CHICAGO — Pricing of wash and dry cycles is quite literally the foundation of any self-service laundry business. The decisions you make now can make or break your operation down the road.
There are a lot of variables at play in your store or stores, plus there’s the pressure you might feel from a nearby competitor willing to price their equipment lower than yours.
But upon interviewing representatives from some of our industry’s distributors, it became clear that no matter what data or experiences you may use to set prices, it’s important to balance vend price with service value. The greater the value you provide your customers, the higher the price they’ll be willing to pay.
Let’s hear what those distributor company executives have to say about pricing strategies and their recommendations for investors as well as current store owners.
CRITERIA FOR PRICING?
What criteria should a laundry owner use in deciding what to charge for a wash or dry in his or her store?
When Karl Hinrichs, president of HK Laundry Equipment, Armonk, N.Y., wrote a 2011 American Coin-Op column about pricing, he said the four largest expenses were labor, lease, equipment note and utilities. Nothing has changed, he says today.
“When you take a look at the expenses in a Laundromat, you’re going to find that there are four major expenses, usually in the thousands of dollars, while the rest are in the hundreds of dollars,” says Hinrichs, who also owns four stores and operates a fifth for a relative.
Further, he believes that utilities is the only variable cost in operating a store and should be the determining factor when increasing vend prices.
“As long as all the other expenses are roughly within the same parameters of normal, a 20% utility expense or better will give a nice little profit for the owner,” Hinrichs says. “The converse is if you let your utility expenses get too high, it’s at the direct expense of your profit.”
“I think you need to look at your business primarily,” says Dan Baker, vice president of The Minnesota Chemical Co., St. Paul, Minn. “You’ve got certain numbers you’ve got to hit, regardless of your competitors. You either have to be a price leader, a price follower, or middle of the road. If you’re building a laundry, you have to decide that before making any other decisions. And then based on that, you start a pricing strategy.”
“First of all, it’s (their) market,” Robert Gonzalez, vice president of Steiner-Atlantic Corp.’s coin laundry division in Miami, says of pricing criteria. “Second of all, it’s the way the laundry is set up. Your laundry is not going to price the same way as the guy who has 20-year-old equipment. If you’ve got new equipment in there, you can get a little more for your money.”
“Equipment capacity (size) is the most common (criteria),” says John Antene, president of coin laundry sales and marketing for Coin-O-Matic, Alsip, Ill., “although with the more sophisticated controls now offered with advanced cycle features (temperature, length of cycle, time-of-day pricing, bonuses, etc.), the laundry owner has an opportunity to add additional revenue to the basic pricing structure.”
“A laundry owner should most definitely be aware of competitive pricing in their immediate market,” says Greg Reese, sales manager for Commercial & Coin Laundry Equipment Co., Gulf Breeze, Fla. “In order to best set up their own pricing structure, it is best to have a sense of what the market currently will bear. This baseline will help to determine where to work from. The coin laundry owner should not aspire to be the low-cost leader. If their store is a better product to the consumer, then it commands a higher price.”
“Vend prices should be based on the condition of their store and when the last time they raised the prices,” adds David Hoffman, sales manager for Gold Coin Laundry Equipment, Jamaica, N.Y. “If you keep your store well-maintained, modern, and have modern equipment, then you can demand higher vend prices.”
And should a store owner be tracking the competition’s prices?
“Key differentiators are always important in any business,” says Ryan Smith, president of Aadvantage Laundry Systems, Garland, Texas. “If an operator is very involved in a store and has other offerings that drive business, then competition becomes less important, at least keying on their pricing. Operators who don’t have a draw other than price, gosh, they need to pay attention to their competitors’ pricing.”
“I’ll tell you what I do when I’m getting ready to develop a new Laundromat in an area,” says Bill Kelson, director of vended laundry sales for TLC Tri-State Laundry Companies, Atlanta. “I typically go to all the competitors within a mile or two and see what their pricing is like, how they manage their store, how old the equipment is, what they’re charging for washers and dryers.
“I take the point that we’re going to be the leader of the pack, if you will. If I’m building a new store, we’re going to better at everything. Everything’s going to be clean, brand-new and ready to go. I try not to give my competitors any reason to discount or cut their pricing.”
“You gotta keep track of whatever is happening in your neighborhood,” Gonzalez says. “Doesn’t mean you have to do what they are doing, but you can counteract using different strategies.”
“Always knowing your competitors’ actions, pricing or otherwise, is one of the many tools to determine where your business is in the market,” says Antene.
“I would always recommend to know your competitors’ pricing as a reference point to gauge your vend prices as well as your wash and fold prices,” Hoffman says. “You also need to consider the condition of their store and factor that into the price structure.”
SHOULD YOU TELL?
Do you alert your customer base in advance before changing prices? Should you publicize price increases at all? There’s a difference of opinion amongst the experts we interviewed.
“I think you should (raise prices) regularly, and that means more than every two years,” suggests Baker. “Or at least every two years. I’m not a proponent of signs saying, ‘Sorry we had to raise our prices’ or ‘Prices will be going up next month.’ … If you maintain a decent store, you’re not going to get much feedback. Target doesn’t advertise price increases.”
“I’m not a person to alert anybody,” Gonzalez says. “I had a customer that would post a note in his laundry that said, ‘If you have any complaints about me raising prices, here are the phone numbers for the water company, the electric company and the gas company. You can call them.’”
“Price ‘change’ will always be a difficult decision (and) process since prices typically only increase,” says Antene. “Store owners have many factors to consider in this situation; (there is) customer acceptance while keeping patrons loyal but very importantly staying abreast of continually rising utility and operating costs. The ‘bite the bullet’ approach always seems to be the best. A store owner must determine the increases needed and implement them. Any gradual announcements only prolong the change.”
“If a store owner is going to increase their vend prices, I feel that advertising in advance could only encourage a customer to start looking elsewhere to take their business,” says Reese. “Should the customer come to the store, and actually recognize that the prices have been increased, then they most likely will stay on site to do their laundry anyway. The negative emotion felt immediately after recognizing price increase will quickly fade away.
“Although, if a store owner is going to run a promotion and temporarily lower the pricing structure, then they should absolutely advertise in advance to generate new business,” he adds.
“I think it’s a good idea to post a sign or two in the laundry as to why you are raising prices,” Hoffman says. “If you are raising prices due to an increase in utility cost or labor rates, then most customers can relate to this increased cost. … I do not think it is important to notify customers in advance of a price increase.”
Check back Thursday for Part 2: Is there a time or season that’s best for raising prices? With the flexibility offered by advanced equipment options, is it possible to change prices too often? Is there a simple formula to calculate vend prices?