By: Anthony Analetto
Originally Published in AutoLaundry Magazine
Interview with Marcus Kittrell by Anthony Analetto
“When everything seems
to be going against you, remember that the airplane takes off against the wind,
not with it.” – Henry Ford
I sat down today to finish writing a column for this
magazine on evaluating the effects of adding an express exterior lane to a full
serve when I received an interesting e-mail. Regular readers may recall an
interview that appeared in Auto Laundry
just over a year ago when an F4 tornado severely damaged one of Marcus
Kitrell’s three car washes near Birmingham Alabama. At that time, Marcus was
trying to make heads or tails out of his insurance policy and determine if he
would be able to recover. The e-mail I just received contained a series of
before and after pictures documenting Marcus’s completely renovated facility. Having
re-opened only five months ago, Marcus is washing nearly twice as many cars as
he was before the tornado.
Recovering from a natural disaster that closes your business
for 10 months is no small feat. Reopening to increased revenue and
profitability is truly remarkable, even for a seasoned car wash veteran such as
Marcus, with over 26 years of industry experience under his belt. Although in
the middle of site selection for his fourth location, Marcus agreed to share
some of his insights on insurance and disaster recovery. Below are some
excerpts from the conversation that I’m sure will get you on the phone with
your insurance agent.
ANALETTO: Looking at a picture of the new site, it doesn’t
look anything at all like the original full-serve. How much of the building
were you able to recover?
MARCUS KITTRELL, OWNER, MARC-1 CAR WASH: Zero. Nothing of
the original building was salvaged. Enough of the building was destroyed that I
had a choice: to try to repair what I had or rebuild everything from scratch. I
had an opportunity to convert my dated full-serve wash into a completely new
express exterior and decided to go for it.
ANALETTO: Did you have enough insurance?
KITTRELL: No, not entirely. The insurance policy I had only
covered $800,000 and the entire project cost $1,050,000. I had to put in the
other $250,000 myself.
ANALETTO: So you were underinsured on the property?
KITTRELL: Yes and no. I was certainly underinsured if the
tornado had leveled my entire facility. We were lucky however and many parts of
the property were salvageable. If I had to, I could have rebuilt my facility to
the same level it was before the tornado within the $800,000 coverage. The only
reason I even had the option to build a brand new express exterior for $250,000
was because I had a loss of income insurance policy – something I don’t think
you can be without in this business.
ANALETTO: Could you explain what a loss of income insurance
policy is?
KITTRELL: Whereas property insurance is required if you have
a mortgage, loss of income is usually optional so you have to make sure you
have it. The policy I had paid my ongoing expenses including rent and payroll
for a few key employees for up to 12 months while we rebuilt. During the 10
months we were closed, they paid the actual incurred expenses. We reopened with
two months left on the policy, so they paid us a makeup on the sales we would
have had if the disaster had not occurred for the those months. I don’t
remember the exact numbers but basically if I did $20,000 the month I reopened
but the year before I had $40,000 in sales, then they sent me a check for the
difference. We were able to provide the insurance company with very accurate
records and they made calculations from them that were fair.
I really can’t emphasize enough how important it is to make
sure you have this coverage. Without the policy, I would have had no choice but
to reopen as fast as I could, with whatever I could, just to make my mortgage
payment. Instead I was able to step back and evaluate my options. Another point
I want to make regards real estate. In my situation, I have an LLC that owns my
buildings and properties, with each wash operating as an S-Corp that owns the
equipment but rents the location from the LLC. This is a pretty common
structure for many car washes. It’s also normal for the Holding Company to make
a profit on what it charges the Car Wash for rent. For example, if the Holding
Company pays an $8,500 mortgage payment, the Car Wash might pay the Holding
Company $15,000 in rent. The reason I’m
pointing this out is because it’s the Car Wash that holds the insurance policy,
but you want to make sure that the policy names the Holding company as
“additionally insured”. This extends your coverage to the Holding company so
that in this scenario, you’d receive $15,000 instead of $8,500.
ANALETTO: Why did you decide to change to an express
exterior and not a flex-serve or even stay as a full-serve?
KITTRELL: As the only full-serve in town I was hesitant to
change. The decision was even harder, because if I stayed a full-serve I would not
have had to invest $250,000 of my own money and could have reopened several
months sooner. I did play with the flex model and had some site plans drawn up
for property, but ultimately felt that the express-exterior model fit the
location and my market best.
As a full-serve, my base wash was $12 and we averaged $18
washing between 2 and 3 thousand cars per month. I also had 20 employees and
labor accounted for 38-40% of my revenue. To move to express I lengthened the
tunnel and added more equipment so I could deliver a clean car without prep.
Now I only have 4 employees and produce a cleaner car. After four months I’m
already averaging 5,000 cars per month at $8, and labor is only 15-16% of my
revenue. The bottom line is that I’m making more per month with a lot less
headache. Volume is growing each month and I expect to recoup my initial
investment in less than 24 months. Also, if I ever choose to sell the property,
an express-exterior is more appealing to a larger base of investors.
ANALETTO: How did your customers respond to the format
change?
KITTRELL: Great. We’re offering free vacuums and putting out
a great car. Once we explain the difference, customers really appreciate the
value. There were definitely some questions at first but the price is
appealing, not to mention the convenience and speed.
ANALETTO: Did you
have any difficulties with the city, contractors, or the construction process?
KITTRELL: Not really. We sat down with the city and the city
planner and worked very closely with them. The most important thing is to not
rush into anything. Take a second to analyze the situation from every angle and
get your ducks in a row. We took a hard look at fixing the building but
realized we had to reposition it by a few feet to make the express format work.
That required a variance which I had to make sure we could get before moving
forward. Once you start either knocking things down or repairing them you
really can’t go back easily.
ANALETTO: What misconceptions
do you think people may have about their insurance policy?
KITTRELL: Mainly that you’re not in any way obligated to
rebuild what you had before. You certainly don’t expect to have a tornado wipe
out your business, but if you’re properly insured, you can turn it into an
opportunity to build a better one. Not only did I upgrade my equipment, I
improved the overall efficiency of my entire location. I was able to change the
motor voltage from 208 to 480 which will lower my electric bill. The tunnel
controller is also new and dramatically better than what I had before. It’s
helped me reduce my detergent, utility, and water consumption. Even maintenance
is easier and less expensive with improvements like a self-cleaning conveyor
pit. Overall, I’m producing a cleaner car than ever before at a lower cost in
every aspect. One other thing I did was to install underground reclaim tanks.
Our water situation doesn’t warrant me adding a reclaim system right now but if
that changes it’ll be an easy conversion. Those are the type of things you have
to keep in mind if you’re ever forced to rebuild your wash due to an unexpected
disaster.
ANALETTO: What recommendations would you make to other
operators to be better prepared for a disaster?
KITTRELL: First and foremost get with your insurance agent
every year to review your policy. Make sure you know how much it will cost to
replace things from the slab up and check that you have enough coverage. Also verify
that you have a loss of income policy structured to cover your holding company
if you’re set up that way, I can’t emphasize that enough.
Next, go to trade shows, talk to operators, and know what’s
current so that you can make intelligent decisions quickly. When I went to
rebuild this wash I already knew what wash format and equipment I wished I had
if my tunnel were just a bit longer and the property laid out differently. I
never expected it to happen this way, but I did have an idea of what I would do
with the property if I had the money to do it.
