Rethinking The Oil Change Business Venture
Annual quick lube survey, is it still viable?
I wish to comment on the Fast Lube Business and the annual survey done by Auto Laundry News, one of the few Industry Magazines for the car wash industry. In this 2001 survey, we see an increase on the number of locations out there. Yet the leader of the Industry is by far Jiffy Lube. We see variations on theme, but we can safely say that Jiffy Lube has adapted best to the American public and their desires when it comes to oil changes.
This survey showed the average customer would drive 5.7 miles to get an oil change. If 50% of the customers would drive 5.7 miles and 80% of the customers usually come from a three-mile radius to get a car wash, I see additional synergy. These car washes with oil lube centers are getting a further reach than the industry average. This is great news for those carwashes adding oil lube bays, but also it takes up space and if not marketed correctly it will not work. The survey was quick to show that oil change facilities do best in middle class areas, not high-end areas. They do poorly in low-income areas. This all makes sense. Free standing car washes were the most likely to have oil lube facilities on there properties. Interesting too is that minimum wage was not prevailing, normally the companies pay $8.00-10.00 per hour. Makes realistic sense and I believe good help starts in this country at $10.00 per hour in most metros and $8.00 hour in rural.
Only 23% of the fast lubes had a website. Only half had internet access in the locations. Average employees were 5 full time and 3 part timers. Luckily for the image of this industry 74% had specific uniforms. The average shop had 3 bays, not enough to do the volume if adequate blitz marketing and community based marketing were taking place. Average revenue was $32.00 per car. That is an awful lot of upselling since the average advertised price that I have noticed is around $19.99. Less than 30% were open on Sundays? Bad mistake since there is no time to change oil and wait in line for most Americans. Average monthly gross was $2,400.00 per month per bay?
This is shit, this is not even a viable business, these people are wasting their time. Think about it, you have cost of oil and filter too and labor? Forget that news. I question the viability of the entire oil change industry. The largest Jiffy Lube franchisee in the country with 180 units was de-listed from NASDAQ and so was another prominent auto care and lube company recently. I like the Kwik-Lube Company and feel they are doing it right, but also question the ROI of such an endeavor seeing these results and the cost to build the building and time to build it. One good thing that the oil lube bays have going for them is the up-sell, but as the consumer dollar gets tighter and the credit card debt gets higher and the fall out rates increase where will this extra impulse revenue and up-sell cash be coming form?
The Industry is still expanding and new entrants to the market place are hurting existing units and I question the saturation point, not on need, but on desire. No one wants to spend money on oil changes, they need to. People buy what they want, satellite TV and beer. Not what they need, so I see a frequency problem issue brewing and people waiting 5-6-7 thousand miles between changes. So I believe that if an oil lube bay is not already attached to another reason to frequent the facility it will soon be in desire straits. The survey also showed that 93% OF THE OIL LUBE BAYS USED ADVERTISING TO GET THEIR CUSTOEMRS? WHY? We do not advertise, word of mouth and happy customers advertise for us. There you go again more cost.
Also 60% of the surveyed said that competition was discounting. HMMM? You have labor costs that are high, frequency is down, new car technology on the horizon, cost of oil going to the big guys and throw in a price war? I see problem as the non-savvy operators leave facilities for sale and exit the market place. By eliminating the facility and going mobile with the existing customer base of let’s say a mobile truck repair business which can co-band and fleet services available you could beat these other companies since they running redline over saturations of mailer coupons and phone book ads and no web sites. Many companies are not watching the changing demographics at their locations and lease or property costs and unable to sell or borrow more due to their lousy profit margins. And what can you convert and Oil change bay into? Cover up the hole for a tire shop? What happens when Hydrogen cell comes and no one changes oil. Can you convert to filter type operation? Not really since often the tires and wheels are offset and will land the modular car into the lube bay hole. We have the solution and we can beat them in almost every aspect. Some consultants have said; “Bunch of dummies copying each other.”
Listen to this part of the survey, advertising dollars were spent on, here is where the respondents said they advertised; TV 15%, Direct Mail 51%, Radio 38%, Newspaper 35%, Bill Boards 18%, Yellow Pages 53%, other only 13%. Scary, all that costs money and everybody is running redline copying each other. This is what happens when people cannot think any longer and cannot adapt and do business at the speed of thought,
81% of respondents said they would honor competitor’s coupons? Whatever, why print them then. Let everyone else spend the money and take theirs? 80% said they have tried to use discounting to lure customers from other lube places to theirs. Boy this sounds like the carpet cleaning industry to me.
Breakdown in costs per job. 10% rent or property, 3% maintenance of facility, 26% labor, 30% materials, 4% utilities and many reported expecting that to double and some have already in the west experienced a tripling. Insurance 4% and that to expected to keep rising and some said 8%, Customer claims for damage 1%, this is in-excusable, Advertising 10%. Want to add those up for me. Why are they doing it?
Average new facility costs were; Land $206,000, Improvements $505,000, New equipment $36,000. WOW all that for little or no return? Average number of competitors within 10-mile radius? 36% said 3, 19% said two, 19% said 5, 7% said 5 or more. How can anyone invest this kind of money per location when we can build a couple of units for a total of $65,000 and nearly equal the number of potential vehicles to service? Also with AAA building oil change facilities and Wal-Mart getting into things, the competition will be bloody and that is a lot of money to invest in a business with an uncertain future. Not a good bet, if you were a betting man.
We are very much liking this Industry because we know things the Industry does not and we can slam them because they have missed the boat. We have seen a few companies which are looking into ways to change the oil on the water for yachts. What is even better is that they all missed the boat at the same time and are fighting on shore for a few little boats to get to the ship that is leaving the harbor. Who will survive this oil change war. The one who bests services the customer, they way the customer wishes to be serviced.