Originally posted – Sep issue/2012
How to Respond When a New Laundromat Enters Your Market
When the closest competitor to one of Brian Brunckhorst’s coin laundries in northern California lost its lease, the multi-store owner was understandably overjoyed – and his business immediately jumped by 30 percent.
However, the celebration was short-lived.
“The landlord decided to take over the business and re-equip the store,” Brunckhorst explained. “So, I started looking at how I could compete with a newly remodeled store twice the size of mine with better parking.”
And so it goes. With gas stations on every corner, big-box home improvement stores across the street from each other and new supermarkets seemingly springing up on top of one another, competition is a way of life in the business world.
And perhaps nowhere is that fact more prevalent than in the coin laundry industry.
“I think one of the more traumatic issues in the laundry business, beyond a visit from the IRS, is the arrival of a new store in your trading area,” said Philadelphia-area laundry owner Dan Marrazzo. “The first reaction is to wonder about your own store and its capabilities. Then you have this hollow feeling that you finally reached a profitable stance and now you will return to the ‘No Profit Zone’ once again. Your hand shakes as you write the check for your next machinery payment, and you are unable to think clearly. If this sounds like hyperbole, you have never endured the wrath of a new competitor.”
Breathe… and Take the First Steps
“I’ve never had a problem with an independent laundromat owner deciding to build a new store,” said California laundry owner Ron Kelley. “It’s not something you want to have happen, but it is part of the business world, and it happens in many industries. New competition makes you do all of the things you should have been doing before they came.”
Louise Mann of Wash Day Laundries in Austin, Texas, agreed that laundry owners shouldn’t be so quick to demonize a new competitor.
“Competition – that word should be an instant alert to any business owner,” Mann said. “It’s neither good nor bad, but serves as a reminder that someone new and unknown – with the boundless enthusiasm we all had when we first opened our laundromats – now has excitement and energy to spare.”
And, as an existing owner, your initial response to the breaking news of an oncoming competitor is crucial – time is of the essence.
“I have been in the industry for 36 years,” said Tom Jessen, senior vice president of the Coin Laundry Division for BDS Laundry Systems in St. Paul, Minn. “In most cases, the worst decision existing store owners can make when they see a new store coming is to do nothing; however, that’s what most of them do.
“They say, ‘Well, I guess I’ll wait and see what happens.’ And, by then, it’s too late,” he added. “All of a sudden, they find a shocking cash flow change – anywhere from 30 percent to 60 percent of their revenue disappears.”
Jessen explained that, in cases where the owners were proactive in upgrading their equipment and remodeling their stores, “they might cut that loss down to 10 percent of what they had before, and they might recover that, depending on the location and the demographics.”
“To quote the famous warrior Sun Tzu from 600 B.C.: ‘Strategy without tactics is the slowest route to victory, and tactics without strategy is the noise before defeat,'” Marrazzo noted. “I find it still rings true, even within the safe confines of your laundry. Your strategy should be preemptive, and not after the fact.”
It is inevitable that at some point in the future, every coin laundry owner will most likely face a new competitor. The first thing to do when you find out is to not panic. In most instances, you will find out well before your competitor opens his or her doors. This should give you some time to plan a strategy and survey your own operation.
Here are some initial action items, per Mr. Brunckhorst (which he successfully used to battle that landlord/new competitor):
• Review how your community perceives your business by checking out reviews on Yelp, Google and Facebook. Make a list of all the negative aspects customers have complained about. Even if you don’t agree with them, this is the community perception, so write it down.
• Walk through your store as if you were going to buy it. Look specifically for things you would change, and start making a list. How could you make it even nicer? What is the age of your equipment? Is it time to freshen up the paint, or add new folding tables and seating? How is the lighting and the floors?
• Visit the new store. Write down what it has that you don’t, as well as what you’ve got that it doesn’t. Focus on finding what they are missing. Do you have better parking? Do you have amenities that they don’t? What about street visibility? Write down anything you think would be an improvement.
• Prioritize your list. Start with upgrades that will give you the biggest bang for your buck. Paint and new lighting will go a long way toward making your existing customers feel like you care about them. But be realistic – if your machines are rundown and out of service half the time, a few gallons of paint might not do the trick.
Upgrading Your Equipment
The best way for a store to improve its cash flow is through larger equipment, as it is often an existing store’s greatest deficiency.
“You need to upgrade your equipment and have regularly scheduled upgrades,” said Eric Pooler, who owns nine laundries in Maine. “You need to know when you’re going to be doing it and plan well in advance. Make sure the funds are available.”
“The one thing a new store usually has going in is an ample amount of larger machines, and putting those in is what brings in customers that have washers and dryers in their houses,” Jessen added. “Also, the traditional customers enjoy the simplicity of going to one machine rather than two, three or four of them. If an existing owner doesn’t get this implemented before a new store opens, it’s hard to regain your customers, because they’ve changed their laundry habit, and it will be hard for them to switch back.”
In addition, if you don’t have larger equipment, your competitor is free to set whatever vend prices he or she wants on these highly demanded machines, because no market price has been established, according to Jessen. This also opens the door for the new laundry to place lower prices on some of its smaller, less-desirable machines.
Of course, an equipment upgrade also means increased efficiency and lower utility costs.
“Your goal should be to have your utility costs represent 18 percent to 20 percent of your gross sales,” Pooler said. “If you’re lower than that, great; but if you’re over 25 percent, you need to upgrade everything now.
“If you’re spending 25 cents out of every dollar that comes into your place on utilities, you can be sure that your competition isn’t going to be doing the same. When they come in, they are already efficient – and you’re behind the 8-ball.”
Clean and Friendly
Even before possibly upgrading your equipment, get down to basics – make sure that your laundry is spotless and that your customers feel welcome.
“The number-one reason a consumer will go to a different laundromat is cleanliness,” Pooler said. “If you don’t keep your store clean, say goodbye. First impressions happen once – and they happen in the first 10 seconds. Compare your store to what you see in the magazines. Is it well lit? Do you have plants and flowers? Is the floor clean? Does it shine?”
If not, prospective competitors scoping out your laundromat see that, and they know they have the upper hand.
Clean, repair or replace anything that looks dirty or worn. Perhaps try some colorful ceramic tile on the walls in high-traffic areas to liven up your interior.
“On a regular basis, paint the walls, replace the flooring covering, hang an attractive picture, or paint a mural on the wall depicting some popular local sports venue or historical site,” offered Bill Reed, vice president at Daniels Equipment in Auburn, N.H. “One smart owner I know would always decorate the store when a holiday was coming. For instance, one Valentine’s Day, she decorated the walls with big hearts and the message, ‘We love our customers!'”
One of the best ways to show your customers that you love them is to spend some time in your laundry.
“Customers that have a personal connection are less likely to leave for the new store,” Marrazzo said.
“Always greet your customers if you are in the store,” Reed advised. “Many years ago, a successful store owner and I were returning to one of his laundries after lunch. As we got within about 50 feet of the store, he noticed a customer carrying a loaded laundry basket. Without hesitation, he took the basket, brought it into the store and put it in front of the machine the woman was going to use. Although this man came from poor beginnings, he had street smarts – and his customers loved him for the attention he would give them.”
When you can’t be at your store, be sure your staff is representing your business in a similarly customer-focused manner.
“Having the best attendants is a major factor,” said Chicago-based laundry broker John Vassiliades. “This factor is much overlooked in today’s laundry business. Your attendants must be the best trained, have the best personalities, the best ability to work with customers and take care of problems. When it comes right down to it, it is not the bricks and mortar or the make of the washers and dryers – it’s about people taking care of people.”
It’s also wise to consider the customer service aspect of your store’s layout. A feeling of security and a sense of utility are factors to pay attention to in the design.
“When building new stores, they eliminate the nooks and crannies and create an open layout,” Jessen said. “These are things existing store owners should try to do with the flow of their stores to make it more appealing.
“Also, when it comes to store design, customers really enjoy having a dedicated seat to go along with a dedicated folding table, because they can set up their ‘base camp’ and have everything right at their fingertips.”
LMARIES Laundromat in Bowling Green, Ohio, is one of the cleanest, most customer-focused and competition-resistant laundries in the market. But, about 10 years ago, owner Duane King was the new kid on the block.
“I was the one who decided to build a new store in a fairly saturated market,” King related. “It seems kind of foolish when I look back, but during my two-plus years of research, I found that the existing laundries in my market had been neglected – resulting in dirty stores with out-of-order machines, burned out lights, no air conditioning… and the list went on. I made the decision to build a new store and, most importantly, to keep it looking new.”
Promote Like Never Before
When facing competition, avoid the temptation to reduce your advertising campaigns due to the potential drop in income. In fact, it might not be a bad idea to boost your advertising budget.
“There’s a good chance your new competitor will not do much advertising and this can make a big difference by letting new, potential customers know that you are there,” Brunckhorst said.
Store signage, flyers, direct-mail campaigns, local newspaper ads, and cable TV and radio spots are all effective vehicles. Of course, no business owner should be neglecting the internet in 2012; at the very least, build a decent website – because you can bet your new competitor already has one.
As far as in-store marketing, perhaps add some loyalty retention features, such as monthly drawings, a “frequent washer club” or perhaps a “frequent comforter club.”
“Buy a flat-screen television and hold a raffle,” Marrazzo suggested. “For $400, you can find out where your customers are coming from and where they are in relation to your new competitor.”
“Offer some prizes in recognition of your regular customers,” Reed added. “Everyone likes to know they are appreciated, so create a contest or drawing with pre-numbered tickets. And be sure to advertise the winners in the local newspaper and on your store’s bulletin board.”
One major advantage you have over your new competitor is that you’re already part of the community. Strengthen that bond in any and every way possible. Taking part in local charities, fundraisers and school activities are great ways to tie your business to the customers’ everyday lives.
“How you respond to the news of a new competitor will be noticed by your customers,” Brunckhorst explained. “Give back to the community by helping to raise money for local schools. Your customers have kids that go to those schools, so helping them raise money will draw a lot of positive attention. Your store doesn’t need to be the newest in the area to effectively compete.”
Above all, avoid making disparaging comments about the new competitor. Instead, focus on customer service and continuing to build your community involvement.
Of course, don’t ignore your competitor either. You need to be aware of any specials being run.
“Send someone into their store at least once a week and find out what their promotions are,” Brunckhorst said. “And if a customer comes into your store, asking if you can match your competitor’s special, absolutely do it – with a smile. It is an easy save.”
Does This Mean War?
As tempting as it may be, don’t get into a pricing war. Resist the urge to slash your vend prices “in order to compete.” Most new stores will run specials for a limited time. By reducing your prices, you will magnify your drop in income. Be patient and let the new store settle into its regular pricing.
“I would avoid price reductions, which can be achieved by stressing value over price,” explained one coin laundry owner. “I understand that customers can be price-conscious, but price reductions, in most cases, are self-inflicted wounds.”
King agreed: “Dropping prices would only reduce your income. And, even if you were able run the new guy out of business, chances are that store will be sold to the next investor standing in line.”
“I have two other laundromats within my trade area, but I don’t really compete,” added another laundry owner. “I price to where I can make a good profit. When my costs go up, so do my prices. I am the price leader. I keep the place as clean as possible and try to have my machines in working order. My attendants are helpful and respectful of customers.
“When I first got a competitor, I lost business for several months,” the owner continued. “Everyone wanted to try out the new guy. Eventually, my business returned. I didn’t panic. We just did the best we could to provide the experience we would want. We have been down a little the last few months, but we are still having our best year ever – not by a lot, but still not seeing a long-term impact.”
An Ounce of Prevention…
The best time to derail new competitors is before they even open their doors.
Since his entry into the self-service laundry industry, southern California store owner Art Jaeger has always been the new competition.
“Many owners have never reinvested in their stores by updating interiors or adding new equipment – in essence taking advantage of their customers’ lack of alternatives in the area,” Jaeger explained. “I find it hard to believe how little owners know about what is happening in their territories or about how to react to a new store going up.
“It normally takes at least six months to construct a store,” he continued. “During that time, existing store owners have exclusive access to their customers. They should be making the customer experience in their stores as positive as it can be in every way possible. Yet, I have rarely seen the owners focus on their customers. Most owners’ strategies have been limited to attempting to compete on price, once the new store opens. I have yet to see this work.”
Instead, laundry distributor Bill Gilbert suggested that store owners search their memory banks.
“Remember how excited you were when you first opened your new business,” said Gilbert, president of SLM Corp. in Belton, S.C. “The cleanliness of the new floors, the freshly painted walls, the shiny washers, the lint-free dryers, the bright lights, and everything in perfect working order.
“You can be assured that a prospective competitor is going to come into your laundry and look at the conditions of the building and the machines. Wouldn’t it be nice to give those prospective competitors a reason to shake their heads and come to the conclusion that they need to look somewhere else to fulfill their dreams?”
SIDEBAR:
Confessions of ‘The New Guy’
Here’s how one multiple-store owner in the Midwest preys on the weak and rundown:
I’m the one who moves in to your town if you’re not running a good operation. The first thing I do is go to your laundry and see what it looks like and how busy you are.
If I find that you have a messy, rundown laundry with broken equipment and half of the lights are burned out, that’s an invitation for me to come into your area and put up a new store. I keep checking back over several months. And, if I find the same equipment broken and the same lights burned out – and the store is somewhat busy – this tells me that the owner is complacent, milking every penny out of the old equipment and not putting anything back into the business.
On the other hand, if you’re running a good, clean operation and keeping up with newer equipment, I won’t try to compete with you. I will go somewhere else.
However, if you don’t act quickly, it’s the beginning of the end for you. Once I open, the biggest mistake you can make is to lower your vend prices, thinking this will help you keep your customers.
Who will pay more to do their laundry? The answer: your customers – who are tired of your rundown store. They will pay more for my brand new, clean, well-lit laundry.
Once I open a new laundry, your income will really drop. You’re so accustomed to milking a certain amount from your laundry each year that you can’t find any extra cash to replace your old equipment.
You’re unwilling to take less money out, as you already have less in your pocket and now there is no money left to reinvest. It may take a few years, but as your loyal customers dwindle and new customers enter the market, the business is going to shift to my clean new store – and they’ll pay more because I have things like free WiFi, big-screen TVs and credit card acceptance.
My advice: the minute you hear of a new laundry is coming, retool your laundry, fix it up and clean it up. That’s your only chance.
SIDEBAR:
A Tale of Two Competitors
A large multi-store operator in the Southeast details his responses to two new competitors, who opened under very different circumstances:
In one instance, a new operator who owned a couple of laundries in other towns opened a store in a small town I operate in. This town is very small and realistically can only support one laundry.
I own the property my laundry is on and operate a small partially attended laundromat that did not have air conditioning. Since I was the only laundry in this town, I knew how much business the town did.
This new operator originally opened with every bell and whistle imaginable – a larger store, fully air conditioned, full-time attendant, flashing signs and ridiculously low grand opening prices. The last point – lowballing with grand opening prices – was the straw that broke the camel’s back for me. In my mind, this operator was not going to come in and give the customers a choice; he was trying to put me out of business.
My response was to modestly remodel my store (paint, new lighting, a few new washers and a changer) and lower my washer prices substantially under his, knowing that the cost for him to keep the doors open – paying for a full-time attendant, air conditioning, rent, the loan to purchase the building, etc. – would cause him to bleed money.
I made a conscious effort to subsidize this lowball price to teach this competitor a lesson. And, within six months, he was forced to reduce the hours of his attendant, leave equipment unrepaired and raise his prices. This resulted in a store that was not as clean as mine, with out-of-order machines at prices higher than mine. Over time, I also was able to raise my prices to a breakeven point, which were still below his.
If this owner had competed on a fair level when he opened, the dust would have settled over time. But, clearly, the goal was to put me out of business, so I fought back. I now control about 60 percent of the business, and he controls 40 percent. However, I know he can’t service this store’s expenses based on his volume. Something will have to give in the future, and I’m prepared to wait it out.
In another instance, a laundromat not far from me in a medium-sized town reopened with all new equipment. I operate in a shopping center at a leased location. This competitor is a stand-alone property.
In anticipation of this opening, I was able to add new equipment and remodel my store before my competitor was able to open. This allowed me to ensure that my customers had no reason to leave when the store did open.
Thus, I was able to keep 80 percent of my customers. We were both priced competitively, and the result is that we are still profitable, and the customers in this town have two good operators.
These are two examples of competitive situations in two different markets under two different circumstances. A different strategy was used in each, but there is no silver bullet that works as a general rule.
When a new competitor opens, you will not keep all of your business, so you should have a realistic idea of what it takes for you to remain profitable. You need to closely monitor your sales and costs during this time – weekly, if possible.
Also, if you lease your store, when a new laundry opens your landlord might be sympathetic to you and reduce your rent for a period of time. You may need to show the landlord your P&L statements after the new operator opens to demonstrate the negative impact it is having on your bottom line. A landlord may reduce your rent if you have a long-term lease, as it is in his best interest to ensure you can survive and pay him uninterrupted rent as opposed to closing.
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