When Mister Car Wash debuted on the NYSE last summer and its shares rallied to the price of $22.40—49 percent above the IPO price of $15—many private equity players took notice and took action, either by investing more in the car wash brands they already owned or by seeking car wash operators to add to their portfolios.
Last year, for example, private equity made inroads into the car wash industry with Imperial Capital acquiring Riptide Auto Wash, Wafra acquiring Motor City Car Wash and Skyknight Capital adding HyperShine Car Wash to its portfolio.
Today, these private equity-backed car wash operators have the rare opportunity to establish themselves as leaders in a highly fragmented space, where roughly 75 percent of car wash companies operate only one to two sites. Mister Car Wash, for example, is the largest car wash operator in the North America with nearly 400 locations nationwide. Prior to its IPO, it too was private equity-backed: Leonard Green & Partners LP had owned the company since 2014.
While most private equity-backed car wash operators have aggressive acquisition goals, their expansion plans also require the development of tens of thousands of locations. Moreover, development activity isn’t limited to one geographic area.
“When we look at the size of our industry, we see demand outpacing supply,” says John Lai, chairperson and CEO of Mister Car Wash. “Even in the face of inflation and rising gas prices, we believe that the joy customers receive from keeping their car clean, coupled with the relative affordability of our service, has created a strong tailwind for expansion.”
To be clear, private equity firms aren’t investing in do-it-yourself car washes with open bays, soft washes attached to gas stations or full-service car washes. They are interested in car wash companies that own express washes, also known as tunnel washes or conveyer washes. These locations are almost fully automated, require very little labor and use conveyor or belt equipment to move vehicles through the car washing process. Most offer do-it-yourself vacuums, and some even offer optional detailing services.
The express car wash market is valued at roughly $11 billion and is expected to expand at a compound annual growth rate of 4.0 percent to 4.8 percent through 2028, according to Grand View Research Inc. Conveyor car washes are consistently the most profitable in the car wash sector in the U.S., where more than 72 percent of drivers use professional car wash services an average of 13 times per year.
Mister Car Wash has invested in its development team so it can continue to ramp up greenfield development activity. This year, the company plans to open 30 stores, following the 17 it opened in 2021. Ultimately, Lai believes there’s an opportunity to scale the company to more than 1,000 units. “We continue to reset our set high watermark [for development],” Lai says. “We want to get to about a store a week, which we think is kind of a good sweet spot for us.”
New revenue model transforms industry
Though no research firm has established the exact number of express wash locations, industry experts estimate about 10,000 locations. To put that in context, there are more than 15,000 Starbucks in the United States.
“Car washes went from not being on the private equity radar to being at forefront for nearly every firm,” says Geoffrey Jervis, co-founder and CEO of Mint Eco Car Wash. “They all want to be in the industry in some way, which means there’s billions of dollars flowing into this space right now.”
Mint Eco has benefited from that interest: the West Palm Beach, Fla.-based company recently raised $50 million from a family office known for taking a generational investing approach. The company leverages the capital to acquire and develop as much as $150 million in car washes in Palm Beach County.
“It is a race to get sites because everybody’s looking for the same type of real estate,” Jervis says, adding that Mint Eco’s initial plans include 20 washes before year-end 2024 and a portfolio of 50 washes in Palm Beach County before 2030.
Part of what makes the express car wash business so attractive to private equity firms is an emerging operating model, which offers dual revenue streams: one-off visits and a subscription or membership program that offers unlimited washes for a monthly fee.
Mint Eco has embraced the membership model. Its growth strategy is to provide its customers convenient access to services through a sophisticated network of washes all over the Palm Beach County. A customer who joins Mint Eco’s Unlimited Wash Club will have multiple locations to redeem their services at no additional cost.
“It’s not unheard of for a single location to have 5,000 subscribers, and when you do the math, even at a lower cost package of $20 per month, that’s $1.2 million in guaranteed revenue annually,” says Chris Donner, vice president of development for Mammoth Holdings, which operates 90 express car washes in 16 states under several brand names, including Wasatch Express and Shine-N-Go.
Competing for prime sites
Given the highly automated nature of express car washes and the entrance of so many new brands, it’s incredibly difficult for operators to differentiate themselves. That’s why expanding operators are focusing attention and money on finding the best locations, constructing eye-catching buildings and providing unique car wash experiences. Depending on the market and land prices, building a new car wash costs at least $5 million.
“The express carwash model is a volume business, and the biggest marketing tool is signage on the building itself,” says Brent Andrews, co-founder of Vybe Investments, which launched Pink Bird Car Wash in January 2022. “Visibility is huge for us, so that’s why we are very focused on the quality of our retail real estate locations.”
Pink Bird Car Wash emphasizes facility design and hospitality-driven operations and features retro Florida branding. The company, which is backed by Dallas-based Montgomery Street Partners, currently has two locations under construction in West Palm Beach and has plans to build at least 20 units on Florida’s east coast from Broward to Brevard counties. It is actively seeking sites in high traffic locations with left-in access and strong retail co-tenancy.
Mammoth Holdings’ development initiatives are funded by Atlanta-based private equity firm Red Dog Equity LLC, through its partnership with Tom Pritzker’s family business interests (advised by The Pritzker Organization). The company is actively looking for development sites of at least three-fourth of an acre, with high visibility, strong ingress/egress and preferably high-profile co-tenancy.
“We look for prime real estate, and we’re willing to pay for it,” Donner says. “We’re competing with the Chick-Fil-As of the world. We’re paying millions of dollars per acre for our real estate. We’re not looking just to go to a town and plant a flag anywhere because that means we could get out-positioned by a competitor.”
Mint Eco’s Jervis is also thinking about competitive car washes, not just the ones that exist today, but the ones that will exist in the future. The company is investing significant resources in creating “beautiful” exteriors with signature streetscapes that include locally sourced landscape installations designed to relax customers and improve the look and feel of the surrounding community.
Working with Kevin Probel, of commercial real estate services firm CBRE, Mint Eco has secured six properties for development and is pursuing more than 300 existing car wash and development sites in Palm Beach County.
“Ten to 20 years from now, we know there’s going to be twice as many car washes, so I’m thinking about how we can win when somebody builds a competitive carwash next door to us,” Jervis explains. “The only way is if we are focused on our brand and culture, and that includes a differentiated real estate strategy.”
New car washes make good neighbors
While express car wash operators have won over the private equity world, the same cannot be said for property owners, municipal leadership and retailers. Many of them are still holding on to outdated notions of car washes.
“Ten or 15 years ago, the car wash industry had some black eyes in terms of whether you wanted one of them on your retail corridor,” says Russell Reynolds, CEO of Spotless Car Wash Brands, which was acquired by private equity firm Access Holdings in 2020. “That has changed.”
Mammoth Holdings’ Donner senses that negative attitudes are softening. As real estate professionals and city leaders learn more about today’s express car wash brands and the way they operate their businesses, they’re increasingly willing to at least entertain the idea of selling a pad site or outparcel to a car wash operator.
“I’m working with a national home improvement retailer right now, and they’re trying to get us on as many of their 1,200 locations as they can,” Donner says. “They think that our customer and their customer are the same customer and there’s synergy if they can put us in their parking lots.”
Donner is also in talks with a national grocer with more than 1,000 locations that is interested in selling off some of its excess parking to Mammoth Holdings to develop new express car washes. So far, the companies have identified 100 opportunities.