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Private equity takes a shine to the car wash business in Michigan

Posted By: The Detroit News on October 27, 2023.  For more information, please click here to read the source article.

New car washes are popping up throughout Metro Detroit, with operators attracted by the outlets’ reoccurring revenue and customers drawn to their convenience and flexibility.

For example, Jax Kar Wash recently opened a new location in Oak Park, marking nearly 30 Michigan sites for the longstanding business. The company also plans a location in Madison Heights. A new business, Cosmo’s Car Wash, has construction underway in Roseville.

“The car wash industry is booming,” said Eric Wulf, CEO of the International Car Wash Association. “The last four or five years have been the greatest amount of new store construction the industry has ever seen. We’re probably averaging well over 500 new stores per year the last four or five years. And that would be up from a couple hundred stores, maybe 10 years ago, per year.”

The U.S. Census Bureau estimated in 2019, there were 16,976 car washes with paid employees, up 7% from a previous count in 2015. According to the International Car Wash Association, a third-party study in 2020 estimated there were 17,500 conveyor car washes, 29,000 in-bay automatic car washes and 16,250 self-service car washes in the United States.

“We’re adding car washes at a rapid clip, and we’re also seeing a lot of interest, not just constructing new ones, but the merger and acquisition side of the strategy in the business,” Wulf said.

The industry has grown in part due to private equity’s increased interest in car washes, experts say: “There’s fresh capital coming in,” said Jeff Stoltman, associate professor of marketing at Wayne State University. “The state of Michigan’s got a really great sort of late entry into what would be regarded as a mature market.”

The industry has long existed in Metro Detroit. In fact, the first automated car wash, known as Paul’s Auto Wash, began on Fort Street in Detroit in 1946, according to the Detroit Historical Society.

Stoltman said self-serve car washes were popular in the 1950s and ’60s, and in the following two decades, automated services came to the forefront. Those automated services include a bay model, where the car remains stationary, and the conveyor model, where cars move through a tunnel. Both have evolved over time as motorists seek out convenience.

“People started to get time-pressured,” he said. “So this is a shift from over 50 years from ‘I will wash my car in my driveway because it’s part of my routine and I have the time to do that’ to ‘I just drive into the car wash and take care of it.’ So it was a time and convenience thing.”

Among customers looking for convenience is Rell Noland, 34. The Detroit resident recently stopped at the new Jax Kar Wash on Greenfield in Oak Park to clean his Jeep Wagoneer. The system scans his license plate as he pulls into the building.

“I liked the whole setup,” he said. “The inside was pretty nice.”

Noland likes to clean his car once a week, so he pays $30 for a monthly membership: “I know more times in the summer I get more car washes with the rain and stuff like that. Once a week, I try to keep it clean. I got kids and stuff, so I try to clean up after their messes.”

Operators scale up

Justin Landau and Geoff Karas, co-CEOs of El Car Wash, plan to open three outlets next year in Brighton Township, Madison Heights and Ferndale.

The pair started by purchasing four car washes in Florida, which retained the name El Car Wash. Landau said El Car Wash will have 40 locations in Florida by the end of 2023.

About a year ago, Landau and Karas recapitalized the business and brought in a private equity firm, Warburg Pincus. After some discussion with commercial real estate agency Alrig USA, based in Bingham Farms, they homed in on Michigan as a new place to grow.

“We started talking about the next opportunity,” he said. “They and us kind of agreed that the southeast portion of Michigan was, I’d say, underserved from our perspective for the type of product that we’re putting out there.”

As new companies move into the state, longstanding car wash businesses in Michigan, such as the 70-year-old Jax Kar Wash, are expanding. In addition to acquiring new sites in recent years in Michigan, Indiana and Wisconsin, the company has new builds, such as the car wash in Oak Park and the upcoming location in Madison Heights.

“That’s a big part of our success is how many locations we have and the fact that anywhere you go, you can find a Jax’s Kar Wash,” said Todd Gesund, vice president of Jax Kar Wash.

In 2022, Jax Kar Wash purchased Gesund’s family business, Super Car Wash, which had 11 locations in Michigan. The locations received a rebranding and improvements to bring them to the same level of service.

“We call it a value in density,” said Jon Zimmerman, CEO of Jax Kar Wash. “We recognize, and our customers recognize, that they move around and that they want options. We have three washes within one four-mile radius on Woodward, and they feed off of each other… We’re trying to be located where our customers are. Customers want to wash normally within a radius of their daily activities.”

Detroit resident Christian Rupert, 33, recently stopped at the Jax’s Kar Wash in Oak Park to wash a rental car before returning it. He said he usually visits the location on Telegraph and 12 Mile to wash rental cars or his personal vehicle. He said a friend lives in the area, so he noticed the site while it was under construction.

“I saw that it had the vacuums that I like, so I kept in mind that the next time I need to go, I’ll go there. …” he said. “It was really quick. It has a couple more lanes than the other one that I usually go to. There were some cars there, but I was able to get in and out pretty quick.”

A growing market

Jack Berdan and Alex Sturwold, co-founders of Chicago-based Clearwave Car Wash, entered the Michigan market with a location in Taylor in 2017 and added outlets in Lincoln Park and Roseville in 2022. The two purchased their first car wash in 2015 in the Chicago area and then set their sights on Michigan.

“We kind of looked around,” Berdan said. “Chicago was pretty competitive. I grew up in the suburbs of Detroit, so we kind of decided to do a location there. We saw an opportunity in Taylor, Michigan.”

Berdan and Sturwold said they have two locations where they have an interest in expanding; however, they declined to reveal them.

“Our kind of growth mentality and philosophy is we’re going to open as many stores as we can responsibly and prudently when we have the people ready to operate them,” Sturwold said. “That’s kind of how we look at growth.”

Sturwold said they believe there is more room for growth in Metro Detroit.

Steve Gunn, owner of Wash Pointe Car Wash, said the influx of business comes from the interest in monthly membership revenue. He said his company, which has five Metro Detroit locations, has had success with it.

Data showed that customers who pay per wash would only visit three to four times a year, he added. By converting a customer into a monthly member, the revenue increases from $40 a year to about $300 annually.

Gunn, a fourth-generation car wash operator, says the market in Metro Detroit is not yet saturated with the express car washes.

“This model is really, really popular down South with all these new builds,” he said. “A lot of these big groups are having … difficulty finding good areas to build these brand new greenfield car washes down South because the market down there has kind of been saturated.

“So now they’ve turned to Detroit, essentially saying well, now we can implement our new model of the car washing industry up here and essentially push out all the older, you know, the car washes that were built back in the ’50s, in the ’60s.”

Gunn’s business plans to pursue growth to compete with larger chains: “To compete with those, you have to have size, and so that’s our business model. We’re going to keep on our path and keep expanding and keep building and or possibly a merger in the future so that we can offer our customers that flexibility of being able to go to so many locations.”