The Russian car wash industry has potential investors looking at the market as a possible next investment in major growth in the car wash industry. However, there are challenges due to the plans of the national government to tighten the control over the activities of the national car wash operators.

Since the beginning of 2000s, the Russian car wash industry has experienced a significant boom, amid the ever-growing consumer demand for these services, the rapid growth of car fleets in Russia, as well as an increasing number of investment projects in the industry.

Last year total number of purchased new cars in Russia amounted to 2.78 million units. The demand for cars is steadily growing, amid the rising purchasing power of local consumers and national GDP, which in 2013 increased by further 1.3 percent, compared to 2012.

This has resulted in the establishment of car wash complexes throughout the country, many of which were built without proper permissions from city authorities.

CAR WASHES IN DANGER

According to plans of the Russian government, car wash complexes — especially those located in the largest cities of the country — will become a subject of inspections. This will be mainly due to the recent tightening of town-planning policy in the Russian cities, which involves the demolition of property units and buildings where construction was not unauthorized by public and state bodies.

According to expectations of analysts of Russia, Russia’s public organization, in Moscow alone up to one-third of the city’s 1,500 car wash complexes may be destroyed as a result of the inspections.

The new Moscow government believes that land plots, which were provided to investors by the previous government, were provided with serious law violations and should be destroyed.

Alexei Nebolsin of OPORA, the All-Russian non-governmental organization of small and medium-sized business, said many Russian car wash operators are very concerned with the current situation, which could result in huge losses for them.

In addition, this could result in a shortage of car washes in the country and a significant price increase for such services.

“In 1996-1997 the Moscow city government launched a program for the building of car wash complexes on the streets of the city. In order to implement these plans, the government allocated land plots for investors, who started building of car wash complexes on their territories,” said Sergey Makarenko, head of Megapolis Company, one of the largest networks of car wash complexes in Moscow and Russia. “At that period of time, no permissions were required.”

In addition to operators, the Moscow Fuel Association is concerned with the current situation and representatives recently contacted the Moscow government asking to resolve the problem.

In the meantime, the state plans could result in the revision of investment projects, which were recently announced by some of Russia’s leading car wash operators.

For example, Faberon Group of Companies, one of Russia’s leading providers of professional cleaning services, announced several months ago its plans to establish a network of car wash complexes, which are expected to be located along the main motorways of Moscow and the city’s parking lots.

According to company spokesman Alexander Maslennikov, the project involves the construction of a number of tunnel car wash complexes. Such car wash complexes already operate in Kazan and St. Petersburg.

According to Maslennikov, the capacity of each of these complexes will be more than 1,000 cars per day, with up to 85 percent of water being reused. He added that the average cost of a wash would be 280 rubles ($9), which will be slightly higher than the average rates for a base car wash in Russia.

According to Victor Dubovitckiy, director general of Faberon, the total volume of investments in the project will be in the range of $130-150 million.

However, if the company does not see significant support for the project from the Moscow government by way of allocation of land plots at reduced prices and financial assistance, the investment could be derailed.

EVOLUTION OF AN INDUSTRY

Ironically, since the collapse of the USSR and the end of a series of economical and political crisis in Russia, the local car wash business has significantly grown. Similar to Western countries, the Russian car wash industry has passed several stages of its development, starting from self-cleaning in the yards of houses to the appearance of tunnel car wash complexes.

The first separate car wash complexes appeared in Russia only recently. Until the end of 2000s, car wash complexes in Russia were usually part of auto service stations and various motor transport enterprises. Later, they started to appear on the territory of petrol stations.

Most such complexes are small, being designed for the simultaneous washing of three to four cars.

“An initial boom for the development of car wash business in Russia has passed; however, the industry has not yet fully developed,” said Dmitry Pimerzin, head of Pimerzin Company. “This means that the level of investment activities in the industry will continue to grow.”

According to the Moscow city government’s department of transport, the majority of the Russian market includes non-automated hand washes, which involve the use of high-pressure apparatus and which occupy about 70 percent of the market. At the same time, the share of automatic portal car washing complexes is estimated at about 20 percent. Finally, the remaining 10 percent accounts for self-service and tunneling car wash complexes.

The department of transport says that much of the industry’s equipment is imported from abroad. German Karcher currently remains one of the largest suppliers of car wash equipment to the Russian market, largely due to the non-automated hand washes.

Other leading foreign suppliers include Istobal, WAP, Weidner, Washtech, Ceccato, Comet and Carebridge.

Overall, 80 percent of the Russian market of car wash equipment accounted for German imports, with the remaining 20 percent divided among the Italian, Czech and Polish companies.

As a rule, the level of profitability of car wash complexes in Russia is varied in the range of 30 percent to 40 percent.

According to Pimerzin, the peak period of business accounts for spring and autumn, while business activities significantly slow down during the holidays and summer time.

In addition to domestic players, the Russian car wash business in recent years has attracted an interest of some global players, which are considering implementing their own investment projects in the country.

For example, well-known retail chains Metro and Auchan are considering plans to build, as well as Crocus, one of Russia’s largest developers.

Additionally, a group of U.S. businessman who are affiliated with Jiffy Lube plan to open a network of car washing complexes in St. Petersburg under the Super Express brand.

The volume of investments in the opening of each of such complexes is expected to reach $4 million. Each complex will specialize in the car wash itself, with the provision of other services, such as oil change and some others. The capacity of such complexes will be 80 cars per hour.

Overall, during the next five years, the company plans to establish 25 of these complexes, with the volume of investments expected to reach $110 million. Payback period of each of such project will be five years.

FUTURE PROSPECTS

Russian analysts believe that the domestic car wash market has big potential for further growth.

“The Russian car wash market is still in its infancy, compared with the European market. The only segment that currently experiences saturation is non-automated hand washing,” said Dmitry Loparev, director of the Siberian branch of Techno Alliance, the official dealer of production of Delvir, Tammermatic and Karcher to the Russian market. “However, according to our predictions, the share of the automatic car wash segment during the next several years will steadily grow.”

Analysts also believe that during the next several years a significant share of the market will be controlled by enterprises that provide car wash services in combination with foodservice. As part of this concept, car wash complexes will be established within the territories of cafes and fast food restaurants. Finally, due to an acute shortage of personnel in the industry, the segment of self-service car wash is also expected to grow during the next several years.

Due to the ever-growing car wash market in the country, the segment of automobile chemical goods and automobile cosmetics is also expected to increase.

“The Russian car service and wash market significantly lags behind the European. For example, the range of modern cleaning materials, which is used at Russian car wash complexes, is very limited. This does not guarantee a good quality of provided services, and sometimes may even lead to damage,” said Dmitry Avilov, director of Koch Chemie Unna Russia, a subsidiary of German Koch Chemie, which is one of the EU’s largest suppliers of automobile chemical goods. “In recent years the number of customers in Russia who are ready to pay more for a quality car wash has significantly increased. However the quality of provided services remains generally low.”

Eugene Gerden is a freelance writer who writes about various Russian industries from his home base in St. Petersburg, Russia.