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PREDICTIONS FOR THE REST OF 2022
Here’s the good news: while the economy tightens, there’s plenty of room for growth in the car wash industry. In fact, Jeff shares that many buyers are “still bullish about building this thing out.” However, the red hot car wash market has tempered a bit. Some factors that may affect growth and future returns are just how high interest rates will go as well as lingering supply chain issues slowing greenfield development. That said, the industry has fared well in previous economic contractions, and that trend remains in today’s market.
Jeff also talks about the potential opportunities current headwinds present for the industry: “I do think the folks out there that do a really great job will have an opportunity to grow. And we’ll find some of the weaker players that have been out there — whether it’s a weaker platform or a weaker operator — you’re going to see these guys go away.” In short, the strong will likely get stronger, and weaker operators may be faced with the reality that they can no longer keep pace. But with many growing chains’ continued appetite for acquisitions in effort to gain scale faster, there is still a healthy market for sellers.
WHAT BUYERS WANT TO SEE IN A TIGHTENING ECONOMY
While data shows drivers continue to wash their cars at a professional car wash even in tighter economic times, consumers will make more conscious choices about where and how they spend their money. Operators need to make sure that they are offering consistently excellent service so customers stay loyal and continue coming back, especially with more and more options.
Evidence from the pandemic and from other economic dips suggests that consumers will keep washing their cars, and they will maintain their memberships. However, as the competition grows and more brands come online, operations and a laser focus on the customer experience matter now more than ever.
In today’s market, buyers are becoming sophisticated and are looking more closely (and becoming more risk-averse) at what they are buying. Here’s what they want to see: sites on dependable real estate doing high volume, strong EBITDA, a solid leadership team and scalable infrastructure, and a clear pathway to growth with a development pipeline. Those are the chains that have traded at the highest multiple.
INNOVATIVE OPERATIONAL SOLUTIONS FOR CAR WASH OWNERS
Providing outstanding customer service is one way to stand out and keep happy members and loyal customers. Customer experience support solutions like what Amplify Ventures’ partner Retention Express offers can help protect memberships and enhance customer service by providing outsourced customer support. With an experienced, trained team answering customer calls, processing monthly plan cancelations, and monitoring all incoming communication across mediums, customers get the time, attention, and resolution they need to stay loyal.
As Jeff says about Retention Express, “They really have the best practices in retaining memberships. And we look at the memberships; that’s fueling this whole business. This industry is memberships. So we look at that as a critical component.”
Jeff states, “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 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.”
IMPORTANCE OF TRUSTED ADVISORS TO NAVIGATE FINANCING OPTIONS
Advisory firms like Amplify Car Wash Advisors can help owners know all their options when it comes to selling or scaling their business. For owners that want to stay in and keep growing, now is a good time to think about how to fuel that growth but also de-risk. Jeff talks about bringing in “smart money” that can help owners scale and move away from personal guarantees. While some investors look for majority equity, there are groups that will take a minority which provides owners capital to grow without turning over majority control. Likewise exploring REIT financing, debt restructuring, or issuance of new debt, are also alternatives. Having a trusted capital advisory team with seasoned investment bankers can help owners grow through third-party capital without going through a majority/minority sale.
As Jeff states, “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, that doesn’t just affect car washing. It affects all retail, all businesses.” The general consensus is that car washing will fare better than most other businesses, so there’s still plenty of opportunity for operators looking to exit or to partner with someone to make a move even in today’s headwinds.
That’s where advisory firms can help people learn about what their options are. As Jeff shares about Amplify Car Wash Advisors, “At Amplify we are absolutely relationship driven. We are long term. We’re never in a hurry to want somebody to do a transaction. But there are 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 some advice on what path to go down.”
LONG STORY SHORT
In short, while short-term headwinds are impacting the economy, Jeff sees still sees long-term growth on the horizon with plenty of runway. And hey, investors still need to put money somewhere, so why not the car wash space?
Want to dive deeper into car wash M&A information? View all Car Wash M &A, The Podcast episodes here: https://amplifywash.com/podcast