David Bennett, Senior Editor
Gross revenues at convenience stores are affected by a multitude of market forces. Everything from constrained gas prices to tobacco taxes to bank fees can combine to impede cash streams. In fact, there are few ways to generate the type of net operating income that far outstrips the associated expenses.
Aside from ancillary services, such as lottery, prepaid telephone cards and movie rentals, a car wash can help a c-store operation “clean up” if the right business model is used.
The convenience store industry is America’s primary source for fuel. Overall, 83.7% of convenience stores nationwide—almost 127,000— sell motor fuels, which is a 2.7% increase over 2013, according to the NACS (National Association of Convenience Stores). The number of c-stores selling motor fuels continues to climb, and many are allowing customers to also pay to get their vehicles cleaned.
Car washes are considered a value-added commodity because they often attract additional customers that can boost in-store sales.
Jack Kofdarali is president of J&T Management Inc., which among other things, is a franchise owner that operates 24 ARCO ampm convenience stores. For more than 20 years, he has watched the evolution of car wash systems, which today are designed to clean better, faster and use fewer resources than ever before. More automation is being deployed, including pay stations and moving platforms, to help reduce operating expenses.
With all those vehicles and all those customers, the profit potential of a car wash operation is advantageous, if it’s a good fit for a c-store’s operation.
Kofdarali became the sole owner of J&R Oil Co. and continued to grow the business. J&R Oil Co. became J&T Management as the business diversified.
The c-store operation is expanding its foothold in southern California with a new Shell/Circle K c-store, which opened in the city of Wildomar this past February. The new location, also complemented by an automatic car wash, is profitable, Kofdarali said. “Within four months of being open, the store is doing about $160,000 in c-store sales per month and the car wash is doing $10,000,” Kofdarali said.
That type of cash flow ensures automatic car washes will remain a part of the company’s portfolio.
“It’s been over the last 10 years that I’ve gone back and added onto the existing stores, and every new store we build now has a car wash with it,” Kofdarali said. “In our industry, unless you have a huge food offering, there are really not a lot of sources of potential income in a store. You have the fuel and you have the c-store, and that’s it. A car wash is very relevant to your business as far as competition and sustaining your profits.”
In addition to building and operating convenience stores, J&T Management also develops commercial retail centers throughout southern California and provides business operations oversight for convenience and fuel retailers.
Ampm customers can earn a certain amount off a gallon of gas if they purchase a car wash as well. That way, they are getting value for their money—especially if they were going to pay for a wash anyway, and ARCO is leveraging overall sales.
“We are now putting two-tier pricing on the streets where if gas is $3.69, you can do 20 cents per gallon off and when you can post a price 20 cents below everybody else with a car wash, then that makes a difference,” Kofdarali said. “In the first store where we did that (three years ago), we increased the car wash sales from $5,000 per month to $15,000. When we tracked the fuel discount associated with that, it was about $5,000, but it was still doubling the sales.”
COST OF OWNERSHIP
In planning for a car wash operation, the return on investment can be substantial if a winning model is used. Such a model often requires a significant investment, good planning and attention to detail.
Because the upfront capital investment of an automatic car wash can be hundreds of thousands of dollars, depending on the type of car wash—rollover or in-bay automatics, which can clean 20 cars per hour, and conveyor or tunnel car washes, which can clean up to 100 cars per hour, are two options.
Eric Wulf, CEO of the International Carwash Association, based in Chicago, said two factors come into play when determining the likelihood that a c-store will get a good return on a car wash investment. The first is the physical site itself. Is the location marred by an abundance of car wash competitors? Also, is the location welcoming to motorists who might support the venture? For example, a c-store with one gas pump probably won’t entice enough customers to make a car wash operation viable.
“There is a long standing estimation in the industry that typically, if you’re not pumping 100,000 gallons of gas per month, it might be challenging for you to even consider a car wash,” Wulf said. “That’s because in a c-store environment you are relying on the traffic you are already getting. You’re not going to put a car wash on your c-store site to say: ‘I’m going to get all new customers to visit that product.’ You’re going to get usual customers to spend more money while they’re visiting you.”
C-store operators seeking growth need to focus on the fundamentals when it comes to an effective car wash service. This means extracting gains from operations and brand performance, effective advertising and communication, and incremental business, Wulf said. A car wash offering can be incorporated seamlessly into a c-store’s product mix.
“The car wash should be integrated into marketing, so buying a car wash at the pump, nowadays is pretty much a no-brainer. You have to have it integrated for ease of purchase,” Wulf said. “You have to be able to purchase it in the store, be able to cross-promote, be able to market digitally or by social media or by flyers, so that the car wash is getting the attention from your marketing program that other convenience items—foods, tobacco or other products being sold—are getting.”
Another car wash consideration is the environmental regulations in the state in which you live. Sometimes local and state mandates can benefit a car wash operation due to environmental constraints. California, on Aug 1., enacted temporary regulations that prohibit watering outdoor landscapes and washing vehicles enough to create runoff onto surfaces like sidewalks or roadways, as well as using water to clean residential driveways or walkways. Infractions carry fines of up to $500.
Comparably, a trip though one of Kofdarali’s car wash operations only loses three gallons of water—the rest of the volume is captured in a recycling containment system. Washing your own car, Kofdarali estimates takes about 200 gallons of water, so comparably, the c-store provides a public service in a sense, especially when water conservation alerts are in place.
“We are welcomed by the cities where we choose to open up a car wash,” Kofdarali said. CSD