Why are there so many car washes in Sioux Falls?

Story courtesy of argusleader.com

Drive down any major street in Sioux Falls and you’ll see several. Plus another one under construction.

There’s a car wash right down the street from your house, another on your commute to work. Maybe there’s one across from your grocery store or your child’s daycare.

The Sioux Falls area has been inundated with car washes in the last five years to the point that you can’t drive down a major street without seeing one every couple of blocks — and it’s a growing industry across the nation. According to a report by First Research, the U.S. boasts over 60,000 car wash facilities that contribute upwards of $5.8 billion to the market annually.

In Sioux Falls alone, with a population of 192,517, there are nearly 20 dedicated car wash tunnels and service stations. That doesn’t include convenience stores with car washes on the property.

That growth isn’t just due to growing demand in a growing city.

Even with several locations across Sioux Falls, high-profit rates make it economical to set up shop with multiple locations across the city — and with the car washing industry’s recent foray into subscription-style memberships, consumer behavior is changing to generally pay more for car wash services on a monthly basis than a decade earlier.

Crowded market? ‘Overbuild’ to outdo competition

While Silverstar Car Wash is the most noticeable dedicated car wash business in Sioux Falls, with its bright red tunnels dotting busy Sioux Falls roads, it’s not the only car wash business in the area.

There are two Blue Tide Car Washes in Sioux Falls, with one under construction, and other locations in Mitchell, Tea and Brookings. H2Ose It car wash has two locations in northern Sioux Falls, and there are a handful of other one-site car washes across town.

Clean Ride Auto Spa joined the crowded field in early 2020 near 85th Street and Minnesota Avenue, looking to be a one-stop shop for car washes and car detailing.

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“We were aware of the competition and tried to develop our own model,” Clean Ride Auto Spa co-owner Dave Dreessen told the Argus Leader in 2020.

Now, Dreessen says there’s potential for growth but wants to focus on Clean Ride’s current location to get it “off the ground.”

But it could be tough to expand in an already crowded market — specifically crowded with Silverstar locations, said David Davis, South Dakota State economics professor.

Silverstar having the most car washes in town is strategic, Davis said, even if it seems like too many to casual observers.

“They want to be the first choice, so they want to be the most convenient,” Davis said. “They’re trying to lock up the customer base and demand as best they can. … It might seem crazy to some about why there are so many, but they don’t want to give anyone a chance to come into the market. So, you overbuild a little bit for the chance to close out competitors.”

While Silverstar’s growing presence is strategic to Davis, it’s simply following what customers are asking for, said Andrea Vetos, Silverstar regional manager and media representative.

Customers who are buying Silverstar memberships — or any car wash subscription package in general — are caring for their vehicles more and washing their cars more often to get rid of winter salt and road grime. In doing that, they’re asking for more Silverstar locations that are conveniently located where they drive daily, Vetos said.

Silverstar has eight locations in Sioux Falls with another two under construction.

Subscriptions lead to growth: ‘They’re here to stay’

Running a car wash is a low-cost operation.

When you factor in water, energy and chemical costs, it’ll only cost about $2 to run one car wash cycle, Davis said. That means that at $8 a wash, consumers are paying about four times the marginal cost — not including labor or overhead costs — for a retail car wash.

After Silverstar Car Wash was bought by its current ownership group in 2011, they quickly realized that the normal retail prices for car washes wouldn’t lead to the growth they wanted. They couldn’t compete against the convenience of car washes located on the same property as fueling stations.

So, they had to make it more convenient for customers, and monthly memberships were the solution. Vetos attributes the majority of the company’s growth to the membership packages implemented in the ownerships’ first year, adding a second location in 2015 and expanding by six other locations in as many years.

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“It was seeing the growth of that, the popularity and seeing new possibilities that helped us grow and expand,” Vetos said.

But Silverstar isn’t the only car wash that thought to use subscription models. Within the last decade, car washes across the country have offered unlimited car wash clubs and membership deals to entice customers.

Subscription memberships not only were more attractive to customers due to the convenience and ease of simply paying a monthly fee, but it’s easier on car washes to plan for staffing and other costs more regularly. Subscriptions also make it less attractive for customers to simply stop at another car wash, since they’ve already committed and spent money for the full month with their membership.

Subscription memberships, even if a customer uses it twice a month or eight times a month, make it easier to lock in customers, Davis said.

Clean Ride Auto Spa offered memberships because that’s what local competitors were offering, Dreessen said.

“They’re here to stay for the car-washing industry,” Dreessen said. “I think it’s a good fit for customers and for people coming through. They can go to individual places and do it themselves once in a while, but they’ll still have that membership to fall back on.”

‘$20 for one wash’: Subscriptions generally don’t save consumers money

Bryce Healy has been a member of Silverstar Car Wash for about four years, and he’s washed his flight of five family vehicles 771 times.

That’s roughly 16 times a month, or four times a week, that he’s washed either one of his work vehicles, his wife’s car or one of his two daughters’ cars.

“They make it too damn handy,” Healy said. “They’re just popping up everywhere. Many other car washes too.”

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The monthly cost for those five subscriptions is about $100, but even that’s cheap, Healy said, adding that he gets his daughters’ vehicles vacuumed and cleaned twice a week in addition to using the tunnel.

“They don’t make any money on me. I’m their worst customer,” Healy joked. “I’m robbing them blind.”

But many customers aren’t really saving money, Davis said, even though they feel like they are getting their money’s worth.

Most Americans, about two-thirds, only wash their car once a month, or about 13 times a year.

With subscriptions, members can wash their vehicle an unlimited amount of times. But not everyone does.

“Plenty of customers only wash their car two to three times a month and it still makes sense for them,” Vetos said. “If they use it at least twice a month it works out in their favor. We’re really excited to have those customers come in regularly.”

If a regular car wash costs about $10 and a person washing their car once a month at that price buys a $15 unlimited car wash subscription, they believe they’re saving $5 on a car wash if they wash their car even just twice a month.

Even though they save money on that second car wash, what they’re really doing is spending an extra $5 a month on a service they wouldn’t use otherwise. That’s an extra $60 a year that a business, such as Silverstar, earns from a customer that they wouldn’t have as a regular retail customer just driving through once a month.

And even though a car wash will run another cycle, the profitability of someone coming in just two or three times a month far outweighs the marginal cost of a couple dollars, Davis said.

Healy himself only washed his vehicles once or twice a month before he became a subscription member, he said.

While Davis doesn’t have a car wash subscription himself, his wife has a Blue Tide membership in Brookings that costs just over $20 a month.

“My wife can’t get to the car wash four times a month. The car doesn’t get dirty that fast,” Davis said. “On average, you’ll have people only using a car wash membership two or three times a month, probably.”

And that’s why there are so many car washes in Sioux Falls, Davis said, because their prices compared to marginal costs are so high and because subscription models benefit them more than they do a customer who doesn’t wash their vehicle on a weekly basis or more.

“People buy a subscription thinking they’ll wash their car once a week and it’ll only be $5 a wash,” Davis said. “But, likely, life gets in the way. Instead of once a week, they’re back to washing their car once a month like before but now they’re paying $20 for one wash.”