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Coin Laundry: An Industry Overview

Coin Laundry: An Industry Overview
Author: Coin Laundry Association

Industry Definitions and Background

The term coin laundry is defined as "commercial-grade, self-service laundry equipment placed into service in a retail space." Coin laundries generally occupy the retail space on long-term leases (10-25 years), and generate steady cash flow over the life of the lease. Coin laundries are unique small businesses in that they have no inventory or receivables, and no traditional employees. A minority of coin laundries employ attendants.

Coin laundries range in market value from $50,000 to $1,000,000, and can generate cash flow between $15,000 and $200,000 per year. Business hours typically run from 6:00 a.m. to 10:00 p.m. The stores usually occupy 1,000 to 4,000 square feet of retail space. New coin laundries are valued based on actual construction and equipment costs; while existing coin laundries are valued based primarily on revenues. Coin laundries are perfect examples of passive-income generators. Coin laundries are also referred to as "coin-op laundries," coin-operated laundries," or "laundromats."

Coin laundries are one part of the self-service laundry business; the industry is actually comprised of two distinct segments. The first is coin-op laundries, and the second is represented by coin-operated machines located in apartment housing. This "apartment" segment of the business is referred to as the "multi-housing laundry business" or the "coin route business." These two segments frequently overlap; in more mature markets, the self-service laundry business is estimated to be evenly split between the two. The self-service laundry market consists of an estimated primary customer base of 89 million people living in rental housing, as of the 1990 U.S. Census. The secondary customer base consists of the non-rental population, which uses coin laundries only occasionally.

The coin laundry industry is approximately 50 years old, and is primarily composed of individual owner/operators. No significant franchises are in operation at this time. Currently, there are around 35,000 coin laundries in the United States, generating several billion dollars in gross revenue annually.

Clean clothes, like food and shelter, are considered a necessity of life#and coin laundries provide a basic health service for millions of Americans. While coin-ops are found in virtually all neighborhoods across the country, stores seem to perform exceptionally well in predominately renter-occupied, densely-populated areas. These areas are increasing in number with each year throughout the country. The intense population growth, coupled with the expansion of rental housing has increased the customer base for coin laundries.

Coin laundries thrive in periods of both growth and recession. During periods of recession, when home ownership decreases, the self-service laundry market expands as more people are unable to afford to repair, replace, or purchase new washers and dryers, or as they move to apartment housing with inadequate or nonexistent laundry facilities. The market size grows proportionately to the increase in population. Revenues of a coin laundry rarely vary from month to month. The public will always need this basic health service#people always need to wash clothes!

Industry Trends and Characteristics

Industry growth is based on the demographics of population density, population mix, and population income. The more concentrated the population, the greater the need for quality coin laundry facilities. National and regional demographics indicate renters, the primary users of coin laundries, are the fastest-growing segment in the nation. As of the 1990 U.S. Census, 35.8% of the nation#s 94.6 million households were renter occupied, up from 34% in 1980.

The number of coin laundry stores built over the past 40 years has grown steadily as the population has increased and shifted to more concentrated areas. The end result has been a mature, stabilized industry with predictable rates of turnover and values of existing coin laundries; development of new "turn-key" facilities; and, equipment expansion and replacement.

Marketing Environment

Coin laundries normally sell for a multiple of their net earnings. The multiple may vary between three and seven times the net cash flow, depending on several valuation factors. The following primary factors establish market value:
 

  1. a.  The net earnings before debt service, after adjustments for depreciation, and any other non-standard items # including owner salary, or payroll costs in services.

    b.  The terms and conditions of the real estate interest (lease), particularly length; frequency and amount of increases; expense provisions; and overall ratio of rent to gross income.

    c.  The age, condition, and utilization of the equipment, and leasehold improvements; the physical attributes of the real property in which the coin laundry is located, particularly entrances/exits, street visibility, and parking.

    d.  Existing conditions, including vend price structure in the local marketplace.

    e.  The demographic profile in the general area or region.

    f.  Replacement cost and land usage issues.

This resale market standard assumes an owner/operator scenario, with no allocation for outside management fees. Marketing time for store sales averages 60 to 90 days, depending on price, financing terms, and stores available at the time of sale. Coin laundry listings are generally offered by business brokers who charge a sales commission of 8% to 10%. Most coin laundry distributors also act as brokers.

The accepted standard of "useful life" for commercial coin laundry equipment is as follows:

  • Topload Washers (12 lbs. To 14 lbs.) 5 - 8 years
  • Frontload Washers (18 lbs. to 50 lbs.) 10 - 15 years
  • Dryers (30 lbs. to 60 lbs.) 15 - 20 years
  • Heating Systems 10 -15 years
  • Coin Changers 10 - 15 years

This schedule will vary upon usage, sales volume, and maintenance. "Useful life" may differ for accounting or tax purposes.

Operations and Performance Levels

Coin laundry operations consist of three basic areas: janitorial, maintenance, and the handling of money (which consists of collections and loading coin changers). Bookkeeping, administration, and banking are typically off-site management areas.

A standard profit and loss statement for a coin laundry typically includes the following line items:
 

  1. a.  Income; consisting of wash and dry; and

    b.  Other income, which would include vending, dry-cleaning, and/or wash-dry-fold service.

Expense categories would typically consist of:
 

  1. a.  Accounting
    b.  Advertising
    c.  Insurance
    d.  Legal Costs
    e.  Licenses
    f.  Maintenance (includes parts and labor)
    g.  Payroll (usually limited to onsite work # i.e., janitorial or employees)
    h.  Personal property tax
    i.  Rent
    j.  Common Area Maintenance charges ("CAM") also known as "Net" charges including: real estate taxes, maintenance, insurance, and other charges
    k.  Utilities (gas, water, electric and sewer)
    l.  Vending expenses
    m.  Miscellaneous costs (including: wholesale dry-cleaning costs, fluff-n-fold supplies, and labor).

The percentage for each category will vary from store to store and region to region. Interest charges, depreciation, and other non-standard items, such as owner salary, generally appear on tax returns, but are excluded from the standard profit and loss statement for purposes of valuation and determination of cash flow.

Sales volume, and/or individual store performance varies based on a number of factors. These factors may include demographics; overall services offered; design and general condition; equipment selection, condition, and vend prices; hours of operation; exposure of the building; parking; and competition.

National surveys, conducted by the Coin Laundry Association, indicate a wide range of performance for individual stores and types of equipment. The industry terminology for individual equipment performance is "cycles per day," or "turns per day (TPD)." These designations refer to the number of times per day, on average, each machine is used. While this statistic varies widely, based on many factors including those indicated above, the range for washing machines is generally from 3 TPD to as high as 8 TPD or more. The primary factors affecting TPD include: population demographics, such as density and percentage of renters; capacity and quantity of the washers; the vend prices charged; and the prevailing market vend prices.

Dryer income can vary greatly due to: total wash poundage generated; overall vend prices of both washers and dryers; heating efficiency of dryers; total number of dryers in relation to washers; and dryer size and capacity. Dryer income is usually expressed as a percentage of overall income. Generally, dryer income varies between twenty-five and fifty percent of total washer and dryer income. Income and expense percentages may vary significantly for stores offering additional services such as dry-cleaning and fluff and fold.

Summary

Today's coin laundry industry is a strong and vibrant one. Even more appealing is the fact that this dependable public service industry continues to grow and thrive. The demographic trends toward an even greater "apartment dwelling" segment of the population predict continued prosperity.

The Coin Laundry Association (CLA) used statistics, surveys, and other sources to provide the information contained in this overview of the coin laundry industry. While the information has been given to CLA by business owners and other sources that appear reliable, CLA in no way expressed or implied, guarantees the accuracy or validity of the information provided herein.

Prospective parties interested in the industry are advised to consult the appropriate professionals and experts before making any major decisions. The Coin Laundry Association, the only national trade association for the coin laundry industry, is the best place to begin your journey into the business. CLA offers a number of educational, promotional, and cost-saving programs for coin laundry operators. For additional information on the industry and CLA membership, please call CLA today at (630) 963-5547.

Coin Laundry Association (CLA)
1315 Butterfield Rd., Suite 212
Downers Grove, IL 60515
Fax: (630) 963-5864

This article reprinted with the permission of Iowa Small Business Development Center. Visit them at http://www.iabusnet.org/.

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