An Interview with Clean Ventures Managing Director Peter Stern
Peter Stern is the managing director of Clean Ventures, a newly formed venture capital fund created to attract and invest in growth-stage laundry companies.
Stern also serves as senior vice president of Clean Rite Centers, LLC, and has more than 20 years of experience in the laundromat industry. He is the owner and operator of Great American Laundromat, which is located in the Bronx and is one of the highest grossing stores in the New York metro area.
Earlier in his career, Stern worked for PricewaterhouseCoopers on its financial advisory services team, specializing in forensic accounting, fraud investigations and post-acquisition dispute analysis. Additionally, he has worked in commodities trading at International Specialty Chemicals, focused on procuring rare raw materials for large Pharma and Biotech clinical trials through overseas contract manufacturing agreements.
Tell me about the formation of Clean Ventures and its mission within the laundry industry.
For the last 25 years, we’ve built and operated Clean Rite Centers, the largest retail laundromat company in North America. Throughout the past decade, but especially in the last two years, we’ve constantly pushed ourselves to explore the eventual and inevitable modernization of the laundry industry.
For so many reasons, laundry is unsexy, unstudied and unmodern. People have innovated systems and services for food delivery, errands, and more – but not across laundry and laundromats. Introducing new technology, engineering new wash-and-fold solutions, and other novel disruptions to the industry will, on one hand, compete against our traditional retail operating business – but, on the other hand, induce significant growth to the size of the entire industry.
Given our significant presence in the laundry industry, coupled with our deep management team and experience, we realized that we are poised to be the ultimate strategic investor to any company aiming to disrupt or improve the laundry industry. In addition to offering insights and acting in an advisory capacity, we can directly accelerate a startup’s timetable by rolling out its goods and/or services in our fleet of stores.
We have the ability to pilot products, conduct surveys, and actually test or even purchase a company’s product in our large retail business, which can dramatically increase the stage of a startup. As a basic example, our first investment was pre-revenue upon closing, and just seven months later they had annual run-rate revenue exceeding $500,000 and had raised a venture round at 15 times higher than our investment basis.
Besides yourself, who else is involved with Clean Ventures?
The management team is led by Alex Weiss, who is the founder and CEO of Clean Rite Centers. Together, with its wholly owned affiliates, the company has developed more than 200 laundromats across 10 states and is the largest retail operator by revenue in the country.
Clean Ventures also includes Adam Greenbaum, who co-founded AGW Partners, LLC in 2019 to invest in real estate and alternatives, while the company’s chief financial officer is Gary Heller, who holds the same title for Clean Rite Centers as well.
The advisory board features such well-known names as Oren Sauberman, vice president of Clean Rite Centers; Alex Osipov, chief technology officer for a financial services technology company; Mark Berman, founder and managing partner of MB Family Advisors, a multi-family office investment firm; and Michael Fanger, founder and president of Eastern Funding.
Why do you believe that now is the right time to launch this type of venture?
We’re witnessing the industry gaining a lot of attention from Silicon Valley talents looking to replicate blueprints for tech-based strategies already executed with great success in other industries. We also are seeing new forms of capital from VCs, family offices, private equity firms and even public markets paying greater attention to our industry.
We believe our unparalleled experience in the industry positions us to vet, validate and appropriately value young companies. We can help these companies with strategic planning, navigating around landmines, effectively networking in the industry, and using our operating platform to serve as a “lab” for launching new products and services. We can provide a secure, comfort vehicle for both the startups new to our landscape and investors who know they want to participate but lack the specific industry knowledge to conduct effective due diligence.
Can you discuss the kinds of technology and other disruptive business models you’re currently seeing within the laundromat industry?
We’re excited about a number of segments within the laundromat industry. These include software, marketing, POS and management platforms; data acquisition and monetization; revenue generation through selling in-store marketing; peer-to-peer laundry services; on-demand pickup/delivery and wash-dry-fold concepts; locker or other drop-location systems; garment-care innovations; automatic folding solutions; and a lot more.
Do you see the laundromat industry growing?
We see the laundromat industry growing tremendously with the shift to wash-dry-fold. In round numbers, the cost of a customer doing self-service laundry is 25 cents per pound, whereas the cost for a full-service wash-dry-fold is $2 per pound.
Each time a customer is converted from a self-service customer to a full-service customer, his or her lifetime recurring revenue toward the industry increases eight-fold. In this new era of the gig economy, people’s greatest asset is their time. After all, nearly 50 percent of the population regularly uses convenience-driven apps like GrubHub, Uber and Amazon Prime. The fact that the average American spends 200 manual hours per year doing laundry is changing.
How can laundromat owners take advantage of this consumer evolution?
Again, we see a massive shift to the service end of the business, and operators can opt in to this change by refining their WDF and pickup/delivery offerings. Although marketing has not traditionally been a big focus of many laundry owners, it will become an essential tool in their arsenal.
We also believe that operators need to reinvent their box to attract and retain a younger demographic that will pay a premium for their time, comfort and amenities. I also see a trend toward environmentally and socially conscious consumerism – so operators should become more tuned in and integrated with the communities they serve.
What are some of the specific ways you’ve seen this industry modernizing itself in recent years?
Much of the attention has been seen in the app-based, on-demand laundry service space, but we have seen the origins of new POS/payment systems, business management platforms and digital marketing/CRM systems inside the box. Manufacturers have made more modern upgrades to their equipment lines, but this is slow to take form as owners haven’t been extremely motivated to retool equipment on a large scale.
You certainly have experience with large-chain operations. How is this specific segment of the business doing?
Our laundromats have continued to perform throughout the extreme challenges of the current pandemic – albeit with operational, personnel and expense challenges. I believe we’ve been fortunate to have large-format, 24-hour stores with parking, which has certainly helped in today’s social distancing environment. Cleanliness and exceptional customer service has always been at the core of our identity, and I believe it has been appreciated more than ever by our customers during these times.
What can single-store laundromat owners or even those with just a few laundries learn from today’s big-chain operators?
In all honesty, I think we can learn just as much – if not more – from the smaller, independent owner/operators as they can learn from us. We see operators working the stores with their families, taking great care of their customers, and staying more on top of every detail of their businesses than we ever could.
The only thing I think some of them need to learn is to not devalue themselves with their pricing. If you keep your store clean, provide great service, offer working equipment and have a comfortable space for your customers, they will appreciate it and pay for it. We see too many incredible owners who are afraid to raise their prices, and we believe that does a disservice to the entire laundromat industry.
Do you see more consolidation within the laundromat industry down the road?
This has been the multi-million-dollar question for almost three decades. Smarter minds than mine have been poor prognosticators when it comes to consolidation, so I will not follow in their footsteps.
I will say that the same challenges of consolidation that existed years ago still exist today. To execute a truly successful national, retail rollout, a true differentiation in the core product/service offering needs to emerge, which can establish real branding power. Without this monumental change in the consumer experience, I see the mom-and-pops continuing to hold their ground in this industry.
In your opinion, what are the pros and cons of this type of potential consolidation?
The pros are a maturation of the industry. Economies of scale can be established, and concentrated sales channels will attract sophisticated vendors and more innovation. Larger chains could invest more into R&D and could afford more risk and experimentation, which would create continuous improvement. Bigger chains share their learnings and always raise the bar of best practices across their portfolio. And customers will benefit from a constantly refined product, service and experience.
The cons are the end of one of the last retail enterprises still dominated by the mom-and-pop operation. There is something truly special about your local owner/operator who you know by name. The family-run business that is a part of – and integrated within – the community. The personal, hard-working entrepreneur who truly cares for each and every customer he or she serves. I believe there is something special about that, and it’s becoming rare.
Perhaps franchised operations are a compromise that can serve everyone’s interests.
Recently, franchises have seemed to be making some inroads in the laundromat industry. Do you see the franchise model beginning to take hold and perhaps find success where it hadn’t before?
Franchising could be an ideal compromise between the need for scaled operations with buying power, and the hands-on mentality and passion of an owner/operator. For a franchisee to be successful, the franchise must truly deliver a brand, a system, a product or a service with a differential that warrants the fees it charges. I don’t believe that exists yet, but once it does, I see it catching fire.
Why should potential investors and entrepreneurs be looking at the laundromat industry, rather than some other potential business opportunities?
The most exciting proposition is our expectation that the sheer size of the industry will dramatically expand with the continued shift to wash-dry-fold, the introduction of new technology systems, and other novel disruptive improvements and changes to the industry. The laundry industry is one of the few remaining large industries yet to be truly accessed by institutional capital, which we believe is changing in the near-term with increased modernization and growth of industry size.
Generally speaking, the companies today valued highest against their income are those that are asset-light, and there are so many asset-light business applications to our industry that are conducive to reaching meaningful scale.
What will it require to be a successful laundromat owner in 2021 and beyond?
This question reminds me of the parable of the frog sitting in water that is very slowly heating up to a boil. I don’t think there will be a drastic, noticeable change next year or the year after or even the year after that. However, a slow, gradual, nearly undetectable change is occurring in the laundromat business, which is leading to a boiling point – much in the way Blockbuster Video eventually found itself in a pot of boiling water that it couldn’t escape, while Netflix looked down upon it and prepared to enjoy its dinner.