Question about capture rate on a corner lot

[Car_Wash_Guy]

I've been lurking here for some time, and am about to go into contract on a wash that is located on a corner lot, where both roadways passing by it are in the 14K range. I've searched both on the forums here and using Google but haven't found an answer.

When calculating cars washed using a given capture rate( I know the potential faults and inaccuracies given this approach), would you just use one roads count (i.e. 14,000*.003), combine both (i.e. 28,000*.003), or 100% of the car count on one road and some percentage of the second(i.e. 14,000*.003 + 7,000*.003)?


Thanks in advance!

John

 

[rph9168]

I have seen it done all the ways you mention. If the site was easily accessible from both roadways you could probably justify using both but I preferred using all of one capture rate and half of the other. Since this is far from an exact science it could be done which ever way you feel comfortable with. I always liked to take all things into consideration like demographics, competition, speed limit, the economy, other businesses in the area and other considerations as well as the capture rate.

 

[Car_Wash_Guy]

Thanks for the quick reply. The site is very easily accessible from all directions, on a 35mph roadway. I'm just trying to come up with some ( VERY conservative )first year revenue projections for my lender.

From my calculations, even at a .002 capture rate, and only taking into account one road, I can pay the debt service and still leave profit on the table after expenses ( calculated from averages from surveys and a friend that owns a wash about 90mins away).

There is competition nearby - one really old SS(20+ years) with 4 bays, and a 1-2 year old Express, both about 3 miles away.

I have seen it done all the ways you mention. If the site was easily accessible from both roadways you could probably justify using both but I preferred using all of one capture rate and half of the other. Since this is far from an exact science it could be done which ever way you feel comfortable with. I always liked to take all things into consideration like demographics, competition, speed limit, the economy, other businesses in the area and other considerations as well as the capture rate.

 

[rph9168]

From what you say it sounds like a promising site. How do the other factors look?

 

[robert roman]

One of the principal business operating risks a carwash developer faces is will the site produce sufficient gross sales.

If capture rate is the model of sales assessment, this risk would be considerably greater compared to what it is in a traditional retail project like convenience store, fast food and other support services.

The reason is those developers rely on formal use of information and commercial and academically published models.

These models have procedures for determining current and future sales potential and competition whereas capture rate approach is one dimensional.

Nevertheless, there are some things that can be done to reduce the likelihood or minimize the impact of the consequences if this risk factor manifests itself.

Traffic count used in capture rate should be annual average daily traffic (AADT) and not average daily traffic (ADT).

ADT are 24-hour counts that have not been adjusted for seasonality or axle correction factors.

AADT is statistically accurate because it is the total traffic on a road for a year divided by 365 days.

A method to mitigate risk of useable traffic when there is principal and secondary road is to apply a pass-by rate.

Pass-by is trips made by traffic already using the adjacent roadway that may not necessarily be generated by the land use under study.

Back around 2000, Ken Dykstra or someone at PDQ estimated the pass-by rate for carwash as 35 percent.

Useable traffic = (AADT principal X (1 – 0.35) + (AADT secondary X (1 – 0.35)

As for volume levels needed for pay off and recovery of equity, assume that at 57 percent of projected volume the selling price would pay off the loan.

At 75 percent, the expected selling price should pay off loan and return equity.

And so forth.

This is why retailers rely on formal methods based on cause and effect, they involve less risk.

 

[Car_Wash_Guy]

From what you say it sounds like a promising site. How do the other factors look?

I think it is. I feel the biggest detrimental factor is a newly constructed 200' express tunnel wash with free vacuums and mat cleaning about 3 miles away. It's owned by a non local corp., and I believe I can lure customers back just out of loyalty to local ownership.

One of the principal business operating risks a carwash developer faces is will the site produce sufficient gross sales.

If capture rate is the model of sales assessment, this risk would be considerably greater compared to what it is in a traditional retail project like convenience store, fast food and other support services.

The reason is those developers rely on formal use of information and commercial and academically published models.

These models have procedures for determining current and future sales potential and competition whereas capture rate approach is one dimensional.

Nevertheless, there are some things that can be done to reduce the likelihood or minimize the impact of the consequences if this risk factor manifests itself.

Traffic count used in capture rate should be annual average daily traffic (AADT) and not average daily traffic (ADT).

ADT are 24-hour counts that have not been adjusted for seasonality or axle correction factors.

AADT is statistically accurate because it is the total traffic on a road for a year divided by 365 days.

A method to mitigate risk of useable traffic when there is principal and secondary road is to apply a pass-by rate.

Pass-by is trips made by traffic already using the adjacent roadway that may not necessarily be generated by the land use under study.

Back around 2000, Ken Dykstra or someone at PDQ estimated the pass-by rate for carwash as 35 percent.

Useable traffic = (AADT principal X (1 – 0.35) + (AADT secondary X (1 – 0.35)

As for volume levels needed for pay off and recovery of equity, assume that at 57 percent of projected volume the selling price would pay off the loan.

At 75 percent, the expected selling price should pay off loan and return equity.

And so forth.

This is why retailers rely on formal methods based on cause and effect, they involve less risk.

Thanks Robert. Your replies are always thorough!

 

[rph9168]

It that EE on the same road as your wash would be?

 

[robert roman]

“….detrimental factor….200' express tunnel wash with free vacuums and mat cleaning….”

My bet is formidable.

Express is growing in CA where brokers and real estate agents describe it as creating a large sucking sound where it goes in like Wal-Mart does to local mom and pop.

“It's owned by a non local corp.”

This is made worse because chain usually has deep pockets.

“I believe I can lure customers back just out of loyalty to local ownership.”

I know a full-serve that offers $3.00 express on Wed and there is $4.00 express in trade area. On Wed., full-service can’t keep up and express isn’t busy because of the number of customers who come from express wash to save $1.00.

 

[rph9168]

Full serves around here experience very limited success. Their equipment is not designed for EE concept and it lowers revenue per car average. I know a few that have either stopped offering it or would like to stop it.

 

[robert roman]

I know Atlanta market very well and cut some of my teeth there.

“Full serves…here experience….limited success…..equipment is not designed for EE….and it lowers revenue per car average. I know a few….either stopped….or would like to stop it.”

Then I’d say these operators don’t understand what is necessary to make it work because I never made so much money washing cars in Atlanta.

Moreover, I have lots of clients with combination washes and they all perform at a very high level.

Send them my way.

 

[rph9168]

Bruce Arnett and Chuck Howard are pretty shrewd operators that have struggled with it. There are a lot of EE's struggling in Atlanta which has driven down pricing for those full serves that try an EE approach. Autobell is at $4 for an exterior only wash without a hand dry. Carnetts used to have a $3 but I think they are $4 now. Most EE's are at $5. The competitive market in Atlanta had kept prices low. EE's have driven some automatics out of business. The one Home Depot location not offers a $2 wash with gas but the bay is often dry. Atlanta continues to be a difficult wash market.

 

[robert roman]

I know Arnett’s and Howard.

Spent the better part of a day with Bruce once and interviewed Sr. Also interviewed Howard and have clients that do business with Howco.

Doubt either is struggling with carwash business.

As for Atlanta, I operated four different washes in Metro. During 2000’s, I prepared up-teen site analysis and feasibility studies in Metro.

Also was engaged and prepared carwash market analysis of Metro (30-mile radius).

Atlanta is no different than other areas. Developers build stores until areas fill up and can no longer support an additional store.

Problem acerbated in Metro because investors (typically small groups or physicians, white collar and other hands-off owners) were undisciplined and drank the cool aid.

So, in certain areas, too many stores were built and then the downturn.

Since then, there has been a lot of change and market is still sorting out.

Regardless, there are many thriving carwash businesses in Atlanta.

 

[rph9168]

I have know both gentlemen for many years. Bruce is an experienced operator that has had established washes here for many years but all of his franchisees struggled a bit trying to initiate an exterior no hand dry wash. Several made the switch to Mr Clean and several did not. Several have also gone bankrupt in the switch which Bruce had nothing to do with especially those that went out on their own. Chuck moved into the Atlanta market about 6 years ago and has struggled to gain a real foothold but with his knowledge and experience I am sure he will succeed given time. He has recently gone to an $4 exterior no hand dry wash in an attempt to compete with some of the EE's that offer a $4 wash. I think the jury is still out on that move.

Yes there are some thriving washes here but there are far more that have either changed hands several times or are struggling to exist. We were one of the first major metropolitan areas to see the growth of EE's which have had a negative effect on many former full serve,flex serve tunnels and put many automatics out of business. My response to the original thread about capture rates was based on what I have seen in this market and what I am aware of in other markets I have experience in. I think some of the fear of having an EE for competition may be warranted especially for a new wash based on what has gone on here and in other areas. On the other hand a well run full or flex serve can continue to do well competing against an EE.