If you’re considering investing in car washes, you’ve picked an excellent time. The industry has been enjoying a decade of growth with no end in sight. When it comes to commercial real estate, many only think of the traditional areas of investing – multifamily, office, retail, and industrial. However, in today’s world of commercial real estate, alternative property types are growing in popularity with a high return opportunity for investors, and car washes are at the top of that alternative investment list.

Alternative investments offer many opportunities as their traditional counterparts but face less competition. Alternative investments add a new and fresh element to the real estate world for investors interested in diversifying their commercial real estate portfolio.

Car Wash Industry in the United States

Car washes are a $13 billion per year industry in the United States. The car wash industry has grown revenue at a rate of 6.36% over the past 10 years, as American consumers have shifted towards the speed and convenience of having others clean their vehicles for them and as total US passenger vehicle registrations have grown at a 1.58% rate per year over the same time period. The performance of the car wash industry is moderately correlated with the overall economy, since car washes are classified as a discretionary consumer expense. Therefore, a typical car wash business should expect to see its revenues increase as the broad economy expands.

The price of fuel is also a key driver for this industry, since consumers tend to drive less when gasoline prices are high, shrinking demand for car wash services as customer’s vehicles spend less time on the roads. Lastly, weather patterns have a role to play in determining car wash demand. Warm and rain-free weather conditions are best for car wash operators, since persistently rainy weather or conditions that otherwise cause vehicles to stay dirty make customers wait until clearer days to wash their cars.

Types of Car Washes

The car wash industry can be broken up into four major types of operators. Conveyor car washes make up the largest segment, generating a total of 48.3% of US car wash sales. Conveyor car washes can be further divided into two groups: Exterior-only car washes and full-service car washes. As the names imply, exterior-only car washes clean only the outer surface of the customer’s vehicle, while full-service car washes have vacuums available to clean the car’s interior. In-bay automatic car washes are most often owned by gas station operators and are located adjacent to fuel pumps. Self-service bays are the most affordable option, as customers clean their own vehicles using water and soap sprayed from wand attachments. Hand-wash-only establishments require the most labor, yet control the smallest percentage of the car wash market at 6.8%.

Conveyor

Features a tunnel that houses all of the car washing equipment used to clean the exterior of a vehicle. Customer vehicles are driven onto a conveyor belt, which moves the car through the washing and drying process.

In-Bay Automatic

Most commonly seen at gas stations and is owned by the gas station franchisee. The customer drives their car into a structure containing the car washing equipment and remains stationary while soap and water are sprayed onto the car from a rollover mechanism.

Self-Service

Customers wash their own cars using coin-operated pressure washing machines. This is the simplest type of car wash, as the only equipment required are vending machines to dispense water from the self-serve hose and soap.

Hand Wash

The smallest portion of the industry, representing 7% of US revenue for 2021. As the name suggests, this form of car wash is the most labor intensive.

Customer Makeup

In the U.S., car wash customers are broken up into two segments. The first segment is made up of businesses that utilize car washes to clean their commercial vehicles. Businesses typically wash work vans and other commercial vehicles in tunnel car washes as they offer a quick and convenient way to clean the vehicle. The commercial customer category is responsible for 28.6% of car wash sales in the United States.

The second category of car wash customers is households. The household customer category can be split into several subcategories according to their income level. The largest subset of the household customer is that which brings in over $150,000 in income, making up 26.1% of industry revenue. Government spending on car washes does not comprise a material portion of revenue for the industry.

Commuters

Workers with long overall commute times, specifically those with a roundtrip drive longer than 30 minutes, are much more likely to use car washes. This is because longer drives result in a vehicle that gets dirtier, more often.

Suburban Households

The majority of car washes are located outside of a city’s central business district in lower density areas, attributable to lower initial costs of land when developing a new location. Therefore, the customers closest to the majority of car washes are those living in suburban households.

Above Average Earners

One thing all car wash investors must know is that spending on car washes is discretionary, meaning consumers consider the expense to be non-essential. What this means to the car wash industry is that the dollars spent on cleaning services come from consumers’ disposable income, or wages not used to pay for necessary living expenses.

Competition

There are no competitors within the car wash industry that command significant market share. The largest chain of car washes in the United States is Mister Car Wash (NYSE: MCW), which has 396 car wash locations across 21 states, yet accounts for under 5% market share. Mister Car Wash owns and operates all of its centers, skirting the franchise operating model. Therefore, the car wash industry is highly fragmented, and 85% of locations are owned by operators with four or fewer sites.

Car Wash Industry in Texas

Texas is home to both the second largest inventory of car washes and the second highest number of vehicle registrations in the United States. The Dallas-Fort Worth market holds the most car wash locations with 536, and Houston is a close second with 425 locations. The Austin market is home to 139 car washes and is the 3rd biggest market for car washes in Texas. These three markets contain the largest commuter populations in the state, presenting local car wash operators with an abundant supply of potential customers. The Houston market alone has over 140,000,000 miles driven per day, while Dallas residents drive an average of 38 daily miles per capita.

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