Building a Car Wash Club

How to Validate a Business Idea Without Mortgaging your House

Photo by Dan Dimmock on Unsplash

In January, I had a coffee chat with my friend and mentor Luciana Caletti, a co-founder of Love Mondays (now Glassdoor), and Luciana shared with me a business idea she thought was worth exploring: a marketplace for buying and booking car washes.

She said, “everybody needs a car wash and this might be a nice and fragmented niche market for you to explore as you land in Australia.” Australia is a car country, so I thought it was an interesting idea! I then decided to invest a few days, perhaps a couple of weeks, to research and test the idea.

Industry Research

I spent a morning researching car wash management systems and marketplaces globally and an afternoon reading all news articles and research documents about the Australian (and NZ) car wash industry. Here is a summary of what I learned:

• Market size: The Australian car wash industry generates $560 million in annual revenues and has 2,500 car wash operations spread across the country. The average revenue per car wash is only $220.000.
• Growth: The car wash market has reached maturity and has been steadily declining in recent years due to a fall in car ownership and the rise of ride-hailing. Experts estimated a 16% decline in revenues in 2020 due to COVID-19.
• Competition: The industry is highly fragmented and competitive, and the largest player only operates 150 locations. However, the fierce competition is spurring investments in automation and efficiency, and the industry is undergoing consolidation. Key industry players are Star Car Wash, Magic Hand Car Wash, IMO Car Wash Group as well as local franchises operating under licensed service station brands such as BP and Shell.
• Segments: There are four major types of car washes: (i) automatic washes; (ii) self-service bays; (iii) hand car washes; and (iv) premise-free hand car washes, aka mobile car washes. The market share, measured by revenue, is split as follows: automatic (47%), self-service (38%), hand car wash (11%), and mobile (5%).

I also learned from my research that the penetration of professional car wash services in Australia is still significantly low compared to our peer countries (the US and Europe). Does this observation result from cultural differences? Alternatively, is it reasonable to expect that Australians will adopt more and more professional car wash services as the industry develops and becomes more efficient at marketing itself and its benefits to car owners?

How about car ownership? How will autonomous driving and EVs impact the industry? Well, It is hard to predict, but some auto experts are expecting an increase in car ownership resulting from removing the guilt related to owning an EV (vs. a fossil fuel-powered vehicle). Others say that autonomous vehicles will decrease auto ownership and fleets of autonomous vehicle operators will be responsible for moving people around in cities. Surely, this sounds a bit like science fiction and is still in the long term.

All-in-all, I believe the car wash industry is an attractive niche market with interesting characteristics: $560 million in annual revenues, fragmented and competitive. It deserves a go!

Benchmark

Through my benchmark research, I found lots of solutions ranging from equipment suppliers to cashless payments systems to CRM software to membership management tools.

The hardware and software solutions available for car wash operators are endless, but an American company called EverWash caught my attention because of its smart business model.

EverWash offers car washes an integrated membership platform through which car wash operators can offer unlimited wash clubs and turn their occasional clients into loyal members (from pay-per-use to pay-per-month). The typical offering works as follows:

• Single outside car wash: $20 per use
• Unlimited outside washes: $35 per month

For less than the price of two washes per month, drivers can subscribe to a monthly plan and redeem unlimited washes at their location of choice. This value proposition is a great deal for clients who wish to have their cars washed more than once a month, a segment that has proven to reach 10% to 15% of car wash clients in the US.

Through a simple two-sided application, EverWash allows car washes to register locations and create plans, including a range of services and prices according to their wash type and client segment.

In turn, drivers can register their vehicle details and subscribe to membership plans to become members of their favorite car wash locations. The application also offers add-on services to drivers.

The math behind this business model is simple. Follow me:

• Let’s assume an average car wash operates 200 washes per week, a total of 10,400 washes per year. If the average price per wash is $25, their revenue adds up to $260,000. If an average client washes his car on average 4 times per year, the car wash has 2,600 clients. The average revenue per client per year is $100.
• Now, if the wash offers an unlimited wash plan for $49, the revenue per client per year grows to $588 for members (versus $100 for non-members). If the wash converts 15% of its clients to members, the total membership revenue would be $229,320. The occasional client revenue would fall to $221,000 and the total revenue would add up to $450,320 (73%)

In summary, the value proposition for drivers is clear: unlimited wash clubs offer substantial discounts. For car washes, pay-per-month programs significantly increased their wash revenues and created recurring revenue streams. It’s a win-win!

Business model

EverWash’s revenue model is simple as well. It charges car washes a 10% management fee and a 5% credit card transaction fee, as well as a fixed $3 fee for each newly registered membership sold. Put simply, EverWash takes 15% of the new revenue generated by its wash members.

The business model seemed quite simple and easy to build and sell without much capital needed upfront. In addition, it offered good barriers to entry in the form of contracts with car washes and network effects. And the good news: EverWash was not present in Australia and New Zealand, so it seemed like a great bootstrapping opportunity.

If I managed to sign up 10 mid-sized car washes in Australia to my application, I should be able to generate $350k in annual recurring revenue.

Washly is Born

In order to test this concept in Australia, I decided to talk to clients and launched Washly, an Adelaide-based membership management company offering a software platform for car washes.

I used Namelix to create a business name and bought the domain Washly.App. I then used Canva to create a simple logo, and Mailchimp to launch a landing page. The result was the following:

I was in a quarantine hotel, so I was unable to visit car washes in person. Therefore, I decided to cold-call car washes across the country. In about 4 days, I spoke with 25 car washes responsible for about 68 operations in Australia. I used Pipedrive to manage leads. The following is a summary of my learnings after the interviews:

• I tried varying my pitch other the phone, but it was difficult to catch their attention and my hit ratio was low. I suspected a visit in-person would be more effective.
• The calls confirmed that the industry is highly fragmented and there are only a handful of players operating more than 10 car washes in Australia.
• The average price per car wash type is the following: self-service bay ($6–8), automatic wash/tunnel ($12–15), hand wash ($30-40)
• The time and effort required to wash a car also vary depending on the type of wash: self-service bay/hand wash (>30min), automatic wash/tunnel (5–10min).
• As a result, hand washes seem to be the least scalable and the least efficient operations.
• Car wash managers and owners are very familiar with unlimited wash clubs and their benefits. Some car wash operations already run their membership programs independently.
• Well-managed car-washes offer a range of services to add value to their wash operations. The services most commonly offered by car washes are dog wash and cafe.
• Most automatic car washes are located in or close to service stations. Other high-traffic areas such as supermarkets and malls also offer car washes to attract traffic. Supermarket car washes tend to be operated by independent partners and are in general less automated. Service station washes tend to be operated by the stations themselves and are in general more automated (in bay automated washes).
• In-bay automatic and conveyor tunnels tend to be highly automated with some operations fully automated and no human presence (touchless). Fully automated car washes tend to use RFID/pre-paid solutions to manged their payments and service delivery.
• Service hours also vary according to the level of automation and car wash type. Less automated washes in general operate between 7 am and 5 pm, 7 days a week, while fully automated operations are open 24/7.
• Google Maps is a great source of leads and a good way to qualify leads as well. The number of reviews is a good proxy for business volume. For example, I learned that a car wash located in Perth, operating two locations, washes an average of ~200 cars per week per location. Their review count is 49 and 76.
• Owners/managers of hand car washes tend to be immigrants, while owners/managers of automated car washes tend to be Australians.

I learned that the best targets for Washly at this stage are mid-sized hand car washes because they are labor-intensive businesses and because hand car washes have little to no automation. Therefore, a solution like Washly appeals to this segment as it offers increased revenues, ease of use, and no software or hardware integration.

Based on the abovementioned findings, I decided to initially focus my efforts on hand car wash operations and develop a product mockup to use in the upcoming interviews.

Automatic car washes were the most attractive players, but their processes required a software solution that was both more complex and more expensive to build. Therefore, I decided to only approach this segment after validating Washly with hand car wash partners.

I then built a prototype on Miro to demo the product to hand car washes and decided to carry out my next interviews in person. below are prints of the Washly mockup:

Driver’s application

Car wash application

Next, I rented a car and visited 13 car washes in Adelaide and its suburbs. As I suspected, my hit ratio increased significantly and I managed to speak with the owners or managers of 11 car washes (84%). The following is a summary of my main findings and outcomes:

• Well-managed car wash operations already offer unlimited wash clubs to their clients. These businesses manage their clubs through third-party software providers or using spreadsheets. However, sales and operations are still labor-dependent and time-consuming.
• Membership management tools appeal to mid and large hand car washes, which seem to be our best target segment. I spoke with a car wash operator who owns and operates 2 locations in Adelaide who expressed interest in joining Washly. His largest operation averages 500 washes per week. Another slightly smaller operation also expressed interest in joining our platform.
• I learned that the American company Coinless (7 washes in operation) is offering a complete suite for cashless payments, membership management, and fleet management for car washes. Coinless has a slightly different model than Everwash, but essentially covers the solutions offered by Washly. Two of the car washes I visited asked me if I actually represented Coinless. Other competitors in this space are ICS, Nayax, and Circumtec.
• Car washes seem to be washes are loyal to their trade association, ACWA. Some wash owners recommended we should join ACWA and arrange a meeting to display our products and services to members. They mentioned that Coinless has partnered with the association and was actively presenting to car wash owners across the country.

Development

In parallel, I cut to the chase and selected only core functions to design the simplest functional product for hand car washes. E.g: I cut off the control panel, and decided to initially operate the app through SQL commands and direct access to the database.

I then used Miro to write detailed product specifications and contacted 5 software houses to commission and quote the first version of the Washly app.

Driver wireframe

Wash wireframe

Platform architecture

Database

In addition to the above, I wrote a word document with all the business rules to be the main reference to back-end development.

I then screened 5 software houses with good capabilities in mobile application development through Clutch and asked for quotes. The specifications were very detailed, therefore I can state that the scope of work was comparable. Their quotes were the following: US$22k, $34k, $70k, and $72k. One software house indicated a high price and decided to not offer a quote.

Competition

In the face of competition, I decided to dig deeper on how much lead Coinless had to Washly. Through my research, I learned the following about Coinless:

• Coinless is a follower in the United States, where EverWash is the leader. The company was founded in 2018, while EverWash was founded in 2016.
• Coinless has ~70 operations in the US and seemed poised to grow internationally. It had recently opened offices in Australia and New Zealand and already had 7 operations in Australia and 3 in New Zealand.
• Their software and hardware stack offered solutions for hand car wash and automated operations alike. Its product covered cashless payments, membership management, and fleet management. In addition, Coinless’s systems could be easily integrated with the main car wash software and hardware platforms available in the market.
• After interviewing 3 Coinless clients, I learned that their product worked well and clients were very happy with Coinless products. In addition to the benefits mentioned above, their product allowed automatic car washes to collect data about their clients. Car washes using other payment solutions available were blind and did not have information about their users.
• Above all, they had formed a strong partnership with industry leaders and seemed poised to enter the Australian market targeting the most attractive segment: self-service and automatic washes, which represent 85% of the market in revenues.

Budget

How much have I spent on this project? Below is the full budget:

Conclusions

Based on my research, I concluded that Coinless is well ahead of Washly and, therefore, is well-positioned to take the lion’s share of the Australian and New Zealand car wash market. The product is built and tested and they already have 10 satisfied clients using their solution in the region.

In addition, the car wash market in ANZ is not very large and only has 2,500 locations in Australia (~500 in NZ). Wisely, Coinless is focusing its commercial efforts on the most attractive segment: automatic and self-service washes. In the best-case scenario, Washly would be able to approach that segment in at least 12 months, after building and testing its software.

In conclusion: it is time to pivot! I met with Adelaide-based entrepreneur Andria Rose and she challenged me? “What if you created a pay-per-month model for everything (service-based)?” Vet, pet grooming, pet wash, mechanic, hair salons, barbershops, nails, wax, thread, etc. She said, “I’m sure there would be a market for that because people are busy and they want to be served.”

I spent some time thinking about it and concluded that the bulk of the value created by EverWash is delivered to automatic washes as opposed to hand car washes. This is the case because automatic washes are highly scalable and have a low variable cost. Therefore, any additional revenue is almost entirely converted into profits. On the other hand, hand car washes are not as scalable and have much lower operating margins, turning the model less attractive to the latter. Therefore, the characteristics of a good market for membership seemed to be the following: (i) niche and (ii) highly fragmented market composed of (iii) small business that are (iv) highly scalable, (v) whose assets have significant idle capacity and (vi) operate high-profit margins. Which other segments have similar characteristics?

I then had a chat with a friend who is a former consultant and recently became a pet industry expert about membership opportunities in the pet space. He seconded the abovementioned conclusions about the market structure and mentioned that all three pet markets (vet, wash&groom, sitting) were roughly $1bn markets and a membership model would hardly ever work due to challenges such as low scalability, high-cost structure, presence of dominant players and competition. He mentioned to me several examples of well-funded startups and even exits and public companies whose businesses were struggling or just not attractive.

What is next? Still unknown.

Based in Adelaide, Rob Blum is a problem-solver engineer and MBA with demonstrated leadership and work experience in technology, finance & retail. Get in touch