-related factors known to influence demand for carwash
Each factor is measured for analogue group of stores to create a rating scale based on empirical rules and weights
The location factors for the new site are compared against the scale and sales forecast for the new site is defined

69. Sales Turnover
A simple checklist model for site selection decisions is provided on the following page
This model is for illustrative purposes only and should not be viewed as representation of actual results or as a guarantee of any volume of business
The same conditions and reservations apply to any other written analysis included herein

70. Checklist Model

71. Checklist Model Total score of checklist model was 88
Score is interpreted with 80/20 rule
If total score is more than 80, the proposed site would be considered suitable for commercial carwash
If average capture rate for analogue group of stores is 1.0 percent, we can calculate capture rate for proposed site as
1.0 percent X (score) = 0.8 percent

72. Checklist Model
If capture rate is 0.8 percent and daily traffic is 30,000, cars washed per day would be 240 (30,000 X 0.008)
Per-hour requirement at peak time for 240 cars per day is roughly 72 cars or minimum conveyor length of 72’.
If 100’ is specified to account for growth, the building would measure at least 3,000 SF
If average cost is $450 per SF, project cost would be $1.35 million plus acquisition cost of real estate.

73. RJR ENTERPRISES – Carwash Consultants
RJR Enterprises has been providing consulting services to the carwash industry since 1999
RJR specializes in retail market analysis, concept and feasibility studies, opinion of value, and strategic planning
Robert Roman, president, is former operator of carwash, quick lube, and detail businesses
Robert is also long-time contributing editor with Auto Laundry News, the industry’s leading trade journal
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