Impact of New Competitor

[NeilH]

Hello.

I'm investigating investment / ownership opportunities in the car wash business (w/ conveyors), and was curious to know if anyone has had competition open up within a few minutes drive, and if so, what was the impact as % volume on your sales? Details would be very much appreciated -- like what is your and their business model/positioning, what is your market, how dense an area (pop/sq. mile), how far new competition was (minutes or miles), how many other competitors w/in 3 miles, % impact over time.

In theory more options for the consumer should expand the pie a little, but also divide it up.

I'm sure we all recognize things like the importance of service, loyalty, market specifics, etc., so ideally if we could focus responses on the quantifiable and not the conceptual that would be very much appreciated.I thought everyone would benefit by a few detailed anecdotes.

Thank you in advance for engaging on this topic!

 

[Earl Weiss]

A pie is finite. Competitors with the same or similar business model cut the pie up into smaller pieces. Some business models ,may pull demand from a different segment.. I.e. a low price EE may pull from the DIY market and may increase wash frequency. But additional low price EEs in the same market will divide up the same pie.

"Market" is hard to define in general. A few miles might be the same market area in some places, but in a City like Chicago it's probably not the same area.

 

[mac]

Hello Neil and welcome. You will most likely find that there are a lot of business decisions made in our so called industry, that just leave you scratching your head. I have seen people open washes just to put another guy out of business. And the two didn't know each other. I've seen many people get into this with a lot more money than brains, and just p@ss away small fortunes. And I know this will be hard to believe, but there are a lot of crooks and charlatans selling opportunities for the "right" investor. I suggest keep reading here and posting your thoughts. At least that way you will be talking tom real operators, not salesmen.

 

[robert roman]

Generally speaking, impact from new store (i.e. support services like c-store, gas, wash, dry cleaners, fast food, etc.) in terms of percent of sales volumes is a function of convenience, value and image.

Convenience refers to visibility, access, circulation and navigation, hours of operation, etc. Value refers to quality for price and customer service. Image refers to brand and visual appeal.

If new store provides best convenience, value and image as compared to competing stores in market, it will usually achieve trade area dominance. To what degree and how fast this occurs is a function of retail saturation and nature of competition.

For example, over the last several years WAWA has made significant inroads in Florida.

Basically, WAWA came in here and caused c-store stalwart Hess to sell out because it couldn’t cut the mustard.

Hess owners lived off the fat of the land for years running filthy stores, awful customer service, crappy touch-less wash, dust covered merchandise, etc. Arguably, reason was the rest of the market wasn’t much better either (i.e. 7-11, Speedway, Rally).

WAWA comes in and cleans house, every store is busy all day long, every day.

Consequently, focusing on quantifiable without conceptual would give an incomplete and inaccurate picture. Same holds true in determining size of pie.

For instance, building a new wash doesn’t create new demand. All the people who will buy a carwash at the new wash are already buying all the services they need somewhere else.

So, to get a complete picture, one should begin by determining size and shape of trade area and estimating total potential sales within this defined area.

Total potential sales can then be used with same store sales to determine supportable number of stores and the index of retail saturation in the trade area.

The next part gets more complicated because roads transverse trading areas and this allows motorists choice.

One solution to the problem of what store a customer will patronize over another is gravity model (quantifiable).

Here, share of customers is inversely proportional to distance and directly related to store dimension (i.e. size, multiplicity of services, curb appeal, capacity, prices, etc.).

Gravity model can also be specified to estimate the probability that a customer will patronize one store or another.

In the field, I’ve seen a bit of everything.

For example, express is built in mature market with established full-serve and self-serves. Express and full-service thrive. One self-serve is abandoned, others forlorn.