SUN CITY WEST, Ariz. — I entered the laundry business in 1976, when high utility costs and a corporate-career mindset kept most people from owning laundromats. That meant I landed in an undersaturated market where laundry services demand far exceeded supply. My stores became so crowded that customers walked out, prompting me to raise prices multiple times — yet business only grew stronger.
Market saturation occurs when a market has enough laundromats to meet customer needs; oversaturation happens when it has more than enough. New York City’s rising immigrant population kept demand high for years, as newcomers brought strong customer volume and a desire for business ownership.
As laundromat profits became obvious, investors rushed in and new stores opened everywhere. Many inexperienced owners struggled, yet failing laundromats still sold quickly to new buyers who didn’t realize their markets were saturated. Population growth hid these problems for a time, but in any shrinking market, every laundromat eventually feels the pain.
In Part 1 of this month’s column, I defined market saturation and began discussing the primary driver of oversaturation. Let’s conclude:
THE PRIMARY DRIVER OF OVERSATURATION (Continued)
Since this can be perceived as an easy absentee business (it can be run successfully that way if the owner is experienced), the industry tends to attract people who may not be willing or able to put enough money, time, skill and effort to make it work.
Newbies can see the same mat operating for years but not be aware that it’s been doing so at a loss the whole time. It’s just been sold over and over again, propped up by each newbie’s life savings. This isn’t an appropriate business scenario because it’s not based on normal, competitive market conditions.
Adding insult to injury, many new owners think all they have to do is a cursory cleanup and drop the prices to attract more customers without any idea that they are squeezing the margins. The other mat owners nearby will drop their prices in kind, then no one except customers wins.
HOW CAN YOU TELL IF A MARKET IS NOT SATURATED?
This can be a little tricky to the untrained eye, so let me lay out my thoughts.
Let’s say you’re interested in a mat in a certain trading area. There are six mats in that area that most people can drive to within 15 minutes.
How can you tell if they’re making money or priced correctly? After all, prices vary throughout the country.
You’ll need to do some homework by visiting each mat at different times of the day. Figure three times: morning, noon and evening. How busy are they each time you visit?
Do this for each day of the week, and at every competing mat in the area.
To make accurate comparisons, note the vend pricing and general condition of each mat. You’ll almost surely find that the nicer mats charge more but most should be priced fairly close together.
If all the mats are busy most of the time, there may be room for another.
If you find there are a couple run-down mats keeping up with the others in turns per day, then you may want to buy and renovate one.
One of the risks of building a new mat in a given trading area is that the mats already there won’t roll over and play dead. It’s impossible to escape the law of supply and demand.
Even if a new mat opens with higher prices, nobody wants to lose customers so competitors will fight back by dropping their prices. Others may retool their mats with new equipment. One or two may decide to sell, and their new buyer will do what? Lower the store’s prices!
If you see mats offering free dry, you have to ask yourself, “Why would they offer free dry if the market isn’t oversaturated?”
RESPONDING TO MARKET OVERSATURATION
So what can you do when your market becomes oversaturated?
As a mat owner, your best option is not to sit back and take it, but to make your mat better in every way you can think of.
Do this while a new mat is under construction so your customers won’t see much need to check them out. Making your mat look like new is far better than lowering prices and possibly triggering a price war.
It’ll take courage, yes. Consider installing some new equipment such as 80-pound washers or a bank of triple loaders. Doing this will also add value to your mat when it’s time to sell.
In fact, do this to discourage anyone from wanting to compete with you in the first place! If you’re proactive, some distributors may even steer their customers away from your immediate market.
If this doesn’t help, consider offering pickup and delivery.
If you’re a newbie, I suggest buying a “zombiemat” and fixing it up. That’s what I did with every mat I owned (I did expand two of them when they became screaming busy). This way, you won’t add another store that will increase capacity in your market. Otherwise, you’ll run into that inescapable supply-and-demand thing.
If you build a new mat from scratch, adding marketplace capacity will surely cause a drop in vend prices. If you raise prices slightly in your newly renovated mat, you may not trigger competitors to do the same.
Finally, here’s a tip: Ask the neighboring shopkeepers about the prospective mat you’re thinking about buying. How many owners did it have? How about customers? What’s the landlord like? You’ll learn a lot, which is never a bad thing when you’re thinking about getting into a market.
If you missed Part 1, you can read it HERE
Have a question or comment? E-mail our editor Bruce Beggs at [email protected].
