A fool thinks he needs no advice, but a wise man listens to
others. When I first met John Dix on a trip to evaluate potential car wash
sites for QuikTrip’s first venture into the express tunnel industry, I spent a
lot more time listening than talking. Operating in nine states, Tulsa-based
QuikTrip Corp. recently celebrated both its 50th year in business
and the opening of its 500th location. The company sells
approximately 1.7 percent of all the gasoline in the U.S. , employs 10,500 people, and
sales last year totaled $8.3 billion dollars. They are masterful marketers with
a famous reputation for picking winning sites to grow their business. Before
his retirement earlier this year after 36 years with the company, John Dix was
the man in charge of all site selection for all eight markets in which the
company operated.
John is a true competitor. He is one of those people who can
see through problems and create success with decisive action. While talking to
him recently regarding site selection, he agreed to do an interview on the
topic for this article. Even if you’re not looking to build a new location, I
urge you to read John’s insights on competition. He outlines the qualities of an
incumbent business that would lead him to avoid competing with them and look
elsewhere. These are exactly the qualities each of us must refine in our
service offering as car wash operators to ensure the success of our businesses.
I want to thank John for sharing his knowledge; excerpts from our conversation
are below.
ANTHONY ANALETTO: With real-estate
prices falling everywhere, what factors do you feel indicate a market may have
hit bottom and presents an opportunity to buy land at a discount; and are there
any markets you feel may be approaching that point already?
JOHN
DIX: To get a feel for the condition of the commercial real estate market in a
particular area, I would recommend doing the following.
First,
check the government agencies for the trends in permitting. Although higher
income areas tend to remain somewhat insulated from permit inactivity, lower
and medium income areas may show an increase in permitting activity that can
indicate a downward spiral has bottomed and is on the way back up. Also, in
tough times, higher income area land values tend to flatten without increasing
or decreasing dramatically. These property owners are often better able to
withstand the pressures of carrying costs over the long term and will just wait
for better times to get their price. Low and medium income areas however, can
change more quickly and potentially create some opportunity for a savvy buyer.
Second, check the unemployment rates. Recently, in Tulsa ,
the rate went from 3.6% to 4.2% which is one of the first indications that the
coastal downturns have reached the Midwest .
Third, check the apartment occupancy rates. If they are in the 90% to 95% range, and
housing starts are still going down, there could be a lack of confidence by
developers and/or lenders.
Fourth, check single family housing starts. If they have decreased from the previous year
for the whole market by 10% to 15% or more in a time of high occupancy rates
for multi-family units, it would indicate a lack of lending availability to
developers and buyers.
As
always, the best time to buy land is when one has high liquidity, interest
rates are high, and appreciation is low. Sellers will look harder at offers
without financing contingencies during those times because carrying costs are
high and there are fewer qualified buyers. The best time to sell land is when
interest rates are at the bottom. The land will never be worth more to a
prospective buyer as when they can leverage a higher percentage of the purchase
price and are willing to pay more, provided they can find a lender.
As
per specific markets, I’m most familiar with the Midwest .
Granted, the Midwest has been somewhat more
insulated from what’s going on in the coastal market downturns, but I can say
for sure that there seems to be no bargains to be had here.
ANALETTO: What population
characteristics do you evaluate when selecting properties, and has the current
recession influenced or changed what you’re looking for?
DIX:
Having been a site selection guy for a convenience store company for most of my
real estate life, finding the best of both worlds for a C-Store with a car wash
is a bit of a dilemma. For traditional C-Store volume, lower income generally
equals higher inside volume, to a point. Below that certain point of income, volumes
decrease. For car wash or gas volume, higher income generally equates to higher
wash volume as well as higher gas volume.
Both
of these axioms are dependent upon so many other factors that they are not, by
any means, the only truths in site selection. There are actually so many
variables that I like to start the process of evaluating a property with a
simplistic formula that’s true for any business, whether it is a bank, a flower
shop, or a car wash. To put it in a nutshell, a site consists of one thing, and
that’s people. The more people, the more volume there may be, sometimes!
So,
to go back to the formula, let's say that volume is (V). People represent
potential demand for a particular product, which we can call (D). Competition
for that demand is (C). Volume (V) is the amount of demand (D) in a given area
of influence divided by your or your competitor's (C) ability to attract,
service and keep that amount of demand or (V=D/C). Believe it or not, this
simple truth is overlooked by businesses selecting a location more often than
you would think.
We’re
in a tough economy and disposable income for many of your customers has been
either reduced or eliminated. The difficulty in these times is to make a living
with a one trick pony when there is no hay to feed him. Does it change what I
look for? Not a chance. It only makes me examine each site more closely to make
sure I don't make any mistakes.
ANALETTO: Is there ever a time you
would recommend for someone to attempt re-zoning a property not already zoned
for car washing?
DIX:
Permitting is not going to get any easier, anywhere! The future lies with
express or automatic washes, with a few full service detail washes thrown in.
Cities all go to the same seminars and belong to the same professional organizations.
That means you can expect that policy-makers are going to standardize the
zoning and permitting required for these types of emerging businesses.
Currently
there are still some gray areas in zoning which can be exploited by certain
types of washes in some areas. For example, if one operates a C-Store, many
cities allow any type of car wash if it is an accessory use of the C-Store
operation. In those same cities, a car wash by itself may require a special use
permit with special setbacks for dryers and lighting to protect neighborhoods.
And, many planning and zoning or city council members will not vote to approve
anything where there is even one person opposing it.
Would
I recommend re-zoning? Of course I would, if it was the right site, and you
negotiate sufficient due diligence into the purchase agreement to avoid closing
on the property until you have full building and use permits in your hand.
That's not to say I would recommend trying to re-zone a property in the middle
of a residential area to a car wash use. It has to make sense and conform to
the city’s comprehensive plan. Spot zoning like that is not recommended, and
buying or closing on a piece of property without full building and use permits
should never be done under any circumstance. While sellers will balk at buyers
wanting to have full permits before closing, we routinely were able get six
months to 1 year due diligence time to pursue our permits. We were willing to
make payments for that right. Most often these payments were generally
non-refundable. They were however applicable to the purchase price of the land,
and we would have a strong indication of success before we made any of those
payments.
ANALETTO: When evaluating properties
for a car wash, what are the key physical characteristics you look for, and
what variables do you think people most often overlook?
DIX:
As a C-Store operator we looked for high demand (remember D?), low competition
(remember C?), access, and visibility. The size of the site had to fit our
standard offer without compromising our optimum and/or minimum standards. We
would never take a site which left us in a substandard or inferior position to
our competitors.
For
example: If a competitor has a great corner site with two-way access (no
medians), a 150 foot tunnel wash and a billboard with a changeable price sign
which may be grandfathered and not currently allowed, and you're left with an
off-corner small site with one way access and a newer sign ordinance to deal
with, which doesn't allow billboards and only allows small signs, don't bother.
He'll whip you!
The
single biggest mistake I see made on site selection, especially by individual
investors, is they take a site that they think they can afford rather than the
best site in the area. They look for “For Sale” signs instead of the best site.
They believe that their service offering will overcome site location
deficiencies and delude themselves into thinking that a competitor won’t open
up to compete with them because they are already there. Well, I made a living
finding facilities which ran a lot of volume on an inferior site with little or
no competition. Then I bought the best site in the area to take their business
from them. The fact is, you only pay once for the best site. If you take less
than the best site, you will pay for it every day you're open.
Imagine
a trampoline as your trade area and your business is one of a few golf balls
scattered around the surface. You must assume that, if you are successful,
someone is going to try to take your success away from you. Someone is going to
try to throw a bowling ball into the middle of the trampoline to suck the
volume away from your business.
You
must position yourself and operate your business to not allow that to happen.
They might be able to match your physical offer, but don't let them match your
location or your operation. Make your customers want to come to you so badly
that they will drive out of their way to get to you. Like I said before, I
wouldn’t select a property that went head to head with a strong competitor on a
great site unless there was a better site that could be acquired. Never
handicap yourself from the start by picking anything less than the best
location.
ANALETTO: Corner lot, mid-block,
ingress, egress, traffic count, residential, retail, professional, mixed use;
with so many variables to consider, is there one ideal combination for a car
wash?
DIX:
No. Some time back we decided to come up with the four ideal factors that
constituted a C-Store site. We said we wanted 25,000 cars a day, 4,000
households in 1 mile, 4,000 daytime population (people who work in the area)
and major activity centers (high schools, recreation parks, malls, etc.). When
we analyzed all of our stores for those four factors we found we only had one (1)
out of (at the time) over 300 which had all these attributes. And it wasn't
even our best store! I pay more attention to who is my competition, where are
they located, how much volume do they do, how do they price, how do they staff,
with whom do they staff, how do they maintain, and the last and most important
questions - can I beat them in all facets of operation? Are they vulnerable?
All
the physical characteristics of a property must work together with your site
layout to make everything easy for your customer - that must be a given. There
has to be sufficient access points, turning radii, parking spaces, lighting and
more. Good site layout is an art form and a struggle for many, especially in
conjunction with buying the right property. Do your homework, and don’t be
afraid to get help from industry associations, equipment manufacturers, other
operators, or consultants when you need it.
ANALETTO: With signage and
visibility so vital to a car wash’s success, what should a prospective buyer
look for or verify before buying a piece of land?
DIX:
Everything! I recommend having the discipline to walk away from a site and
possibly, lose money doing it. Do not close or accept anything less in permits
than everything it takes to make your service offer the absolute best within a
given trade area. Most cities understand that you're only trying to
operate a business. Provided you're not trying to operate a brothel (except in
certain counties in Nevada) or an adult book store, or some other offensive
use, they will have a zoning classification that will allow you to do that
business if you're willing to adhere to all their requirements of permitting,
zoning and operation. We didn't mind stringent requirements as long as they
were applied equally to all applicants.
ANALETTO: When it comes to
competition, how close is too close in your opinion?
DIX:
If your product and service offering is what it should be (which is better than
anyone's) you shouldn’t care. If you’re there first, and a competitor wants to
open across the street, so be it. It's their problem to keep up with you.
Assuming you selected the best location they must take an inferior position due
to your site location advantage. It's called “cutting them off” or
“out-positioning” them. If on top of that you have a good offer, good pricing,
good maintenance, and good staffing, they're beat before they get started.
The
opposite is true if you’re looking to build next to an existing competitor. If
you can beat them in all facets of operation, they have a lot of business, and
a better site is available, then there is no such thing as too close.
ANALETTO: With utility costs such a
major component of a car wash’s profitability, have you ever passed on an
otherwise good location due to overly high sewer, water, gas, or electric rates?
DIX:
Most growth cities are increasing their water, water meter and sewer rates and
fees. As long as my pro-formas worked, I would not allow any of these to
determine whether I took a site or not unless it gave a competitor an unfair
advantage by being grandfathered at a lower rate.
ANALETTO: Any words of wisdom?
DIX:
Above all else, have the discipline to walk away from a site and possibly lose
money doing it. Having been personally responsible for opening 100 of the 500
QuikTrip locations currently in operation, I had the luxury of being less
emotionally involved in selecting the best site than an independent investor
looking to open a new car wash. Emotional detachment makes it easier to walk
away from any purchase agreement that does not contain a long enough due
diligence period to acquire full building and use permits before you close. It
makes it easier to evaluate competition realistically and know when it makes
sense to go up against a deficient competitor and when you would be better off
looking elsewhere. There is a lot of science behind site-selection. There is
also a lot of art to it that can be easily manipulated by emotional attachment
to a less than perfect site. My words of wisdom would be to keep the emotion out
of it. Your financial success will depend on it.
John Dix is available for assistance in site selection and
development as long as it does not compete (in the C-Store category) with
QuikTrip.
He can be contacted at:
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