There’s a Car Wash Boom

Driven in part by subscription pricing, car washes are proliferating like coffee shops.

Good Morning!

Here are today’s highlights:            

• Job changers are getting smaller salary boosts.

• This year, Gen Zers will begin to outnumber Baby Boomers in the workforce.

• What would it mean for businesses if we’re entering another productivity boom?

• Uber paid $1 billion for a platform that supported local liquor stores—and then shut it down.

BUSINESS MODELS

Suddenly, there are a lot more car washes: “From the Snow Belt to the Sunbelt, companies are scrambling to add locations and grab a piece of a $14 billion-plus industry. With 60,000 locations across the U.S., the sector has been expanding at roughly 5 percent annually, with some forecasts predicting the market to double by 2030. More car washes were built in the last decade than all the preceding years combined. ‘I don’t want to be too bullish and say there’s no way this could fail,’ said Jeffrey Cicurel, director of capital markets at real estate brokerage JLL. ‘But Americans are moving to the suburbs, and Americans want quality retail, and car washes come with that.’”

• “The car wash boom reflects a broader shift away from do-it-yourself car care habits. Like changing your own oil, soaping up the family auto in the driveway has increasingly become an artifact of decades past: The number of washes done at professional facilities jumped from 50 percent in 1996 to 79 percent in 2021, according to the International Car Wash Association.”

• “‘We think this is the coffee market in the early ’90s, when Starbucks got going,’ said Ian Rickwood, CEO and founder of Henley Investment Management, an international investment and fund management firm that has its eyes set on US car washes. ‘One came to town, and people said, $5 for a coffee, surely nobody will buy more than one cup a day. And of course, another one opened and another one opened and the category expanded because people began to change their habits.’”

• “​​But the industry’s biggest recent innovation involves its business model, which has increasingly focused on membership and recurring revenue. Mister Car Wash, a chain picked up by private equity firm Leonard Green & Partners that has gone public and now has more than 400 U.S. locations, was an early developer of subscription offerings. Users pay a monthly fee for unlimited washes, with plans starting around $20 a month before adding services like waxes and wheel polishes. (A basic a-la-carte wash runs for about $10 each.)”

• “What other industry can offer locations with up to 80 percent subscription-based revenue and an earnings before interest, taxes, depreciation and amortization margin of 50 percent? Amazon can’t ship a car wash, [Ian Rickwood, CEO and founder of Henley Investment Management] said. And the growth potential is massive.” READ MORE

HUMAN RESOURCES

Job hoppers are finding their salary gains are trending lower: “Overall, a worker who changed jobs in January saw a 7.2 percent boost in median year-over-year annual pay, compared to the 5.2 percent growth in pay from a worker who stayed in the same job. That gap is far narrower than in June 2022, when job changers saw a median year-over-year change in annual pay of 16.4 percent compared to 7.7 percent for those who remained in their jobs. It is a gap that has continuously narrowed since, according to data from payroll firm ADP, which used anonymized data to track actual workers who moved jobs.”

• “But that doesn’t mean the labor market is back to normal, [ADP Chief Economist Nela Richardson] said. Strong job gains and consistent labor shortages in fields such as construction, nursing and teaching will persist as baby boomers retire and fewer Gen Z workers are available to replace them.”

• “That likely means annual pay growth, which once hovered around 3 percent per year before the pandemic — just above inflation — will stay in the 4 percent to 5 percent range for 2024 and possibly beyond, Richardson said.”

• “‘The basket of compensation and benefits has grown. Not only can you offer a salary increase but you can offer a flexible work arrangement or remote or hybrid work to compete that compensation package than you could before the pandemic,’ Richardson said. ‘It's not about the highest salary; it's the mix of time versus salary that you could offer to a new recruit.’" READ MORE

Are you ready for Gen Z? “Gen Z this year is set to eclipse Baby Boomers as a share of the workforce, so it's a generation of workers that's here to stay. Their arrival into the workforce has been met with a tsunami of headlines about how they are ‘entitled’ and how they lack necessary work and social skills. In a familiar repetition of past depictions of previous generations, Gen Z also has been deemed lazy, strident, and too political to fit into the modern workplace setting.”

• “‘Gen Z is the future because they are not only the employees, but they are the customers as well,’ said Scott De Long, a business leadership expert who helps companies with workplace transitions. ‘If we don’t start recognizing or understanding who these people are, we are going to be the ones that are left out.’”

• “Among the differences with Gen Z workers is that they're more likely to talk about their pay in the workplace than generations before them. They're also more likely to not work at companies they disagree politically with, and they're more likely to be outspoken about the issues they encounter — especially on social media.”

• “They are far less likely to stay for bad bosses, endure bad behavior or sit silently, De Long said, and they're more likely to advocate for themselves and the causes in which they believe.” READ MORE

The NLRB has ordered Home Depot to reinstate a worker who was fired for writing “BLM” on their apron: “The case is one of several that centered on the issue of civil rights apparel in the workplace after the police killing of George Floyd in May 2020, an episode that galvanized many workers across the country to back the Black Lives Matter movement by showing support on their work uniforms or face masks. The National Labor Relations Board said in its ruling that Antonio Morales Jr., who worked at a Home Depot store in the Minneapolis area, was protected by the National Labor Relations Act, which guarantees the legal right of workers to take part in ‘concerted activities’ for ‘mutual aid or protection.’”

• “Lauren McFerran, the labor board’s chairman, said in a statement on Wednesday that ‘it is well-established that workers have the right to join together to improve their working conditions — including by protesting racial discrimination in the workplace.’”

• “In one instance highlighted in the labor board’s order, the worker was told by a co-worker to closely follow a Black customer shopping in the store because the co-worker said that people of Somali descent were more likely to steal.”

• “Home Depot said in an emailed statement on Wednesday that it disagreed with the labor board’s decision. ‘’The Home Depot is fully committed to diversity and respect for all people,’ the company said. ‘We don’t tolerate any kind of workplace harassment or discrimination.’” READ MORE

SELLING THE BUSINESS

Teamshares, the company that’s been buying up small businesses and converting them to employee ownership, is now buying businesses in Japan: “Typically, the startup will buy an entire enterprise from business owners so they can retire, then hire new management to bolster the company while giving workers an 80-percent stake over a timespan as long as 20 years. Such proposals could help the 2.45 million small business owners in Japan who will be 70 or older by 2025, almost half of whom have yet to identify a successor. A cottage industry has emerged seeking to connect these founders with buyers, using technology as well as more traditional M&A services. Mitsubishi UFJ, Japan’s biggest bank, has funded [Teamshares] via its corporate venture fund.”

• “Teamshares, which has secured $245 million in funding to date, has acquired 90 companies in 31 states and 42 industries in the U.S. Target companies usually generate around $2 million to $10 million in revenue. While the U.S. isn’t aging as rapidly as Japan, some 70 percent of retiring owners fail to find a buyer, forcing them to shut down and employees to find new jobs.”

• “The big bet is that Japan’s aging demographics will work in Teamshares’ favor, as well as government efforts to support third-party succession of businesses.” READ MORE

THE ECONOMY

Are we entering a productivity boom? “Thirty years ago, officials at the Federal Reserve were hotly debating whether the economy could continue to chug along so vigorously without spurring a pickup in inflation. And back in 1994, it turned out that it could, thanks to one key ingredient: productivity. Now, official productivity data are showing a big pickup for the first time in years. The data have been volatile since the start of the pandemic, but with the dawn of new technologies like artificial intelligence and the embrace of hybrid work setups, some economists are asking whether the recent gains might be real — and whether they can turn into a lasting boom.”

• “If the answer is yes, it would have huge implications for the U.S. economy. Improved productivity would mean that firms could create more product per worker. And a steady pickup in productivity could allow the economy to take off in a healthy way. More productive companies are able to pay better wages without having to raise prices or sacrifice profits.”

• “So far, whether remote work is good or bad for productivity remains hotly debated, as a recent paper by Nicholas Bloom at Stanford and other researchers explained. Early research has suggested that employees may be less efficient when they are totally remote, and that hybrid work leads to small, if any, productivity gains.”

• “But workers who are saving commuting and grooming time often feel more productive — even if that saved time isn’t captured in official productivity data. ‘The studies probably understate the effect,’ Mr. Bloom said, explaining that employees who are happier thanks to job flexibility may be less likely to quit — helping companies to avoid unproductive retraining.”

• “Remote work could also allow companies to move more ‘tedious’ jobs abroad, he thinks, shuffling Americans toward more dynamic work.” READ MORE

FAILURE

Inside the rise and fall of Drizly: “Rich McCarthy, the fourth-generation owner of McCarthy Bros. Liquors in Charlestown, [Mass.], still remembers the day a skinny young kid walked into his store to pitch him on Drizly, a new online service to help deliver alcohol. It was 2013 and the kid, recent Boston College grad Justin Robinson, followed him into the beer cooler and offered a strong sales rap. In Drizly’s marketplace app, he said, customers would be able to see the store’s entire inventory and place an order, while McCarthy Bros. would still make the sale and deliver the goods — kind of like an eBay or Airbnb for Bud Lite and Jack Daniels.”

• “McCarthy was skeptical. ‘My driver goes over the bridge to the North End in rush hour traffic to deliver a $15 bottle of wine, and we won’t see him again for an hour,’ he recalled in a recent interview. ‘I said no.’”

• “But Robinson kept calling on McCarthy about once a month. And McCarthy started to hear about customers ordering from other stores via Drizly. ‘Another store, covering our turf, that’s no good,’ he said. ‘I called Justin on his cellphone and said sign me up.’”

• “Robinson and his team eventually signed up thousands of liquor stores around the country. And three years ago, the startup sold to Uber Technologies for about $1 billion, as the ride-sharing giant looked to add more alcohol sales to its food-delivery business.”

• “Uber said last month that Drizly would shut down at the end of March, eliminating the brand and putting hundreds of people out of work — including 168 in the Boston area — starting April 1. The Uber Eats app, which had integrated much of Drizly’s technology and customer base, will be the sole alcohol-delivery platform and brand for the company going forward.” READ MORE

STARTUPS

Investment dollars are flowing to startups that make industrial batteries to store heat: “Industrial companies are searching for ways to make steel, cement, and chemicals without burning fossil fuels. Some of the world’s biggest investors are betting a fast-developing battery that stores heat can solve the problem. BlackRock, Saudi Aramco, and Rio Tinto headline a group of financiers pouring hundreds of millions of dollars into startups making heat batteries. Also called thermal batteries, they use renewable energy to heat up blocks, rocks, or molten salt. That heat is released on demand to power industrial processes.”

• “Using electricity to generate heat is nothing new. That is how toasters work. The difference is that these toasters are roughly the size of shipping containers and release steam as hot as 2,750 degrees Fahrenheit, more than a quarter of the sun’s surface temperature. The trick is keeping the batteries hot until the heat is needed.”

• “Antora uses carbon blocks that glow red like a toaster coil or an electric stove when heated up. Antora’s batteries are unusual because heat is transferred using the light from the hot blocks, eliminating the need for air or fluid to transfer energy and making the product cheaper. ‘There’s not some crazy, magic technology going on here,’ Andrew Ponec, Antora’s chief executive, said in an interview. ‘It’s something that’s very intuitive.’”

• “Cheap wind and solar power now make heat batteries cost competitive with heat made from burning fossil fuels like natural gas, analysts say. Tax credits from the 2022 law known as the Inflation Reduction Act are accelerating the momentum.” READ MORE

INTERNATIONAL

In Germany, small businesses are sounding the alarm: “Thousands of the small and midsize companies that form the backbone of the German economy warned this week that the country was losing its edge, as the country’s central bank signaled the threat of a recession would loom over Germany in the first three months of 2024. ‘Every day, Germany is losing its ability to remain internationally competitive,’ read an open letter to the government signed by 18 associations representing the businesses, in industries ranging from technology to trucking to taxi companies.”

• “The aim of the letter was to urge lawmakers to overcome partisan fighting that is blocking passage of a law intended to provide tax credits for investments that speed the transition to a green economy. But the sweeping statement ticked off a list of concerns facing businesses, including high energy prices, labor shortages, slow efforts to digitize the bureaucracy and high taxes. ‘The economic downturn is homemade,’ it said.”

• “The public appeal from the business associations is an unusual campaign for groups that usually remain in the background. It reflects the frustration felt by many of the small and midsize firms — known as the Mittelstand — over the government’s willingness to spend billions to attract large firms such as the chipmaker Intel or the battery producer Northvolt.” READ MORE

THE 21 HATS PODCAST

That Would Put Me Out of Business: This week, Mel Gravely, Liz Picarazzi, and Jaci Russo talk about how they set prices. Jaci explains why she refuses to respond to requests for proposal. “We have not participated in a single RFP in 15 years,” she says, “and we won’t under my watch.” Mel explains how his construction company manages to get work despite always being among the highest-priced bidders (which is why he never gets government jobs). And Liz tells us what happened when she was forced to raise prices because of the tariffs placed on goods manufactured in China. But first, she tells us what she’s thinking now that there’s a possibility those tariffs could go to 60 percent. Plus: we review how the three owners handle employee reviews.

• You can subscribe to the 21 Hats Podcast wherever you get podcasts.

Thanks for reading, everyone. — Loren