By Bob Eisenberg | Jun 23, 2009
Vend price and utilities. That seems to always be the center of discussions among laundromat owners. One actually relates to the other.
If you could price according to your expenses, the percentage of utilities to gross sales would go down drastically. However, due to competition and the reluctance of store owners in the past to increase prices, that may not be possible yet.
Your vend price should be part of your business strategy, just like your equipment, marketing and advertising is. No business can ever get a 100 percent market share; each goes after a segment, whether it’s intentional or not. In all businesses in all markets, there is the low end, the middle and the high end. That is why there is Target and Wal-Mart, Macy’s and Bloomingdales, Nordstrom and Neiman Marcus – each going after a different market segment.
If your strategy is to vend at low prices, you typically get the low-end customer. If you have average prices, you get a mix. And if you are the price leader, you get the best – the customer who will pay more to get more. When I say more, in our industry it might simply mean a clean store with a friendly atmosphere and working equipment.
An exercise should be performed on your business. Put all of your expenses on a spreadsheet and first compare your expenses to income and determine what your profits are. You also should compare your ratios like your percentage of utilities to gross sales, etc., with industry averages found in the Coin Laundry Association’s annual survey, as well as by talking to other operators.
If you are satisfied, great. If not, it may be time to make some changes, one of which may be pricing.
It is sometimes believed that “all our customers are interested in is price,” but that is not true. CLA surveys of coin laundry customers rate price as a reason to use a particular laundromat in seventh place – behind location, cleanliness, parking, helpful and friendly attendants, and so on. All people buy value, not price in everything they buy. They buy price in the absence of value, even in our industry, as CLA surveys have found.
If price were the only criteria, there would be only fast food restaurants, we would all drive small inexpensive compact cars, and there would be no need for Macy’s or Bloomingdales.
Relating to our industry, how many of your customers under-load a large washer when they could have used a smaller washer for less money? How many spread out and take more dryers to save time? Some do, some do not. Remember, all you are after is your market share. If you require a 25 percent market share to reach your financial goals (and you should know what market share you need), why would you care about the other 75 percent who may not want to use a higher priced store?
Wal-Mart does not fret about those customers who go to Macy’s and vice-versa, as long as each reaches their individual business goals.
Of course, competition is important. You should be intimately aware of all of your competitors – their pricing, their strengths and their weaknesses. Then, honestly compare your store to theirs. The retail, self-service laundry business is different from most other businesses - low price and high volume do not necessarily translate to higher profits.
Wal-Mart can buy huge quantities of an item, sell it cheaper than anyone else and make more money; in other words, it can take advantage of economies of scale. However, in a laundry, there are no economies of scale. No matter how high your volume is your utilities will not go down per customer, so your percentage of utilities to gross will be higher; you will have more wear and tear on your equipment, possibly causing you to replace sooner; and your store will require more of an effort to keep clean and maintain.
By being higher priced or a price leader and offering value to your customer, it is possible to have fewer customers and earn more gross profit.
Being a price leader has pitfalls as well. Just because you have a genuinely great store there is only so much more you can charge. In addition, you have to keep your store in great shape.
Advertising also plays an important component in your vend price strategy. If your advertising looks and feels professional, it adds value. After all, why would anyone buy a name brand pain reliever instead of its generic counterpart? The answer: advertising! Customers buy what they feel comfortable with. The quality of the advertising makes them believe they are getting value, even when sometimes they are not. Perception in the mind of the consumer becomes reality.
Clearly, this is a whole other topic and can be a topic of many, many future articles and discussions. When done correctly, advertising works. Contrary to some store owners’ belief, the laundry business is not the only business in the world that does not need to advertise.