Keeping a 'Hawkeye' on the Money

By Bob Nieman | Feb 03, 2010

Daryl Johnson owns three self-service laundries in two states. Operating all of them under the name of Giant Wash, Johnson has a couple of 2,000-square-foot laundries in Iowa and a 3,000-square-foot store in Minnesota. He’s also the newly elected president of the fledgling Iowa Self-Service Laundry Association, which is facing a daunting, uphill battle against a 7 percent sales tax on laundromats in the Hawkeye State.

What attracted you to the coin laundry business?

Before this, we were real estate investors – residential real estate rentals. We had a combination of single-family and multi-family properties. In fact, at one point, we had 78 units.

In trying to maximize profits in the rentals, we began installing coin-operated “laundries” into our multi-family units and started to actually make money with them. That was our introduction to the coin laundry business.

I’m a bit of a research junkie, so I began to dig deeper. If those little washers and dryers we had in the basements of our buildings were actually making us money, I began to wonder how I could get them to make even more.

How did you get actively involved in the industry?

We had friends who were in the coin laundry business. They had multiple stores, and that was something that propelled us along as we got started.

In fact, nearly five years ago, one of our friends in the laundry business had happened upon a coin laundry for sale in the same town as our rental properties. He told us that he was thinking about buying it, but if we were interested in it, he’d let us have it. So, we did our research and ended up buying it.

That was our first store. Today, we have three. One store is in Mason City, Iowa. Another is in Spencer, Iowa. And we recently bought one in Shakopee, Minn.

Why Minnesota?

First of all, there was an opportunity up there. But, also, the reason I started looking for stores in Minnesota was spurred on by the simple fact that I don’t have to pay a 7 percent sales tax in Minnesota, like I do in Iowa.

What are some of the keys to running a successful laundry business?

My parents operated an extremely successful pizza restaurant, so I grew up slinging pizzas as a kid. And when I got into the coin laundry business, I realized that a lot of the business policies, practices and procedures I learned growing up with my mom and dad in the restaurant business – the things that made them successful – were extremely effective in making my laundry business successful as well. It all revolves around taking care of the customers – service, making sure the store is clean and the equipment is functional. And if somebody has a complaint, we address it.

Of course, the number-one key is cleanliness. Every one of the stores we’ve purchased has had a negative outlook toward them. They’ve always been the one store that everyone in town disliked. Overwhelmingly, the biggest change we make is to clean them up. We refinish the floors, paint the walls, clean the machines, clean the soap dishes and so on. I’m a fanatic about keeping the stores clean.

The second key is the functionality of the equipment, keeping it working, and getting rid of old equipment.

Despite the fact that our stores are unattended, I would add that the thing that has gotten the biggest response from our customers, over and above cleanliness, is our responsiveness to them. If somebody loses money or has a problem with one of our machines, I address the issue with them personally, whether it’s in the form of a letter or a rebate check – or whatever is required. If they lose money, they can fill out a refund request, and every one of those refund requests gets addressed, even if they lost a quarter in one of the pop machines.

In a couple of my stores, I’m competing against some of the big dogs – guys with new, pretty, clean, high-dollar stores. The only way I can compete with those guys is to be much more consumer-friendly and way more responsive. I have to go over the top on that, otherwise I just can’t compete.

You’re also the president of the newly formed Iowa Self-Service Laundry Association, which is an affiliate of the CLA. What made you and your fellow laundry owners in Iowa decide to form this organization?

It gets back to the sales tax issue I mentioned earlier. The initial process of actually forming the ISLA and fighting the tax probably began about year or so after we got into the business. We were attending the BDS Laundry Systems show in Minnesota and were talking with CLA President Brian Wallace, who discussed the Iowa sales tax with us. That kind of put the bug in our ear.

And, as we ran our stores and became more successful with our laundry business, the check we had to write to the state became larger and larger. We just simply got irritated.

However, the final straw – what really kicked this thing off – was when I bought the Minnesota store. Now I could see it in black and white. I was able to compare the profitability between the Iowa stores and the Minnesota store. The magnitude of the improvements we have been able to make in the Shakopee store that we weren’t able to make in the Mason City or Spencer stores really hit home.

Again, that was the final straw. We had to get this sales tax repealed.

As president of the Iowa association, what are your specific goals?

We’re doing two things. First of all, Sen. David Johnson was kind enough to introduce a bill in the State Senate to repeal the sales tax. And, surprisingly, he did this due to simple conversation with Jeri Postma of Bubbles Laundry, one of our association members. We weren’t even organized as an association at that point; it was just a group of us talking, and he end up introducing the bill.

That bill, obviously, went nowhere because there is no strength or power behind it. Fortunately, in Iowa, bills are active for two years, so we have the rest of this legislative session.

Another goal is to build membership. We have a few people who are interested here; that’s how we got organized and began having meetings. We discovered that there is a lot of interest, but we don’t have a lot of CLA members at the moment.

Right now, we’re trying to get the rest of the laundry owners in the state aware of the advantages of being a part of the CLA and the Iowa affiliate. We need to build up some membership. Right now, when we talk to the legislators about our tax issue, we have only about a dozen members there – and that just doesn’t carry a lot of strength. It’s a bit of a challenge, but we’re on a membership drive, and we’re getting good responses.

In addition, we’re working our way through the legislative process. We’ve identified the three members of the Senate Ways and Means Subcommittee, which has the bill. So we’re currently trying to identify laundry owners located in those lawmakers’ districts willing to be part of the association. We want to get those three members of Senate into those stores and then talk with them on a personal level. We want to say, “This is how the sales tax is affecting us. This is how it’s affecting the people in your district. This is what it’s doing, and this is why it needs to be repealed.”

Hopefully, we can get these three Senators to pass it out in the Ways and Means Subcommittee. We need to get them into the stores so that the legislators can put a face to it. Right now, they don’t have a face to it.

I know it’s going to be a long process. I would consider it a home run if we could do this in less than five years. At the end of this legislative session, the bill will be dismissed, but that won’t be a problem because Sen. Johnson will re-introduce it. We’re going to be able to keep the bill in front of them. It’s just a matter of getting somebody to actually act on it.

How would you suggest other coin laundry owners go about making themselves heard by their local lawmakers?

Within their legislative councils, you’ve got to talk to your Senators and Representatives. They’re people, too. They put their pants on one leg at a time, just like us. Invite them into your store. For some reason, many of us look at our legislators like they’re up on this mountaintop, like they’re untouchable. However, when you talk to them, they’re real people – and every one who I’ve talked to about our sales tax issue and invited into a store has been very interested in seeing what’s actually going on.

They’re very responsive. Most of our Senators and Representatives want to know what’s going on because they want to represent us. If we’re not telling them, they’re just guessing, or they’re listening to the people who are talking to them. Therefore, we, as laundry owners, need to be the ones talking to them and telling them what’s happening in our businesses.

Talk about small businesses in America that drive the economy – there is nothing more grassroots, hometown-based than a local grocery store or a local laundromat.

Beyond the sales tax issue, what are other hot-button issues for the association?

The biggest issue for us, as a group, is just purely education. There is so much happening in the industry that it’s almost impossible for many of us laundry owners to keep up with it.

In forming the ISLA, we held a meeting to get organized and put the finishing touches on our final association agreement. During this meeting, we had an informal question-and-answer session. We got to talking and, all of sudden, all of this information was being shared. In fact, I probably learned more in our organizational meeting, just talking amongst ourselves, than I have in a lot of other things I’ve done.

As laundry owners, we can get so focused on one machine that’s driving us crazy or one particular problem that we just can’t solve. Everybody has got some specific issue that’s frustrating them, and those are the things we were talking about. You’ll never get that kind of information at a distributor meeting. You’ve got to get laundry association guys together over a cup of coffee and say, “Hey, this is my problem. What are you running into?”

During that initial, informal meeting, there was a wonderful sense of transparency. It was a genuine feeling that, if we all do better at running our businesses, the entire industry in the state of Iowa will do better. If I can make a little bit more money or if I can help you make a little bit more money, even if you are just down the street from me, then we both do better. It was amazing.

Of course, the formation of the ISLA occurred only because we had several laundry owners who were on the same page, and we all fed off of each other. It’s very much a collaborative effort. The other board members – Todd Santoro, Scott Creech, John Glaza, Brian DeCoster and Randy Krohn – are fantastic; they make my job as president easy.

If I didn’t have the board that I do, I’m not sure I would want to be president. It’s very much a team effort, and I have very talented people on the board who pitch in whenever and wherever they can. Honestly, without them, we wouldn’t have a chance.

What trends are you noticing in your marketplace?

Because of the retraction of the economy, I’m seeing my machines fuller. Customers are maximizing them. Also, customers have a tendency now to step down in size. They’re using smaller machines, if they think it will still do the job. People still want to get their clothes clean, but they may use a 20-pounder instead of a 30-pounder, or a 40-pounder instead of a 60-pounder. That’s probably the biggest trend.

Other than that, we’re in a recession and we’re having some problems, but on the whole, business is good. I have one store that was stagnant for the year, but the other two are up. I’ve had growth this year. In fact, we’re putting up at least one more store this year, and possibly two. So, we’re actually expanding.

What technological advancements have you excited in 2010?

I’m loving two things. First of all, the credit card capacity on the machines. Unfortunately, it’s new technology so it’s expensive, but that is fantastic.

The other thing I’m really excited about is the ability of my newer machines to be Internet-based; we can build a Web site where our customers can find out how many machines are in operation. They can receive text messages when their machines are done. Furthermore, I can go on and see what’s happening – what machines are malfunctioning and so on.

With one of the stores we’re planning to build this year, I’d really like to go with that type of technology. Being unattended, I want to put in a test store that features Web-based capacity, where a customer can call me and I can re-start a machine for them remotely.

Again, I want to be able to take my customer response to the next level. I want to be able to pull it up on my Blackberry and just re-start it.

Do you have a business philosophy that guides your decisions?

A friend of mine, who was very successful in multiple types of businesses, once told me something that has always stuck: Regardless of what it costs, you always have to do what’s right for your business.

If you have a machine down that’s irritating the customers, you have to get a new machine. You get what you need. If it’s hiring employees or whatever else you think is going to be the next best advantage from a financial or customer service standpoint – regardless of what it costs – do it. Do what is right for your business, and the business will follow.

Are you happy with vend pricing in your market?

Is anybody ever happy with vend pricing? I have a tendency to be the price leader.

With my dryers, I’ve gone to full-cycle pricing. That was huge. I saw my dryer revenue increase by 17 percent, and my utility costs went down.

It was a complete no-brainer… once I finally did it. We did that about three years ago. Initially, I got punished for it, just like everybody. For two to three weeks, my customers punished me by not using my store, but then they came back. And, in fact, where I have other stores in close proximity, those operators are actually following suit.

Also, I vend my toploaders at the exact same price as my frontload double-loaders. If customers are dead set on using the toploaders, fine – but they’re going to pay for them.

How are utility costs in your area?

Over the past year or two, water rates have gone up significantly. That caught me a little bit by surprise. Fortunately, I’ve become an efficiency guy, as far as getting my utilities screwed down and running properly.

For example, when we bought our Shakopee store, which we bought in March, the previous owner’s average utilities in March of the previous year were a little more than 25 percent of revenue. At the end of November, my utility average in that exact same store, from March to November 30, was 11 percent.

I got all of the equipment running properly. I pulled out an old 1970s boiler system and installed in a new, high-efficiency boiler unit. We added new high-efficiency lighting. We cleaned all of the filters on the furnaces and air conditioners. By the time we get through the winter, I expect us to be running at about 14 percent to 15 percent.

Are you a big believer in advertising and marketing?

We’re big into signage. When I bought my very first store, I inquired about interior signage with a local sign business, and I got a bid back for about $3,000. I nearly had a coronary.

I ended up buying a vinyl cutter plotter on eBay, and my wife, Lisa, does all of our vinyl signage and all of the lettering in our stores. She’s incredibly talented when it comes to this.

My theory on interior signs is that, if I can get customers into the store, I need to keep them happy and let them know the best way to maximize their dollars while they’re in there. And then they’ll tell their friends. After all, word-of-mouth advertising is still the best.

We also hang banners outside. I do those myself, and I spend an awful lot of time changing banners.

If you have a good location, you don’t have to do a lot of radio, TV or newspaper advertising, because people are driving by. However, this year, we’re actually going to do some radio spots, as opposed to sending out direct-mail pieces. We’ll kick that off in March or April.

In your opinion, when a coin laundry fails, what’s the most common reason?

Cleanliness. The owners are not taking care of the customers from a cleanliness standpoint. They’re not taking care of the maintenance.

Also, overwhelmingly, it’s vend pricing. Many owners simply don’t realize how much their antiquated equipment is costing them, and they don’t have their vend prices high enough.

Personally, I’ve yet to buy a store where I haven’t raised the prices at least 50 cents across the board. And the customers come back, especially if you give them a perceived value. The customers will respond to that. Yes, they’ll be irritated for a while, but they also understand your situation; they know they’re paying $2.60 a gallon for gas, where only three years ago they were paying $1.25.

Some owners are not willing to do what the business needs – or they’re not willing to see it. They’re too afraid of the customers. It always comes back to a pricing, cleanliness or maintenance issue.

You’ve got to be willing to change. If you’re a store owner and you’re not willing to look at what’s going on in the industry and maybe get an outside opinion, perhaps you’re in the wrong industry.

You’ve got potential new stores in the works and a long sales tax battle ahead. What else does 2010 hold for you and your laundry business?

Isn’t that enough? Right now, we’re just trying to push the sales tax repeal through and get those other stores up and running.

We’re trying to financially set ourselves up for whatever adjustments or changes may be coming with the economy. We’re trying to pay down debt and get the stores paid down so that we’re in a strong position for whatever happens.

I also want to stay on the cutting edge of technology because it’s going to give me a competitive advantage.

What advice would you give a laundry owner just getting into the business?

Run your numbers conservatively. During the last four or five years, there was a period when I couldn’t find a store to buy that was priced right. The industry was growing, money was easy to get, and people were paying too much for stores.

Location is important, but verify your numbers from the previous owner. Talk with other laundry owners. Ask what their maintenance costs are. Make sure you understand where they’re at with their utilities. Do a “real-world” analysis.

This is a business that’s based one quarter upon another, and it doesn’t take very long to be upside down when it’s one quarter at a time. Focus on cold calculation, rather than making a highly emotional decision.

Is the self-service laundry business still a good business to get into?

It’s a great business, and there’s plenty of business out there for all of us. The industry needs more good operators.

In Mason City, I bought my first store on the same day another operator opened a brand new, 4,000-square-foot laundry in the same town about a mile and half away.

I grew my store 17 percent that year, despite the fact that this other guy opened a brand new store. I’m not really afraid of a new laundry coming in. I welcome the competition because it makes me better. It doesn’t take the same pie and cut it up smaller – it makes the pie bigger.

Don’t be afraid of another laundry coming in beside you. If you’re running a good store, and he’s running a good store, the two of you will do better together than you will do alone.