When gasoline prices spiked last summer, many fuel marketers took a double hit as credit card fees increased and consumers cut back purchases. But in the midst of it all, Gary Krueger was in for a pleasant surprise.
As president of G. A. Krueger in Stilwell, Kan., he operates two retail locations. Each has a BP-branded convenience store, eight MPDs, and a car wash. “When gas was hitting $4.16 a gallon,” Krueger recalled, “I was expecting a significant drop in my car wash sales. But revenues for 2008 declined only 1.4 percent compared to 2007.”
At Diamond Oil Group of Illinois, owner Lewis Korompilas said his car wash has kept the company profitable even as other marketers have bit the dust. “It’s common for those who don’t have a car wash to go out of business,” said Korompilas, who operates a site in Des Plaines with a c-store and eight MPDs.
Nevertheless, tough times are forcing retailers to reevaluate their marketing strategies. “Weather is always a factor, but the gasoline price increases of last year are still affecting many customers’ normal buying habits,” said David Dougherty, senior product manager for PDQ Manufacturing of De Pere, Wis., a provider of touch-free and soft-touch options for in-bay and conveyor tunnel car wash systems. As disposable income declines, he points out, “Those who used to get weekly washes cut back because consumer confidence is down.”
Many fuel retailers, however, need not just a reevaluation, but a reorientation, according to Michael Perry, owner of Atlanta-based Total Marketing Concepts, a consultancy for car wash
distributors and operators. “Operators who don’t view the car wash as a true retail business can’t compete against other retail businesses,” he said. “That’s because, at a time when consumers have less discretionary income, you must be more creative in marketing than ever before to capture that impulse purchase.”
Retailers in numerous industries are responding to tough times by slashing prices in hopes of driving volume. David Whitaker, vice president of business development for D&S Car Wash Equipment Company in High Ridge, Mo., a maker of friction and touch-free systems, said that “consumers are less tolerant these days.” But he added, “It’s not necessarily that they want the cheapest wash, but that they want to get their money’s worth.”
If psychology is the reason why consumers feel they have less income, then psychology can also help meet that concern. “People still want clean cars—and I still see some car washes operating at full capacity,” Whitaker said. “So you need to look at the real reasons why business is down and ask if you’re truly meeting the customers’ needs.”
By the Numbers
Korompilas is so convinced that car wash profits can see him through the recession, he has been willing to make gasoline a loss leader in order to drive wash traffic. “I’ve incorporated the purchase of gas with the car wash by offering a 10- or 15-cent discount on fuel,” he explained. “The approach worked especially well when gas prices were high. Though I take a small loss on the gas, the revenue we generate from the car wash more than makes up for it.”
A point-of-sale device at the fuel dispenser prompts customers to consider a $6, $7, or $8 car wash package and then offers a seasonally-adjusted fuel discount. Purchasers receive a five-digit code that allows them, if desired, to redeem the car wash at a later time. “This way, the customer isn’t deterred by weather and can come back at their convenience within 30 days,” said Korompilas, who operates car wash equipment from Ryko Manufacturing.
Even with gasoline as a loss leader, Korompilas said his numbers make sense. “Even if a customer fills a 20-gallon tank at 15 cents off per gallon, the discount is only $3,” he said. “But we found that a typical customer purchases seven gallons. So in most cases, they receive $1 discount on the gas—and with a $6 wash package we net $5 on the transaction.”
According to Korompilas, “An average retailer who sells 100,000 gallons a month is only making $10,000. The only way to get customers to a site, based on fuel, is by having the lowest price. Items in the c-store will typically yield a 50 percent profit, except on cigarettes. The only reliable, significantly profitable part of the location is the car wash.”
Over the past four years Korompilas has seen a nearby retail site change hands three times. “Without a car wash, you don’t have a way to maintain a positive cash flow when fuel profit margins shrink,” he said. For marketers on the lookout for acquisitions, he advised, “When you buy a location, there’s typically not a substantial difference in the price of one that has a car wash. Or if you're paying a significant amount for a location without one, then adding $125,000 to install a new car wash isn't a lot more to finance.”
For his part, Korompilas has only one regret. “At four minutes per wash, I can do 225 cars per day,” he said. “But if I had a conveyer system, then I could wash a car every minute.”
Gary Krueger agrees that good equipment is vital. With two sites, he alternates upgrading his washes every three years. Thus neither site has a wash older than six years. “Once equipment reaches the five-year mark it’s in the range of 120,000 washes, and the maximum for any car wash is typically 150,000 washes,” he noted.
“An overall package of clean, well-maintained current equipment creates an inviting environment that will keep customers coming back,” Krueger said. “But even if you can’t reinvest, take good care of what you have and pretty it up. Image is everything. I also believe in a regular maintenance program is also advisable. The monthly cost seems like a lot, but it’s worth it when you avoid downtime for repairs.”
Periodic upgrades likewise ensure that Krueger, whose systems are supplied by D&S Car Wash Equipment Company, utilizes the latest marketing enhancements. In a recent upgrade cycle he replaced his car washes' coin boxes with entry systems that accept credit cards. Likewise, in 2006-07 he installed digital screens on his fuel dispensers in order to advertise his car washes to fuel customers and offer discount wash packages.
A simple loyalty program has been cost-effective for Krueger. “We advertise a club card at on a pump topper, so customers and get it punched in the c-store after purchasing one of the top two wash packages,” he explained. After five washes, the customer receives a free wash.
So far Krueger's efforts have succeeded. “Competitors have steadily raised prices. But in the last five years I didn’t raise prices until I added something new to the car wash,” he said. With his car washes positioned at a few dollars less than the competition, he said, “We find that customers will recognize when you provide good value, and it will keep up your volume. Just pay attention to the details and make sure you have a good product.”
Focusing on the marketing fundamentals is likewise essential when finances are tight for many car wash operators. “Some parts of the country have been more affected than others,” admitted Dougherty of manufacturing. “Retaining and growing their customer base is even more important in this economy.”
Changing tactics is one option to try to stay afloat. “Marketers who offered holiday specials are extending those through January and February,” Dougherty said. “Right now one of the best ways to entice customers is to increase the value they get for their money.”
Economic conditions have prompted other adjustments. “In the past, the focus was to push high-end packages. But with the down economy, having a breadth of offerings will appeal to more customers,” Dougherty said. “Selling additional features, such as triple foam or a super sealant, has been a successful trend for operators who are looking to expand their services and hoping to grow market share.”
Sometimes just changing the way packages are marketed is effective. “Adjusting the prices, by increasing the higher end package and lowering basic package cost, has been a winning strategy,” said Dougherty. In general, he added, “Marketing is very important in this economic situation. Getting your name out and keeping potential customers aware of their carwash needs, and your ability to meet those needs, is crucial."
One way to get out the message is email. PDQ's Wash Access Loyalty System allows operators to capture customer data and generate automatic thank-you messages. “Make sure that you’re utilizing all the capabilities your system has to offer,” Dougherty said. “Your system might already have features like a buy-up prompt or discount code capabilities. Use those tools to help retain and grow sales. If you’re not sure what your system offers, then contact your manufacturer or local distributor to ensure you are using your system to its full potential.”
Yet technology cannot win customers by itself. “Some operators have invested up to $25,000 in the technology. But loyalty programs only work when they’re marketed effectively,” said marketing director Steve Robinson of Mark VII Equipment in Arvada, Colo., which manufactures all types of car wash equipment.
Good marketing is likewise the key to upselling customers on higher-end car wash packages. “There should be a clear message of why a customer should upgrade. Research shows those who do a good job promoting those services will be able to get 40 percent of the people to upgrade,” noted Robinson.
Upselling should occur throughout a property. “Most sites need to improve signage. It’s not enough to have a wash menu at the top of the fuel pump,” Robinson suggested. “Successful sellers put a big sign near the front of the car wash to advertise extra features and services. And employees are trained to always ask if the customer wants a wash—and to talk about the value of the top wash package. The rule of thumb is: If the reasons are clear, a third of people will take advantage of the upgrade if it’s offered to them.”
Site owners who focus only on the fuel island and the c-store, Robinson asserted, may be unaware that “of all the profit centers, the car wash probably has the highest margin.” But if retailers are honest with themselves and “feel there’s not enough time to focus on promotion or they’re not marketing-oriented,” he said, “they might consider hiring someone as a consultant to set up a car wash operation that includes an easy-to-manage loyalty program.”
Total Marketing Concepts' Michael Perry added, “Loyalty programs get current customers to return two or three times month, who would otherwise come less than once a month.” And to generate even more loyalty, he continued, “You can market to target population segments such as real estate agents, healthcare professionals and teachers.”
In a faltering economy, Perry added, “Two of the best strategic investments you can make are to evaluate your signage and upgrade your entry system for multiple payment options.” Car wash menus should be priced for value.
Retailers can enlist outside help to maximize their car wash returns. Those who opt for outside help from a marketing professional, Perry said, “should look for someone who has experience with a direct mail company and who has worked with local businesses. Contacts in the community are the key.” At the same time, he advised, “Communicate expectations to your suppliers. When distributors and manufacturers help you and other retailers make more money, then that eventually leads to more equipment orders.”
The Right Mix
Distributors and manufacturers, however, are committed to helping car wash operators order the right equipment. “It’s important to select the right amount of equipment for the volume needed at your location in order to optimize the return on your piece of land,” said Dean Cheramie, vice president of sales and marketing at Ryko Manufacturing. Based in Grimes, Iowa, the company makes of rollover, conveyor, drive-through, and self-service wash equipment.
Once the site in installed, Cheramie continues, manufacturers such as Ryko can help operators maintain their equipment, control chemical costs, optimize water quality to ensure a good wash, and inspect and replace signage. “The fundamentals need to be in place,” he said, “and then you need features that create a compelling offering. Things that worked five years ago don’t work today. Look at the competition, compare what they’re offering, and examine your own product mix.”
Obtaining accurate transaction is another fundamental of the car wash business. “You should know what percentage of your sales are the high-end wash,” Cheramie continued, “which could tell you if it’s under- or over-priced. And if your basic wash package is too high, you can try lowering the price to see if it will gain some volume.” As a general rule, he suggested, “For every ten washes, eight go to the bottom line.”
David Whitaker of D&S Car Wash Equipment Company said a successful car wash has three qualities: convenience, quality, and experience. Convenience means “proximity to the home, good ingress and egress, a short line, and the option to pay with a debit or credit card,” he explained. As an added bonus, “Those who use cards tend to buy the top package. In fact, users spend 37 percent to 50 percent more than those who pay with cash,” he said.
A quality wash is accomplished “when operators have kept up the maintenance on their machine, and the chemicals are the right ones at the proper quantity,” Whitaker continued. And giving customers a positive experience is a result of “keeping the bay clean, colorful and bright, which makes the customer feel safe.” Scented chemicals with bright colors add to the experience, especially for women who today comprise 60 percent of car wash purchasers.
Though paying attention to such fundamentals sounds like common sense, Whitaker said, “Some car wash operators are struggling and letting business get away from them, simply by not providing the services customers are looking for.”