MKT 362: Market Research
Ski Associates Case
STUDENT(S):________________________________________________(16% total)
1. Conduct a secondary review of information available on the region the car wash would be located in (i.e., towns of Bishop & Mammoth Lakes in CA). Use APA to reference your description of the 2 towns, not to exceed 1 page.
EXCELLENT VERY GOOD SATISFACTORY PASSABLE NEEDS SOME WORK
2. How adequate is the market survey presented by the partners? Do you feel it provides a sound basis for making the decision regarding the proposed business venture? What would you have done differently?
EXCELLENT VERY GOOD SATISFACTORY PASSABLE NEEDS SOME WORK
3. Describe the primary (i.e., most important) market for using the carwash. Discuss and describe different segments (i.e., types of customers) that make-up the market for the car wash?
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4. What impact will the proximity of the new McDonald’s have on the proposed
business? Explain how many washes the partners might expect to sell each year (i.e., estimate demand*)?
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5. How would you assess the suitability of the location of the business? Describe some alternate types of business the partners should consider for using the land planned for the car wash. (Support your ideas!)
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6. Develop two tables to show fixed cost and variable cost estimates* for developing the carwash. Use these estimates to advise the partners on financial viability, whether or not they should proceed with the project.
EXCELLENT VERY GOOD SATISFACTORY PASSABLE NEEDS SOME WORK
SKI ASSOCIATES
A Feasibility Study
On March 2, 2009, Bob Parker called the monthly meeting of Ski Associates to order. Ski Associates is a partnership composed of Bob Parker, Joe Poliniskie and Branden Pitts. Each partner had an equal interest in the business and shared equally in the decision-making and management of the operations. Each worked approximately 20 hours per week for the partnership and had other outside business interests which took up the remainder of their time. Ski Associates operated a small ski rental and equipment shop in a medium sized southern California ski resort area. The business had a reputation of being run well, handled only the best quality ski equipment and enjoyed a high level of repeat business.
The problem currently facing the partners was the highly seasonal nature of the ski rental business and the possibility of low levels of rental income during winters with a light snow fall. The partners wished to diversify into a line which would be counter cyclical to the ski business in order to stabilize and level out the yearly income of Ski Associates. After initial exploration of several industries and product lines, the partners decided to explore further the possibility of opening a coin operated car wash on a vacant lot adjacent to the current ski rental shop. At the last monthly meeting, it had been decided that the partners would only investigate the feasibility of a customer operated car wash and would not consider a fully automated drive-thru-type operation. The rationale underlying this decision was that (1) the initial investment for the latter type operation would be much larger than a customer operated facility, and (2) due to the fact that the small size of the available lot ruled out the possibility of a large scale installation.
Bob opened the meeting with a general discussion concerning the desirability of this type of investment for Ski Associates and with an overview of the car wash industry. “I feel that this car wash idea fits very well into our overall objectives in looking at additional investments. The peak useage for coin operated car washes occurs during the summer months when our revenues from the ski rental business are zero. I have found that the car wash industry is a highly competitive market. However, industry representatives who I have spoken with agree that the demand for this service is increasing and that there are areas where the need far exceeds the availability. I feel that our local market is one such area. At the present time, there isn’t a car wash within a fifty-mile radius of our ski shop. It is reasonable to assume that a complete, modern facility would provide a much needed community service, and with proper management would be profitable to our business. I have also studied the demographic data pertinent to our market area and have found that population in the area is estimated at 7,000 to 15,000 permanent residents. This large variance is accounted for by the size of the area included in the population count. Our local city and outlying communities are all potential customers.”
“In both the summer and winter months, thousands swarm to our highly popular mountain resort. Although transients cannot be relied upon to support a business of this nature, this market segment cannot be overlooked.”
“During the snow season, we should still be able to get some business as the County and Sate highway department officials said that sand is commonly used on the highways to increase traction, but salt is used occasionally when conditions are particularly bad. Most owners realize the need to remove the salt immediatlely to prevent rest and corrosion. In addition, boat operators from the lake might feel the need to utilize our services to wash their boats; also, recreational vehicles and off-road users would also be potential users of a car wash.”
Bob, at that time gave the other partners an excerpt from an article that he had come across in his research. This article was prepared as an advertisement by one of the major car wash equipment manufacturers and is presented below.
Article on the Car Wash Industry
The car wash business has grown in popularity during the past several decades. The election of a particular type of facility appears to be a matter of choice depending on the location. Southern California is a leader in the innovative processes for numerous reasons; climate, vehicle ownership pride, etc. This is an area where the industry has been extremely popular. The various selection of car wash choices available extend from full service (exterior, interior, waxing, detailing, etc.) to do-it-yourself operations. Each operation requires a different capital investment.
Profitability of the facility on the surface appears to stem from management. Numerous businesses have been given up as losers only to have a new operator take over and prove the venture to be highly successful.
In particular, the self-service operator’s success seems to be directly related to the service provided. Installations which are improperly equipped, poorly maintained and afforded little attention by the owner, other than coin-box collections, frequently fail. Others which are properly maintained with necessary periodic equipment updating attract customers and prosper.
One of the major advantages of entry into the car wash industry is the fact that it has a relatively low entry cost (investment) and needs only minimal training of the owner/operator.
Bob continued, “Several other money making opportunities could be a part of this type of operation. Installation of a coin operated commercial vacuum and coin operated towel and wax cloths add to the income with little capital investment. One operator that I spoke to commented that his vacuum was a money-maker even when it was raining. In summary, I believe that this venture could level out the seasonability of our income and allow us to enter a business which would require a minimum of investment and expenditure of our time and energy in the operation of the facility.”
Joe then proceeded to present the financial and equipment information he had gathered from the other car wash operators and equipment manufacturers. “In looking at the available options in the car wash industry, I found a wide range of possible alternatives. We could go from a “one gun” uncovered facility all the way to a fully automated drive-thru wash. When talking to the manufacturers of this type of equipment, I found that they spoke of a menu of options from which the operator could choose. Because of this, I decided no t to recommend a particular configuration at this meeting but to prepare a representative list of options and the cost of each. I think that we have to put our heads together and decide on the amount of capital we wish to risk in this venture, and then assemble our car wash accordingly. (See Exhibit II.) I have also gathered a list of estimates on the costs of operating a customer operated coin wash facility for our help in making a final decision. (See Exhibit III.) Branden, could you now give us the information that you have gathered on possible financing of this venture and your estimates on the usage of our proposed car wash?”
“Well, you know that I have been very busy lately, but I did have time to call the Los Angeles office of the Small Business Administration when I was down at the beach helping my girl friend celebrate her 21st birthday. The fellow I spoke to, I can’t recall his name now, did tell me that we could probably obtain a SBA guaranteed loan from one of the local banks. He thought that we could negotiate a three-year loan with an interest rate of 9.75%. I also did have an opportunity to wash my car at several coin operated car washes and was very impressed with the operations that I used. I also found out that McDonald’s Hamburgers is building within a few blocks of our location, and if they think that this is a good location, I believe them. I really feel that this venture would fly if we opened it next to our current ski shop.”
“I guess this concluded our meeting,” sighed Bob. “The thing to do now is for each of us to take the data that we have gathered and study it for ourselves. I suggest that we meet in two weeks to make a final decision on this matter. Do keep in mind that if we have to make a down payment in addition to any loan that we might acquire, we only have about $15,000 total funds to invest.”
EXHIBIT I
AGE AND POPULATION OF THE TWO CENSUS
TRACTS IN SKI ASSOCIATES MARKET AREA1
AGE MALE FEMALE TOTAL
Under 20 1487 1270 2757
20-44 994 1096 2090
45-59 790 848 1638
60 plus 689 659 1348
Total 3960 3873 7833
Median Age 35.0 years
State Median Age 28.1 years
Population Growth, 2000-2010 238 percent
1 From 2010 United States census data
EXHIBIT II
COIN-OP CAR WASH COMPONENTS PRICE LIST
ITEM COST
PUMP-MOTOR ASSEMBLY, PER BAY – 800 PSI (2-3-4 GPM)………………..$1000
PUMP-MOTOR ASSEMBLY, PER BAY – 1220 PSI (2-3-4 GPM)………… 1495
SOAP & WAX HOLDING TANKS W/COVER (1 thru 4 bays)…………. …. 150
ELECTRONIC DETERGENT DISPENSER…………………………………. 499
ELECTRONIC DETERGENT DISPENSER (with wax tank)…………………. 599
ONE BAY WATER HEATER…………………………………………………. 595
TWO BAY WATER HEATER………………………………………………… 850
THREE BAY WATER HEATER………………………………………………. 995
FOUR BAY WATER HEATER………………………………………………… 1200
ONE BAY WATER SOFTENER……………………………………………… 295
TWO BAY WATER SOFTENER……………………………………………… 395
THREE BAY WATER SOFTENER…………………………………………… 495
FOUR BAY WATER SOFTENER……………………………………………… 595
ONE BAY DEGREASER ASSEMBLY………………………………………… 599
TWO THRU SIX BAY DEGREASER (add for each extra bay)……………….. 200
$.25, .35, & .50 MEDUIM DUTY COIN VAULT……………………………… 120
$.25, .35, & .50 COIN METER (slide chute – w/security extension)…………… 150
$.25, .35, & .50 H.D. (Security) COIN VAULT 24 or 115 volt………………… 150
$.25 or .50 H.D. ELECTRONIC COIN METER (24 volt only)………………… 180
WALL BOOM ASSEMBLY, W/GUN HANDLE, HOSE, AND & NOZZLE… 80
RING BOOM ASSEMBLY, W/GUN HANDLE, HOSE, WAND & NOZZLE.. 150
VACUUM CLEANER & HOUSING (single)…………………………………. 450
VACUUM CLEANER & HOUSING (double)………………………………… 795
WIPING TOWEL VENDER – $.25…………………………………………….. 125
WASH INSTRUCTION SIGN…………………………………………………. 15
WAX INSTRUCTION SIGN…………………………………………………… 12
ONE BAY ANTI-FREEZE SYSTEM (for water tanks)……………………….. 160
TWO BAY ANTI-FREEZE SYSTEM…………………………………………. 190
THREE BAY ANTI-FREEZE SYSTEM………………………………………. 220
FOUR BAY ANTI-FREEZE SYSTEM………………………………………… 250
EXHIBIT III
ESTIMATED COSTS
ITEM COST
Water $1.34 per wash cycle
Electricity $.03 per wash cycle
Gas $.02 per wash cycle
Chemicals $.05 per wash cycle
Repairs and Maintenance $1080 per year
Business & Property taxes $ 836 per year
Insurance (does not cover vandalism) $ 360 per year
Sanitation & sewer $ 420 per year
Vacuum (electricity) $ .02 per run
Towels $ .07 per pack
Construction costs for Self-Service Bays:
One Bay $ 20,000
Two Bay $25,000
Three Bay $30,000