About the Episode:
Midway through 2022, the second half of the year looks a little different from the first, for the car wash space and just about every other. While the year began guns blazing, the red-hot car wash market has tempered a bit due to current headwinds like inflation, rising interest rates, and a general decreased consumer spending sentiment. Luckily though, it’s not all bad. Despite these short-term headwinds, Jeff shares his long-term thesis for the car wash industry (spoiler alert, it’s still favorable!).
In this episode, Lanese and Jeff discuss where the car wash industry is today and what may be in store for the rest of the year regarding car wash mergers and acquisitions activity. Jeff also shares his two cents on valuations and what factors owners need to be laser-focused on when it comes to maximizing the value of their business in today’s market.
More about Jeff Pavone:
Jeff Pavone is a leading advisor to the car wash industry, successfully completing more than $5 billion in car wash-related transactions. A lifelong entrepreneur, Jeff is the owner of Commercial Plus, a real estate and business brokerage firm, and a partner at Amplify Car Wash Advisors, a mergers and acquisitions and capital advisory firm specializing exclusively in the car wash industry. Leveraging his longstanding relationships in both the car wash and investment banking industries, Jeff partnered with car wash veteran Bill Martin in early 2020 and launched Amplify Car Wash Advisors to address the evolving needs of car wash owners. Together, Jeff and Bill recognized the need for providing guidance tailored specifically to car wash owners when it comes to selling or scaling their business. Today, Amplify has completed complex transactions for some of the most well-known and widely respected car wash chains in the country and is the only group that bridges the gap between investment banking and car wash operations.
Outside of providing advisory services on a nationwide scale, Jeff is also a real estate investor and car wash owner. Before entering the car wash industry, Jeff was the co-founder of Law.com and founder of Medical.com and National Law Resource.
Check out the full transcript below:
Lanese
Hi, I’m Lanese Barnett, Vice President of Business Development at Amplify Car Wash Advisors and your host of Car Wash M&A, The Podcast. Here we’ll take a deep dive into the current mergers and acquisitions activity of the car wash industry with a goal of keeping car wash owners informed on where the market is today, and where it’s going tomorrow, so that you can make informed decisions about your business. We’ll help you answer the question should I sell my car wash now, or should I enter growth mode and really scale my operation? Each month I’ll speak with industry experts who will share practical advice on how to sell or scale your car wash. While the industry is undoubtably changing, what remains constant is the need for solid information so you can evaluate where you are and chart the course for the future of your business.
Lanese
Welcome to episode six of Car Wash M&A, The Podcast. Today I have Jeff Pavone, who is partner at Amplify Car Wash Advisors on as our guest. And we are going to talk about the current state of the car wash market, where we are today and then what may be in store for the rest of the year. Some of the things we’ll touch on today are the newly released CPI data, and what car wash owners can do to protect sales in an inflationary environment. Some of the other things we’ll talk about are how risk tolerance may be shifting and what options car wash owners have today. So welcome, Jeff, thank you for being on. I’m really looking forward to this talk. And it’s always great to look at the big picture of the car wash industry and then also dive in always back to what it means to car wash owners, and how we can hopefully provide them information that really helps them with where they are right now. To get started, let’s just kind of take a peek at where we are today in the car wash environment as far as mergers and acquisitions and any kind of trends that you’re seeing on a macro level.
Jeff
Thanks, Lanese. First off, you know, I think we’re coming off a period — and we had this period, I would say, ever since Mister went public — and it was sort of that mindset of get big fast. I think everybody was out rushing, buying everything and anything in the car wash space. It was a good time to be in our chairs because the activity level was moving. I think the underwriting from a lot of the group was probably maybe a little more relaxed than it’s going to be going forward. And it was just get big fast. The first half of the year was record volume. We saw our deal flow just double in size from last year. The deal sizes got bigger. And we felt just a lot of excitement and exuberance to buying some of these chains and platforms that were there.
Lanese
Absolutely. So kind of on recent information that’s come out regarding the consumer price index numbers… So the June report showed that there was a 9.1% hike in where that consumer price index was a year ago. And that shows us that it’s up 1.3% From May. This is in the report according to the Federal Bureau of Labor and Statistics. So we know that inflation is not slowing down. There’s no end in sight for what that is. But I think one of the surprising things that we’re seeing is that the health of the car wash business has been relatively strong despite this rising inflationary environment and lower discretionary income. So let’s talk about what that means for car wash owners on their operations level with what they’re seeing with customers and what we’re hearing around the country.
Jeff
This is a great subject. You know, it’s interesting! Last year if somebody said what was the Aha Moment that we all had, and I think the Aha Moment that I had and a lot of our colleagues had was that we greatly underestimated the consumer wanting car washes. So, you know, it’s funny. The more we built, the more they flocked to the car washes and got their car wash done, because it was really one of the best bargains out there. And the other thing we’ve really noticed is that I would say that the majority operators raised prices in the last year, and there was almost zero price resistance from the consumer. So that was a really a positive sign that kept people getting excited. I tell you that as inflation is growing, we are seeing definitely some thought now going into the consumers can’t keep absorbing inflation like they had before. You know, they had maybe some PPP money, some other stuff, government money and subsidies. And we saw nothing stopping consumers from spending. I would tell you on a go forward basis, one of the primary concerns or at least at least we’re worthy of taking note of and watching is going to be that the consumer can only absorb so much. And as long as gas stays up over $5 a gallon, in some markets, it’s going to affect what consumers can do. And so I think you’re going to see some softening with consumer spending. The good news is, it’s still relatively cheap to get your car wash. And when you can spend $20 a month or $30 a month, and you get unlimited washes, and you’re spending, you know, $100 or $150 to fill up your tank, it still becomes a pretty good bet that consumers will continue getting their cars washed. But there will be… We’re probably predicting somewhere is at 5%, 6%, 7% softening of retail sales in car washing. I think there’s going to be some softening on a go forward basis. I just don’t think we felt it yet. But if inflation stays high, we will see some softening, more in the retail sales, I think. And then, when you look at memberships, I want to say depending on demographics, some markets will get hit a little harder than others.
Lanese
Right, and that’s really that lag in the reporting, because what we’re seeing from June was still really strong numbers. And the good news is that there are some things working in our favor. For instance, we just went through a long period during the pandemic where, surprisingly, the car wash industry fared very well. And so at least we’ve kind of have something that’s in the near past that showed that the industry was very resilient, and that consumers, even in a very different environment, still wanted to get their car washed and prioritized that. Partly because it feels good to get your car washed, and if you’re going to be paying $5 a gallon for your car, better to have it clean, so you can enjoy the ride while you’re out there. With talking about the health of the car wash operations, I think it goes back to what we’ve been working on at Amplify Car Wash Advisors with the launch of Amplify Ventures, and really shining a light on the need to strengthen and focus on operations to keep going forward. Because if the demand is there, we just need to make sure that operators have the resources and tools to best protect their memberships. That’s what’s keeping the revenue stable in these challenging times.
Jeff
Yeah, just to tag on to add a little bit, we’ve had just unprecedented consolidation and growth. We’ve had operators building like crazy; we’ve had consolidators growing like crazy. And I can tell you, the, at least a lot of where I think that the direction is going, is going to be in operations. At the end of the day, every dollar anybody spends today is something that they’re going to watch, so we really are huge believers in operations. Customer experience is going to be critical to maintaining your volumes and growing and continuing to grow. And we’re already seeing some headwinds, where you’re finding some of the folks that get into the space just to accumulate assets, and realizing that there’s an operating business here. And this isn’t like self storage, where you really don’t have a lot of moving parts.
Lanese
It’s not set it and forget it. I mean, building it is really the easiest part. It’s everything that comes after!
Jeff
Yeah, I mean, it’s the 100 things you do, right? We’re finding that there’s tremendous focus on operations. And so we as a firm have always believed that our goal is to maximize the value of someone’s business. And for us, we’ll do it either through our strategies or our capital advisory. But we’ve been looking into the operations now for the last year, and having the pedigree we have with operators on our team, we’ve got a pretty good idea on what good performing sites need, and so, we do believe that on a go forward basis, it’s going to be much more of an emphasis and what people are looking for, and they’re going to be looking for well operated businesses. And I think the consumer as well is going to make a choice at some point. With all the competition and new sites being built, how do you differentiate? You’re going to differentiate through your customer experience. So if you’ve got two washers a mile apart, and that’s not that uncommon anymore, the consumer is going to go to the place that’s going to get the best customer experience. So we are all in. We believe it’s going to be where everybody needs to start paying a lot more attention to. That was really our genesis for getting into Amplify Ventures is to continue to drive focus on operations.
Lanese
And I know that I can speak for myself and other members of the team that one of the things that drew us individually to Amplify in particular is because it is comprised of people who are very passionate about the car wash industry and have a history with the car wash industry. So this is just an extension of the roles that we’ve already played, just a different iteration of it. But we want to see car wash owners succeed because we’ve been on the other side or are currently doing both like, you know, like you and like Bill, that the operation side of it is not just in theory, it’s also in firsthand practice.
Jeff
For sure.
Lanese
So with the headwinds that we have facing potentially for the rest of 2022, what are some of the options that car wash owners have if they are examining what their next step forward is? Should they stay still and keep doing what they’re doing? Should they look at making an exit? Or should they look at finding ways to grow their business and try to achieve scale so that they can gain a larger presence in their market?
Jeff
So when we look at the space today, as we look going forward, we’ve really got to look and say, I can tell you the second half of this year is going to be, I think, significantly different than the first half where everybody was just blowing and going and nothing mattered. I think going forward… I’ll give you the positive news. The positive side of it is that we’ve got some major players that have entered the space recently. And so there’s still a huge demand to scale and grow car washes, the car wash business, because it’s a great business. You’ve got recurring revenue, you still got… you’re closed at night, you don’t have inventory. There’s still a lot of reasons to be bullish on the space, and with the type of people coming in the space, they’re all going to have the same goal. They all want to grow. So there’s still a tremendous upside and opportunity for the operators. I do think what’s going to be different going forward is I think the underwriting and what the buyers are looking for is they’re becoming more sophisticated, right? There’s a lot more data they have, right? They’ve looked at a lot of books, so they understand more numbers, metrics and things about what a good performing chain looks like. They know the kind of team they’re looking for. So there’s a lot more data that they have to follow. And so I think they’re going to be a lot more selective in what they’re going to buy. From an operator standpoint, the answer, to answer your question, we’re still finding that there is a lot of opportunity for… Let’s say an operator is doing a great job and building sites. Well, today, the cost is gone up significantly, right? We’ve watched the cost of car washes, building a car wash… It wasn’t that long ago that it was in the $3 to $4 million range. Today, it’s close to $6 million. And then if you take interest rates that were in the threes not that long ago, now we’re in the fives… Just that alone on one car wash could be $100,000 a year more in interest. So it is getting… We’re getting into the big leagues where I don’t think operators can afford to make mistakes. They’ve got to be very smart about where they’re building and what they’re building. And so we’re seeing that a lot of operators now are at least looking at their options. And the options that we’re seeing and some of the deals that we’re putting together… Obviously if somebody wants a full out exit and sale, that’s certainly an option. But other options of if they want to de-risk their own business, and really bring in some call it some smart money that can help them scale, maybe get rid of some of their personal guarantees, there are people out there that are looking for… They’ll take let’s call it a majority. So anything above 50%, 60%, 70%. There are groups out there that would take minority, so let’s say you’re really well run, and you don’t want to… You’re not quite ready to do it to a real majority sale, there are groups out there that would maybe buy in 30% of your company, help provide the capital that will help you grow… Those deals are out there. And we’re still, as a firm, we’re getting calls every week from groups that want to partner in the space, because even when you look at a looming recession, and all these kinds of things, that doesn’t just affect car washing. It affects all retail, all businesses. And I would say the general consensus is that car washing will fare better in a recession than most businesses. You know, it’s going to be a little challenging. But there’s still so much growth and consumer demand, you know, that we think the impact could be minor. But I would say there’s still plenty of opportunity for operators that do want to either exit or partner with somebody, because there’s still a tremendous amount of dry powder or cash sitting on the sidelines, and they have less options where to go today.
Lanese
Right, and they have to put that money somewhere, so…
Jeff
They’ve got to put it to work. The long-term thesis on car washing is still a good one. There’s still a lot of road to build and grow. And so maybe it gets a little choppy for a couple of years here. But it’s less choppy than most other roads. And the opportunity still is fairly significant. So we really look at the industry itself continuing to grow at a fairly good clip going forward. I just think you’re going to find a much more conservative approach to buying because I think they’re more sophisticated. They know what they’re looking for. And the risks have gone up a little bit with all the negative headwinds.
Lanese
With the change in who is entering the car wash space, because, as we’ve talked about many times, that 10 plus years ago, it’s all Mom and Pop owners and I mean even still today the industry is largely comprised of small business owners. But as larger groups are growing bigger, it’s also raising the bar for the professionalism and the level of service that now consumers expect, because they do have the option to have a monthly plan with maybe 10, 15, 20, 30 locations in their market that they can use it at. And there’s a lot of upside still for the industry as we are growing and evolving in the professionalism of the service. I mean, even take our firm, we have how many full-time employees that are largely dedicated to the car wash industry?
Jeff
Yeah, we have over 25 full-time dedicated team members now within our firm.
Lanese
That’s incredible!
Jeff
Yeah, that’s been pretty exciting growth. When we’re looking at the growth of the space and the people getting in, I’d say you’re seeing a couple factors. One is the private equity groups and the financial people coming in to space are now at the absolute top of the heap on Wall Street. These are the best groups entering the space, so we are definitely seeing that they’re still liking the space. They’re getting in the space today, knowing what headwinds we are faced with because they like the long-term thesis of the space. The other thing you’re seeing now, and this is where operators that are Mom & Pop have got to be at their A game, we are absolutely, positively finding that some of these well-backed chains that got in early with financial support, like https://www.tidalwaveautospa.com/ out of Atlanta, Georgia, https://cobblestone.com/, https://www.superstarcarwashaz.com/ of the world, you’re finding… https://www.dontdrivedirty.com/ of the world… These are chains that started off small, and all of these guys will be over 100 plus locations, you know, 100 to 200 locations, I think within 12 to 18 months.
Lanese
That’s incredible!
Jeff
I mean, I’ve watched these guys grow from… It took them forever to get to the first 10. They probably got to from 10 to 100 quicker than they got the first 10. So the the rapid pace of which these guys are growing is amazing! But it’s also, if you’re in a market where they’re in, it’s going to be very difficult to compete. We will have markets where you’ll have 40 or 50 of one brand, that a consumer can go and get their car washed. And if you look at their marketing budgets, with signs and radio and everything else they can do, it’s going to be tough to compete with. I think, at the end of the day, that’s where everybody’s got to look and say, you really need to make sure if you’re going to stay small, that you’ve got absolutely great real estate, dependable real estate, we’ll call it, and you operate at a really high level. Assuming you’re in a great location, you’ll see you’re going to wash a lot of cars, so I don’t think there’s as big of a risk, but if you’re vulnerable in the least, and let’s say one of these big brands plop down a unit near you, you’re going to be in trouble, because the consumer is going to look at it and say, “Wow, I can go to 1 of 50 locations!” It’s hard to compete. The other thing they have is, you know, as they get bigger, they’re spending a lot more money on marketing and sales training, and they’ve got a lot more weapons that they’re deploying. And you’ll see at some point, the data analytics and the other things that they can do, they’re getting very, very sophisticated. So we are finding that a lot of these private equity backed chains, just are really growing at a very big clip. And so I do think that’s what… If I’m in this business, in a market that’s vulnerable, you just need to be aware of that.
Lanese
Right. And that’s one of the things that we look to help navigate with our clients and potential clients is how can we find what the best path forward is for you because it’s not the same for everyone and different car wash owners have different motivations and different goals that it could be stay in and sell a minority stake in the company and continue on and continue growing it or perhaps it’s time to consider making an exit or even taking on a majority partner. But of the chains that you mentioned before, you totally hit the nail on the head that what they have realized as they’ve gotten bigger is the importance of that team behind them — that they do have a marketing team, that they do have a training team and a sales team that really are investing in that brand to elevate the whole brand. And so then that helps all their locations. And so, for the smaller operators, finding a way to get out of working on the everyday business so you can grow it to that larger scale is very difficult to do on your own sometimes.
Jeff
It’s quite challenging. And so, I do think we’re going to… We talked about this probably a year or two ago, that, you know, I thought one of the biggest transformations of spaces is going to come from brands growing aggressively. And now we’re seeing just what that looks like. I mean, again, a Super Star was in the 30 something location range not that long ago; now they’re at 50 something locations. And then you look at it and say, in 12 months, they’ll be at 100 locations. So this is exceptional growth. You look at https://clubcarwash.com/, you look at the growth they’re having, and I could just go down the line… There’s probably at least 10 or 12 of these groups out there that are just growing at a ridiculous pace, so that’s something just to be be aware of. And so, what we do at Amplify is we are absolutely relationship driven. We are long term. We’re never in a hurry to want somebody to do a transaction. But there’s a lot of things that we will look at from the market that they’re in, how they’re competitively positioned from a real estate standpoint, and from there, we just help give you some advice on what path to go down.
Lanese
Right. And again, that comes back to that operations experience of our particular firm of having that firsthand knowledge of what it looks like on the other side to help them choose that path and to help navigate that path forward. Segueing back to what we talked about with Amplify Ventures, one of the reasons that we’ve launched that and what we’re trying to do is for owners and operators looking to have added support, especially on their customer experience side, we partnered with https://retentionexpress.com/ with Bobby Thomson, who was on our last episode. But because a lot of smaller car wash chains don’t have the capacity to have a full in-house call center, this is a way that they can have the same level of service with multiple touchpoints — through phone calls, emails, social media, website chat — to answer questions, resolve customer issues, and add that support to the customer experience to help elevate that so that they’re protecting their memberships, and that they’re keeping that… As Bobby called it, keeping that back door closed. So you’ve got your customer in, and you’re not letting them leave, so you have the capacity to bring in new ones, but then also you’re not at risk of ignoring your existing loyal customers.
Jeff
So more so now than ever, as the economy gets a little tighter, people are going to have a choice to make, right? Stay or go. And we look at Bobby and Retention Express as being… They really have the best practices in retaining memberships. And we look at the memberships… I mean, that that’s fueling this whole business, this industry is memberships. So we looked at that as a critical component. And I tell you that if I talk to 10 operators and how they’re handling it, I’ll get 10 different ways they’re doing it. And I’ve got guys still getting phone calls on their phone, and they got 10 locations. It’s crazy! And the data supports that the amount of members that go uncalled let’s say, or there’s no outreach… And again, it’s not only the outreach; it’s what is the message? You know, what are you saying? And I can tell you that we believe, at least as a firm, and everything we do is best practices, so I don’t really like long learning curves. It’s very expensive. So you might as well take the best of the best, learn from it, and then provide those services to others. That’s sort of where Retention Express fits in. I think, at the end of the day, we really do want to provide the absolute best practices in retaining memberships, and expanding that out to the rest of the car wash community because it is the lifeline of their business.
Lanese
Oh, absolutely. And as we talked about through the pandemic, and the stability of the car wash industry, it was the monthly plans that provided that stability and even beyond the period through COVID, but also it’s a weather-based industry. So having the stability and the predictability of revenue is such a huge step forward for the car wash industry and why it’s caught the attention in recent years of so many people looking to get into the space because of that. So it only makes sense to put so much emphasis and effort on protecting and strengthening and bolstering monthly plans if that’s what’s the main draw to our industry.
Jeff
Yeah, you’re right. When you look at the value of the businesses, it wasn’t long ago, when an eight multiple of your EBITDA of your cash flow was the norm. And now, you see deals happening in the teens. What’s changed? It’s memberships! Right? At the end of the day, if a buyer could underwrite to reoccurring revenue, it becomes a much better business. And so you better believe it that your membership is the value proposition you’re selling, and anything you could do to protect that investment is well worth it.
Lanese
And Jeff, you mentioned EBITDA. Just for our listeners, can you just give a quick overview what that means?
Jeff
Just earning before interest, depreciation, taxes and amortization. You basically add back your depreciation and your interest, and your bottom-line cash flow sort of comes out of that number.
Lanese
Yeah, and you’re talking about multiples. https://amplifywash.com/sell/ Just kind of a range, or what you’re predicting… I know we don’t like to give specific numbers, but…
Jeff
Yeah, it’s really hard to give you a sort of… I mean, the range to me is still, I would say… Well, let’s start with this. I absolutely believe we’ve peaked in multiples. So, sorry to say that, but I think we’ve had a pretty good run of really high multiples, and it’s peaked. Now, part of what could really affect holding that multiple from growing or even going down now is that as interest rates go up, and as the buyers have to go out and put in debt and leverage on a deal that they’re buying, their returns go down. So you will see multiples tighten up. The other factor is they’re becoming smarter, right? They’ve got a lot more data to look at and review.
Lanese
More boxes to check that they’re looking for instead of, “We’ll buy it!”
Jeff
Yeah. Now, I will tell you that we’ve had tremendous success; we’ve had some of the largest deals that we’ve closed in the industry, just even over the last few months. And I will tell you, if you’re a premium platform, and you’ve got a great company, and again, you’re hitting all the buttons. You’ve got sites doing high volume, you’ve got good EBITDA, you’ve got great real estate, you’ve got a pipeline to more sites
Lanese
And a strong team.
Jeff
Imperative! A strong team. Those deals are still going to get a lot of attention, and they’re going to get really attractive multiples. So part of it is there’s less of them out there to chase.
Lanese
We recently facilitated the transaction with https://www.qcarwash.com/ and https://calibercarwash.com/, and that’s a great example of that, where they had a great operation, great sites, great branding. And that was a very attractive position for them to continue growing in the Dallas Fort Worth area.
Jeff
For sure. And I think on that deal, we probably got a record multiple for our client. But for the buyer, it’s still a great opportunity because they got into one of the best MSAs in the country. And there’s a path of scaling. And so there’s a lot of things that go into these multiples because no buyer wants to pay 15 to 20, multiple X without having a path…
Lanese
And every seller wants it.
Jeff
Yeah, and every seller wants it. You know, at the end of the day, they’ve got to have a path to getting down to an eight or nine or ten. And they’ll do that typically through a growth strategy. But if you’ve got a great platform that can grow, and you got a path to getting down to that high single digit, you’re going to find you’re going to get an attractive multiple. But you’ve got to have the right team, they can help give you some gas and fuel your growth, and then it’s off to the races. So, you’re still going to see some premium deals happen, you’re going to see some high multiples, but I do think the add on stuff is going to be surely looked at with a lot more scrutiny, and those multiples definitely will be tightening up.
Lanese
And something else that we have talked about before, too is possibly a trend continuing forward is the platforms changing hands that, as more consolidation is occurring, that now we’re seeing consolidation of the consolidators.
Jeff
Yeah, for sure. As the, I would say, much bigger funds and money is coming into the space, they need to write a big check. And so as there’s fewer and fewer, I would say, larger premium opportunities out there, they now have their sights set on buying scale, by picking up a platform that they can step in. And if they can buy something with 50 or 60 locations, and then start building out from that, it’s far easier for them than to start with something smaller, so we are definitely seeing a lot of that going on right now. But it’s like everything else. Even the platforms have the same sort of issues that we’ve got to look at. And the buyer is becoming more sophisticated. They’re looking at these platforms. They’re seeing what kind of operating team they have in place, they’re looking at their metrics on their car washes. They’re looking at what markets they’re in and how strong they are in their markets. And so we’re seeing some deals absolutely traded at incredible multiples, because they’ve built a really strong presence in a region, and they’ve got great assets; they’re getting an absolute premium today. We’re seeing other platforms that have been largely just collecting assets, and spread around the country, and very hard to defend their markets; we’re finding those deals are going to be a little tougher to trade hands with. So I can tell you, the buyers are definitely looking at platforms, but they’re definitely taking a harder look at what they’re buying.
Lanese
And so, overall, from what I’m hearing that you’re saying, is that while we do have headwinds coming into the rest of ’22, with this inflationary environment, we have rising fuel prices — even though I will say here, as of late, they’ve ticked down just a little bit, thank goodness, but we don’t know how long that will last, and it’s still rising — the cost of capital is higher. But the interest in the car wash industry and the space in general, both from an investment level and from a consumer demand, is still strong. So even if we have a little bit of a downward trend, it’s not as significant or it’s not as detrimental as it could be. And it’s likely to be a short-term issue.
Jeff
I think so. I think we’re going to find that we’re going to have much more concentration on quality. I think the space still is maybe in the middle innings. There’s lots of room to grow in this space. So I think the buyers will be… They’re still bullish about building this thing out and building out. The real concern just becomes just how high will interest rates go because that will impact what the return is. And then you’ve got supply chain issues, and so, on the other side of it, we’re trying to build car washes quickly, and getting supply and watching the cost of building a car wash go up will hurt the economics. And the real wildcard is we just don’t know how much inflation will affect the industry. Just based on our price points in the communities we provide, traditionally, we’ve found that we’ve gone through other recessions in the car wash space. It’s been very minor, but there will be there will be some pain along the way here over the next couple of years. But it also presents opportunities, because I do think that the folks out there that do a really great job will have an opportunity to grow. And I think we’ll find some of the weaker players that have been out there, whether it’s a weaker platform, or a weaker operator, I think you’re going to see these guys go away. So it will be, I think, on a go forward basis, that the growth is going to come from the strong; they will get stronger and bigger. Much, much bigger. I think you’ll see some of these guys continue to ramp up and go big very quickly. On the other hand, I think you’re going to find the weaker players will be… All the warts are going to come out. And I think you’re going to find these guys are going to go away.
Lanese
Now, bonus question: do you think that there is room or there is a foreseeable path towards a true national brand? Like a Starbucks type of brand that emerges or that codifies in the car wash space that we just we haven’t seen as of yet? And we have big players, but not not to the level of like a Starbucks.
Jeff
So I know, there is, in the background… I’ve talked to folks. Like take the fitness industry, right? The fitness industry was very regionally focused, and then you got Planet Fitness who came in and did a national rollout. And I think there’s certainly a guys out there looking hard at how to take that type of approach; make it a very simple business model and grow. I would only tell you that if that happens, I don’t know if we know the player is today. Like I don’t think it’s anybody in our current radar. And I think it could be somebody that we’ve not even been looking at, that really is going to be a disrupter, because they’re going to make this business very simple, very commoditized. They’re going to go cheap. And we’ll see… But it’s still so hard to build. You know, to go get a car wash, to find land and get permits and build the car wash, and the kind of investment it takes. It’s not like most retail that you can quickly scale by leasing an end cap, you know? So, it’s a challenging one to scale because of just the pure real estate component. That’s why I just don’t see that happening anytime soon. But I do think you’ll find mega brands. I mean, I think you’ll find brands, some of the ones that I mentioned, that could be in the several 100 locations around the country. But I’m not quite sure yet that anytime in the near future, we’ll see anybody going, any national brands succeed.
Lanese
One thing that you said with the rise in these larger brands and with the competition of different markets, that it is requiring that people are providing a better quality product in order to compete and survive. And so, for the consumer, on that side of it, hopefully it just means that we continue to be forward thinking and the ways that we can offer new and easier ways to give them the service that they’re looking for.
Jeff
Spot on. I’d say number one, if you look at the number one reason a consumer would choose a car wash it’s what? Convenience, right? Now, if you have two guys being convenient for a customer, where they’re going to go? They’re going to go where they get the best service! And so, what’s happened now, is because we’re building so many car washes and they are coming so close together, I think we’re going to find that the operation side of your business will matter. Because the consumer will have a choice to go to here, or a mile down, or across the street. And so you better be looking at your A game if you’re going to be competitive.
Lanese
We won’t even get started on your home market of Phoenix with all the chains there!
Jeff
And Phoenix might be a great example of saying, you know, everybody would look at Phoenix saying that it’s saturated now. But if you look at the unit volumes, nobody’s complaining. They’re all going up, and they are building a bunch more. And so, it just really is reconfirming that we’ve got a long way to go to satisfying the consumer’s itch for car washing. And I think you can see the amount of tunnels double in this country before we have any issues worrying about saturation.
Lanese
Well, I think that as we’ve established and talked about, that, even though there’s things that are coming through the rest of the year, and for whoever knows how long — we don’t have a crystal ball — but as long as the demand is there, and there are quality operators and the health of the industry can continue on as we have the investment from outside groups, we have trains getting larger, and we have new innovations and new ways to serve customers and keep the business healthy and moving forward. So, that’s all good news for us in here. Thank you for your time today, and thank you for hearing about what we have in store for the rest of year ,and we will look forward to our next chat.
Jeff
Thank you, Lanese! You have a great weekend.
Lanese
Thank you for listening to episode six of Car Wash M&A, The Podcast. I’m your host Lanese Barnett, and today I had Jeff Pavone, who is partner in Amplify Car Wash Advisors. If you would like to reach out to Jeff directly, you can reach him at mailto:[email protected]. You can also find more information about Amplify Car Wash Advisors on https://amplifywash.com/. As always, thank you for listening, and we will talk next month.