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Self-Service Laundry Pricing Strategies (Part 1)

Understanding the internal variables plus competitive pressure

CHICAGO — How should you price your self-service equipment when you’ve just opened a brand-new laundromat? What about adjusting prices in a store you’ve had for a while? When do you know it’s time to raise prices? There are plenty of factors at play, including revenue, store quality and the competitive landscape.

American Coin-Op invited representatives from some vended laundry equipment distributors to answer several questions about vend pricing strategies and weighing your bottom-line desires against the needs of your customer base and any pressures brought by nearby competitors. Let’s get started:

Q: Upon what criteria should a laundry owner base his/her wash and dry vend prices?

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Russ Arbuckle

Russ Arbuckle

Russ Arbuckle, president of distributor Wholesale Commercial Laundry Equipment S.E., Southside, Alabama, and owner of two self-service laundries: There are a few things that they need to include in their decision-making process on the pricing structure. One of the most obvious ones is understanding the competitive market, not that that is the end all, be all. I think it’s just good information to have. Certainly we don’t want our customers to undercut their competitors. That doesn’t do anybody any good. Creating price wars benefits customers, utility companies and landlords but not necessarily store owners.

The other thing I talk about, especially with new stores, is understanding your pricing structure as it relates to your pro forma. That’s what we’re basing decisions on relative to opening a new store, and even down the road using that information to look at your price structure vs. your operating costs. It’s always good to take a look back at that pro forma and make those adjustments relative to your operating costs and then see where that leaves relative to your pricing structure.

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Craig Dakauskas

Craig Dakauskas

Craig Dakauskas, president of CLEC Distribution LLC, Gulf Breeze, Florida: I think it’s based on his costs. I think he’s going to look at what his costs are, then what type of margin they want to make and then adjust the vend prices at that point.

(Costs would be) labor, utilities, machine cost, what it cost them to get that wash-dry-fold load in, how much it weighs; there’s going to be a certain amount of cost to that. If they’re supplying the soap, there’s a cost there, too.

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Dan Schulte

Dan Schulte

Dan Schulte, sales manager, Laundry Solutions Co., headquartered in Springfield, Missouri: What I feel is important is if you want to be the market leader. That depends on the condition of your store, the equipment mix, larger machines. I tend to stay away from going lower than the competitor’s prices. With the new state-of-the-art laundry centers that we’re putting in, you can command a higher vend price. In this day and age, we’re almost conditioned to accept price increases in every facet of our lives.

But saying that, sometimes you need to react to competitors’ prices. And maybe if you don’t react to it price-wise, you react to it with other offerings that you have in your laundry. Let them know you have Wi-Fi, charging stations and all (those kinds of extras).

Q: How important is it for an owner to know and track their competitors’ pricing? How can a store owner respond if a competitor undercuts his/her prices for similar service?

Dakauskas: I think it’s important to know what the pricing in the marketplace is. It doesn’t mean you have to be the lowest guy or the highest guy, but I think it’s important for you to understand your competitors’ pricing in the marketplace.

How should they respond if a competitor undercuts? I think you have to look at: is your service better or worse? If it’s worse, how do you improve your services in order to justify maybe a higher price in the marketplace? … There are a lot of variables in that question because you don’t know the situation of the other owner.

We’ve seen, in certain marketplaces, where there are store owners who decide to lower their price to keep people from wanting to offer that service because they want to monopolize it, or they want to keep competitors from coming into the marketplace. There’s that strategy also.

Schulte: You do need to know what your competitor has out there, especially the overall condition of the store and pricing. But, if you’re the leader in the market, don’t be afraid to set your own pace as far as what you want to do in price structure.

What I tell people is other things to do in the laundry, such as if you have a coffee station there, vending machines, cleanliness of the store. It all goes into the experience the customer wants and will pay more for. … I would caution them against (having) a knee-jerk reaction. What I would tell them is to offer some other pricing options that you can do that maybe the competitor can’t do, such as time-of-day pricing, a senior discount day or bonus washes if you use so many washers.

Arbuckle: You know, the gentleman who got me into this business a long time ago, 34 years to be exact, he said, “Understand your competitor but don’t worry about your competitor. The time you spend worrying about your competitor is less time you’re spending worrying about what you’re doing.’ Understanding where your competitors are from a price standpoint is good knowledge to have, I don’t use that as the end all, be all when it comes to my pricing structures.

We’re talking about getting into a price war that benefits no store owners ever. What I discuss with customers when they find themselves in that situation, what is your store like compared to them? Are they a full-service store, fully attended, wash-dry-fold? Do they do drycleaning drop-off? Is your store newer, brighter, cleaner? Are your attendants better (at being) service-oriented? Those are the things we look and say, “Look, don’t get into a price war with the guy down the street that doesn’t have your cost structure.”

Q: Is there a formula available based on load capacity, utilities cost, types of goods washed, etc., to easily calculate what a laundry should be charging? Or are there just too many variables at play?

Schulte: We try to make it simple. What I do is I suggest they base it on $1.25 to $1.50 per 10-pound load (in newly built stores). For example, if you have a 40-pound washer, $1.50 times four would be $6 to start that washer.

Arbuckle: Obviously, there are a ton of variables. We’re talking about (equipment) sizes and utility costs and even down to the material that we’re laundering. A terry load is going to take more water than a poly-cotton load. Certainly, some variables that you really just can’t get a good grip on. I go back to the pro forma. We use a very detailed one that uses real-world utility consumption relative to water usage, electrical, etc. To me, that’s the best way to figure out what my pricing needs to be at in order for this store to be profitable. If I know what my utilities are and what my usages are, this pro forma is going to tell me at this price point, you’re break even. At this price point, you’re 10% profit, etc.

Dakauskas: I don’t think so because of the labor. That variable is the biggest part, depending on where you are and what market. … And the type of goods washed. Depending on what you’re washing and how big a load it is.

Check back Thursday for part 2: Best times for promotions; announcing price changes; technology’s influence