Driven Brands Holdings Inc. (DRVN) Earnings Call Transcript & Summary

Good morning, everyone. I'm Michael Lasser, the hardline, broadline and food retail analyst from UBS. We could not be more excited to have the team from Driven Brands with us including my long-term friend, Tiffany Mason, who is Driven Brands' CFO. She spent some time at Lowe's before she joined Driven Brands. So she's a familiar face to many of us in the investment community. And to her left is, Kristine Moser, who runs the company's Investor Relations team. Tiffany is going to give a few opening remarks, just to set the stage, and then we're going to dive into some topics that we think are pertinent for the investment case on Driven Brands. So with that, Tiffany, thank you so much.

Thank you, Michael. It's a pleasure to be here and good to see all of you this morning. Always fantastic to be back in person. So thanks for being with us. So let me start by saying that Driven is the largest automotive services company in North America. We do about $5.5 billion in system-wide sales. And we service about 70 million vehicles annually. We do that across our 4,800 locations, both in North America and in Europe with our Car Wash business. And our mix of customers is evenly split, 50% retail and 50% commercial. And I'm sure we'll get into the commercial side of the business over the course of today's conversation. But suffice it to say, it's insurance companies when we think about our collision and glass businesses and fleet management companies across the portfolio. We operate in what is a $350 billion industry and that industry continues to grow, and it's also a very fragmented industry. In fact, 80% of the industry is owned by small teams and independents. So even with Driven's scale, we have about 5% market share today. That should signify opportunity, and we're going to talk about that opportunity and what we think we can do and deliver over the next several years. We have a strong track record of growth. We grow both organically as well as through M&A and the scale of our M&A is typically tuck-in. So we're talking about 1, 3, 5 shops that we will buy, rebrand, put in our operating playbook and roll into the existing business. We have a very broad offering, which meets the needs of the consumer across 4 different segments: Maintenance, Paint, Collision and Glass, Car Wash and platform services. And those -- that service offering provides some great diversification in our portfolio. And you're going to hear that diversification theme I'm sure across the questions that we get in -- we get asked and answer today. Each brand in our portfolio plays a very important role. We have more mature brands that are slower growing, but generate tremendous cash flow. And those brands allow us to reinvest that cash flow in our higher growth brands. This high-growth brands today are Quick Lube, Car Wash and the Glass business in the U.S. For a quick financial snapshot , just to set the stage as we start into today's discussion. Since 2019, we have tripled our revenue growth and quadrupled our EBITDA over that period of time and in last fiscal year, so fiscal '22 we had 393 units. We posted 14% same-store sales growth, and we grew revenue in total by 39% and EBITDA by 42%. In the Retail space, we're looking at 25% EBITDA margins, which is pretty phenomenal when you think about the retail landscape and what we've been able to achieve in automotive aftermarket. For '23, we're guiding to another year of double-digit revenue and EBITDA growth, so we continue to be well positioned. Our services are needs-based and that's a really important part of the investment thesis here. Our core customer needs their vehicles to take care of their families, to get about their daily lives and to get to and from their job site. So the fact that economic cycles change and ebb and flow over time, that needs-based nature of what we do provide some resilience to our business model. We have a pipeline today of over 1,600 locations, new locations with great visibility into unit count for the next several years. And importantly, our portfolio drives some really important network benefits, one of which is the robust data that we capture from all of our consumers. We have more data than anyone else in our category today, and that data allows us to know more about the consumer, make sure that we're in front of the consumer with marketing material and messaging and reminders when it matters. We also have centralized procurement that allows us to take the power of the platform and leverage our buying scale so that our franchisees and our company-owned stores get input cost products cheaper than they would by going in alone, right? That's really important to leverage the scale of this platform. And then finally, we have a national account strategy that lets us sell those insurance and fleet programs centrally at our corporate office on behalf of the entire portfolio. So simply put, what Driven does is, we add new stores, we grow same-store sales, and we deliver stable margins. And all of that generates tremendous cash flow that we put right back into the flywheel of growth and continue to pursue the white space and consolidation opportunities in the market. The last thing I want to say before we take some questions is, we set a target about a year ago of $850 million of EBITDA by 2026. And myself and the rest of the management team have great confidence that we can deliver $850 million by that point in time. So thanks for your time today, and I look forward to your questions. And Michael, let's see if we can...

Yes, thank you so much for both of you being here. Driven is an exciting story. The team should be really proud of what's been accomplished and it seems like there's so much more opportunity from here. Can you just frame, given that this is a consumer conference and the environment is pretty uncertain at this point. Who's the typical customer across the different segments that Driven serves? And how does that differ across maintenance, wash, collision and repair?

Sure. Yes. It's a great place to start. So I mentioned it in my opening remarks, but I'll say it again, our business is pretty well balanced, 50-50 between consumer retail customers and commercial customers. What's [ zeroing ] on the commercial customers for just a minute, those customers are insurance companies, when you think about collision claims, whether it's light or heavy collision, also glass in the sense of glass replacement. So PC&G, Paint, Collision and Glass, that segment is the biggest beneficiary of that commercial business. They also do work with fleet management companies. So think about rental car companies, fleet management companies that manage large fleets, those folks are doing business with Driven for a variety of reasons. They may need glass and paint services, they may need oil change services. They can use anything in our portfolio. And they're able to consolidate their needs in a single-service provider. We can also essentially [indiscernible] build, which takes some of the administrative burden out of the process for them, and that creates some stickiness in the channel. Again, PC&G is the biggest beneficiary, but fleet management companies span the entire portfolio. So that's on the commercial side of the house. On the retail side of the house, we're talking about a consumer, which is about a $70,000 household income. If you think about those consumers, they need their cars, their cars are one of their largest assets. It's how they navigate their family, it's how they get to and from work and generally manage their livelihood. So regardless of economic cycle, those consumers know that the longer they put off a maintenance service if they were to do that or forgo a service, the ultimate cost for that repair is going to be exponentially more than if they have maintained their vehicle over time. So that needs-based nature of what we do is what provides some resilience in the category.

And it's an interesting point talking about how -- because of the scale of Driven, it makes it easier to do business, especially for the commercial customers to do -- to work with Driven and some other players in the category. Now with that being said, I think there's a lot of focus and concern around the outlook for the consumer. With that being said, Driven was able to comp positive during the Great Recession as you rightly pointed out, it's a needs-based business. So is there anything different about the company, the environment? Should we go into a downturn that it would be different this time and the past is not necessarily a predictor of the future?

Sure. Yes, it's a great question and obviously, very timely. A couple of points I'll share with the crowd. I would say, first and foremost, the business -- the Driven business in 2008 and 2009 was very different than it is today. I would actually suggest that we're much more diversified today than we were in '08 and '09. And yet in that period of time, we comped positively to Michael's point. So in '08 and '09, this business was just 2 brands. It was Maaco and Meineke. So it was general repair and maintenance and paint and light collision. We're much more diversified, now we're in Car Wash, heavy collision, distribution services and glass. And so when you think about the business today, that benefit of a diversified portfolio really starts to chime through in a more meaningful way. The most important indicator for our business is vehicle miles traveled. Vehicle miles traveled for over the last 50 years up about 2% on average. Last year, even with the rise in gas prices in the first half of the year, we still saw positive VMT of about 1% for fiscal 2022. And the forecast for 2023 is for VMT to be up low single digits. If you take that and think about how VMT reacted, how miles traveled changed during the Great Recession of '08 and '09, we only saw about a 2% decline in VMT. So we're still very optimistic for the reason that we think VMT will continue to expand as consumers continue to drive more. The age of the vehicle continues to increase. So the average age of the car on road today is about 12 years, and as the age increases, the need for service and the scale and breadth of the service increases. And we know that, obviously, again, our core customer is thinking about their car as a core part of their daily life.

And Tiffany promised me she was going to tell the crowd exactly what's going to happen with the consumer in the next 6 months. So just stay tuned for the rest of the conversation. And with that we said if you want to include any questions on our conversation, feel free to log on to the website and include them and we'll read them into our conversation. With -- your point is a good one that if the needs-based business is heavily driven by the usage of a vehicle and to the extent that people are driving more, it means that their cars get dirty, they need to be maintained and unfortunately or fortunately depending on how you look at it, they're going to get into accident and you need to encounter repairs. How are you thinking about the outlook for VMT over the next few years and the potential economic sensitivity to folks driving a little bit more. On the one hand, if we start to see losses in the labor market, maybe it means folks don't commute as much, but in this weird hybrid world maybe actually [indiscernible] little less relevant.

Yes. It's a good question. Look, I think, like I said, the forecast for VMT in 2023 is low single digits. The average growth in VMT over the last 50 years has been 2%. So you're talking about low single-digit growth for the foreseeable future in VMT and the age of the car continues to increase. We're in this interesting time right now where the cost of new cars is prohibitive. The inventory of new cars is low. So it puts people in their cars longer, which is a good tailwind for our business. I'd also tell you that complexity of the vehicles continue to increase across the spectrum of price points in the auto industry. And so as that complexity of cars continues to increase, that's also a natural tailwind for our business. So we think about opportunities, whether it's to change of oil to do general repair and maintenance, to wash your car and then to your point, Michael, if for some -- for whatever reason, you haven't have an occurrence, right, your glass breaks or you're in a collision we can service that vehicle and that the natural tailwinds in the business, meaning that those tickets, those checks continue to increase because we're fixing not only the body of the car or that the efficiency of the engine, we're also fixing the ADAS equipment. Glass is a great example of that. So our glass business stays a really interesting new entrants for us. And that's because the calibration of the front-facing camera, that's a part of the ADAS equipment has to be calibrated once the glass is repaired or replaced to make sure that, that ADAS equipment is going to make sure that you don't have access, right? It's lane changing, it's accident avoidance. And so all of that means that the job that we're doing for you is more complex. The ticket is higher and our business continues to benefit from this natural tailwinds.

Given the experience that Tiffany and I have had together first in Home Improvement and now in Auto Care Services, I have repeatedly told her [indiscernible] new customer. She is surprised by that because I look so handy. But with that being said, pricing has been significant across our economy and especially across these businesses. Can you discuss and provide the group a sense for how influential pricing has been? What do you see as the outlook for pricing across your various banners? And how does Driven maintain that balance between wanting to be competitive but also react to the marketplace, especially in this environment where costs are going up?

Sure. Yes. Look, it's no surprise, right. We've all been navigating this inflationary environment for the better part of 2 years now. And I would just remind you that in a needs-based environment where the consumer is only coming to us a couple of times a year. And we'll use Quick Lube as our example because that's the easiest one to wrap your heads around. Our Quick Lube customers visit 2 to 3 times a year for their oil change. It's a pretty inelastic price environment because if you're talking about a $75, $80, $90 ticket and you're dealing with high single-digit or low double-digit inflation, a couple of dollars on that ticket when you only shop 2 or 3 times a year is pretty transparent to the consumer. So we had a reasonably good success of not only dealing with input cost increases in this case of oil, but [indiscernible] packing those input costs along to the consumer through retail price and still being able to manage repeat rates, Net Promoter Scores and ultimately manage our margins. So again, needs-based is critical in this particular conversation. That's probably one of our businesses that has seen the most inflation over the last 2 years. I think as we see the environment change, right, whether inflation stabilizes or as we start to see deflation. History would tell us that retail prices are pretty sticky in our category, but we also have really good transparency to our cost base. In fact, on [indiscernible] the Quick Lube example, we have a national contract with our primary supplier that price resets -- that cost resets every quarter. It's based on an index, so we can track the index. And we can make sure that if we need to take any changes to retail price, we have ample time to leg into that and watch the consumer impact. So to Michael's point, we never want to do anything that's going to detriment the long-term health and viability of our consumer base. So we're planning a long in here and we're making sure that we take enough price to be able to cover our cost, but not being too hard where it has long-term implications to the brand.

And across the various segments that you see in the marketplace be rationale. It's been a tough environment to manage through all these pricing dynamics.

We have. Yes. We've not really seen anything outsized in any of the businesses that we operate. I think our competitive set continues to be very mindful, so that's a great position to be in for Driven Brands. And again it all -- I can't say needs-based enough, right? It all kind of comes back to that same notion. Consumers need what we're offering. They -- we want to make sure that we're being transparent and competitive in the marketplace. And while you've got promotional periods here and there in various businesses, it's not been outsized relative to the norm.

Yes. The message of needs-based is a good one. And it just reflects how important this is in the mind of the consumer. And with that being said, is there a mindset with the consumer that they want to spend a fixed amount such that gas prices go up, it could influence the degree to which they are maintaining their cars or the frequency with which they change their oil, you saw a big spike in gas prices in a year ago period, it feels like forever ago. And now obviously, gas prices are at much more moderate level. So how have you seen the dynamics in the marketplace between your segments and gasoline gas as one macro factor?

Yes. Look, I think I would point back to the fact that VMT last year was up 1% despite the fact that we saw a pretty significant price increases at the pump in the first half of the year. And I think that's a couple of things. I think that coming off a long pandemic period, folks were anxious to get back to normal, however you define that, right so back to normal, which means whether or not they are commuting to and from their job every day and our core customer for the most part is, we're talking about that $70,000 a year household. But whether or not you are commuting for work, you want to get out and about whether it's vacation, road trips, trips to the grocery store or other areas you're running on the weekend. So as we're seeing consumers return to normal, that's good for our business and a couple of dollars at the pump as long as it's not sustained over a long period of time, usually doesn't have a tremendous impact on VMT.

And what about the relationship between your segments and new and lightly used vehicles. Prior to pandemic, new vehicle sales were in the $16 million, $17 million range - 16-17 million unit range. So why it dropped quite significantly given the supply chain challenges presumably folks have been holding on to their vehicle, maintaining their cars a little bit more. Do you think that's been a benefit to the business where to the extent that the supply of available automobiles improved, that would be a potential headwind?

Yes. It's a really good question. I think let's start with -- there are 285 million vehicles in the car park today. So it's a very large car park. And we're talking about what has been a phenomenon in a relatively short period of time. So it's true. New car affordability is low. Availability of inventory is limited because of the supply chain challenges and part shortage. And so people are staying in their cars longer. But we've seen the average age of the car continue to lengthen, not just in the near term, but over the last decade or 2. So again, the average age of the car is 12 years today. The more that car ages, the more opportunities we have for service and the higher the ticket typically with that older vehicle. But with 285 million vehicles on the road today, this would have to be a multiyear phenomenon to have any real meaningful impact. We're certainly benefiting, but I wouldn't say it's an outsized or significant benefit.

And maybe this is an important opportunity to contrast the car that [indiscernible] driven are working are across the age demographic, whereas maybe other players in auto care service are working on older vehicles. And so to some of the ebbs and flows of the cohorts can matter a little bit more and maybe a little bit less for Driven.

Yes. No, it's a great point, Michael. I would say, typically, our customer, again, $70,000 household income but also typically driving a car that's on its second ownership cycle. So this is a car that's passed its manufacturer's warranty so it's more than say, 5 years of age, and they're driving it its entire life span, the average of which is 12, but obviously, until that car is no longer drivable or serviceable. So that's our core customer. That's a very long period of time over which we have an opportunity to connect with the consumer and service their needs. And so I think that is different than when you think about original equipment manufacturers and they're thinking about that 5-year period from new car sale to end of manufacturer's warranty. Those dealers are usually getting that service occasion in those first 5 years, but that's usually less costly if you're a consumer, less profitable part of the chain when you think about auto care.

I was just going to add a few -- if you look at the last recession as well, while you saw some elongation of the life, you didn't see a reversion as things got back to normal either because people began to realize with the increasing quality of vehicles that, that was a sustainable change and that they could hold on to their cars for longer and nothing bad would happen. So that was very sticky. We will see if that were to be the case if you saw a further elongation this time. But to Tiffany's point earlier was that it's been a multi-decade trend at this point. And so I think the expectation is that we'll continue over that at least the next decade.

People are holding on to their jalopies for a longer period of time. I want to drill into the maintenance segment. It's about 40% of the company's revenue. Driven has clearly been a share gainer. So you've been putting aside the macro when you're gaining copious amounts of market shares, it can create a powerful element of the story. So what has enabled the share gains? And how are you thinking about further share gains? And what's a pretty still pretty fragmented market from here?

Yes. Absolutely. And this is -- we're very proud of the Quick Lube business. It's one of our fastest-growing businesses, which is what makes up the majority of the Maintenance segment. [indiscernible] It's a phenomenal model. It's -- so you've got Meineke and Take 5, Quick Lube that are part of the Maintenance segment. But again, Take 5, Quick Lube is the anchor. We have been in the Quick Lube business since 2016. So you can see very clearly our growth playbook come to life in the Quick Lube evolution. We bought a platform in the New Orleans area that was about 30 or so stores in 2015. We use our M&A muscle to be able to quickly gobble up, tuck-in acquisition targets to be able to create a platform for continued growth. And then we pivoted from M&A into greenfield expansion. We've got an internal development team that's very well adapted, securing real estate, working through zoning issues, constructing the building and ultimately turning it over to operations to operate. So we've taken what was a 35-ish store chain in 2015 and it's now 850 stores, a mix of franchise and company-owned. And to Michael's point, what we're talking about in Quick Lube is actually 10 minutes. But 10 minutes stay-in-your-car oil Change, it's a very curated offering. So if you think about other competitors in the space, you may have to make an appointment, you may have to get out of your car, you may have to sit in the waiting room, they might do other diagnostics and come back and tell you that what you came in for, which is probably $80-$90 ticket is now $100s in what they've identified as needs. What we do is, have you stay in your car, [indiscernible] go through the day, and we have a very simple menu construct. We'll scan your [indiscernible]. We'll tell you exactly what your OE recommends in terms of oil grade for your car to keep it as efficient as it needs to be. And we'll offer you only for other attachments, we can change your wiper blades, we can change your cabin or engine air filters, and we can flush your coolant if you need that while you're with us today. All of that in 10 minutes. So it's a very simple menu construct, simple pricing strategy. And the whole idea is speed of service, friendly service and transparency and trust in the equation. So we've seen phenomenal results not only in terms of store growth but in terms of organic same-store sales performance. In fact, in Q4, our Quick Lube business comped 25%. We have a fantastic marketing engine, as I mentioned in my opening remarks. We gather a lot of data for the consumer. We append additional information so that we know exactly what we need to know about the consumer and be in front of you timely from a marketing perspective. And certainly playing up that, stay in your car contactless experience during the pandemic has been a real benefit. We've seen increased new customers, increased repeat rates and just feel like this is a -- certainly a model that's differentiated in the space and then creating a different experience for Quick Lube customers.

Presumably, the Maintenance category was not up 25% in total on the same-store basis. So was there something unique about the fourth quarter -- lot to be proud of in this part of it, how much share is Take 5 have, I guess, the whole segment have at of the market today? And what's a realistic expectation for how much share that can be over the long run?

Yes. Yes, Michael, it's a good question. Obviously, the Take 5 business, as I've talked about, a very differentiated service offering. We're driving great increases in car count, but we're also seeing a nice increase in average ticket. And that's coming from two things. One is the inflation that we've seen in the space as well as the complexity of vehicles that are requiring premium oil to keep the car running for the length of its life at optimum performance. So all of those things are factoring into the comps that we've posted in Q4, but we felt proud of this business. And I think in terms of market share, it is fragmented as the rest of the automotive aftermarket. I mentioned about that in the opening remarks that we have about 5% share across our entire portfolio. Maintenance is really no different. And so there's tremendous opportunity here to consolidate the industry as well as continue to penetrate new markets with our differentiated Quick Lube concept.

And speaking of fragmentation and market share opportunities in the collision, paint and glass, I know I said that out of order, but you have to forgive me, paint collision and glass that needs to be a little bit less fragmented, maybe a little bit more consolidated with the benefit of being the industry leader. So what are the competitive dynamics look like in this marketplace? And where could share go for Driven in this segment?

Sure. Yes. So let's take PC&G or paint, collision and glass apart for just a minute. There are -- there's a part of that segment that is entirely franchised. And that's the paint maker would be the [ brain ] of the paint segment and the collision business. And again, the collision business is highly focused on its insurance relationships and making sure that we're driving those relationships and bringing [indiscernible] through heavy collision repair occasions with our insurance partners. Those two businesses, paint and collision are entirely franchised. Great businesses, long history, very sticky relationships, and they produce nice growth in cash flow for the business. The new part of that segment is glass. Now we've been in the glass market in Canada since 2019. We just entered the U.S. glass market at the beginning of fiscal 2022. Glass is a $5 billion total addressable market. It is as fragmented as anything else we're talking about in the aftermarket. In fact, about half of the TAM is independents. And there's a real opportunity for us to become a large formidable player. In fact, we have become the #2 player in the glass -- U.S. glass market since our entrant just -- entrance just 14 months ago. Glass is really interesting because glass is engine agnostic, right. It doesn't matter if it's an internal combustion engine or an electric vehicle. All of these cars need glass. All the glass need vehicles can break for whatever reason, could be collision, could be theft or what have you. And so it's an opportunity for us to again change the dynamic in the industry to similar to Quick Lube and Car Wash provide a very simple convenient experience for the consumer and make sure that we're taking care of your needs and importantly calibrating that ADAS equipment like I talked about earlier, which is an opportunity that we have as a skilled provider in the glass space versus the independents that requires some equipment, and require some training and frankly independents in some cases just don't have the -- either the bandwidth or the capital required to be able to create that service occasion. So glass is the newest piece of the PC&G segment, that entire segment just has tremendous opportunity. We're seeing -- collision estimates continue to rebound post the pandemic and we've positioned ourselves well enough in the collision space that we -- our estimate accounts are up in excess of the industry average and obviously the introduction of the new U.S. glass businesses is a place we're spending a lot of time and focus and certainly putting a lot of capital today.

Even George Chessen hasn't figured out how to prevent rocks from [indiscernible] windshield. So that's good news for the long term of this business. And If you were to look under the hood, to your point about the ADAS. It's a good reflection of what's happening across the vehicle whereas cars get more complex, there's more sensors, everything just gets a little bit more expensive to fix. And given that glass is a good representation of that. What other lessons are you learning from this segment or others that you can cross pollinate across the different segments or banners?

Sure. Yes. Look, as I've spoken to complexity, but I mean, I can't -- again, I can't say enough about complexity that comes from that sort of central nervous system of the car. If you think about the number of cameras that are on any vehicle today and it's not just luxury vehicles anymore, right? It's [indiscernible] mass produced across the car park. Any time that there's damage, it could be a minor fender bender, it could be a major collision, it could be that you need to have your glass repaired and that forward-facing camera that's above your rearview mirror may need to be recalibrated. That's what's that natural -- that's when I talk about the natural tailwind from the increasing complexity of vehicle, that's primarily where that's coming from. All of that technology needs to be replaced since it's [indiscernible] expensive technology and it needs to be reconnected to the sort of the central nervous system to make sure it is operating effectively. So certainly, glass is an opportunity and I mentioned the engine agnostic nature of the glass business. Car Wash, which is another business that we're in for the same reason. It doesn't make any difference whether your car is internal combustion engine or electric vehicle. Even if you want to get your car washed, it's an opportunity for us to help you feel good about your vehicle, one of your largest assets. It's a way for us to help you maintain that vehicle and paint machine on your car. You want to get the dirt and grime from snowy winter weather or [indiscernible] of your car. You want to get [indiscernible] in the spring. It's hygiene for the consumer, much like cleaning your home is, right? So consumers tend to think about more into maintenance, less discretionary despite what it might look like on the surface. And so what we're doing is we grow into these new verticals, is think about how the car park is going to change over the next number of decades and making sure that our service occasions are relevant and that we're good students of retail and following what the consumer's needs are.

With that being said, you do plan to accelerate the unit expansion this year across most of the segments. Why is now the right time to do that? Is this a land grab within the auto services business because there's so much fragmentation and white space out there?

Yes. Without a doubt, it's a $350 billion industry that continues to grow. It's highly fragmented as we talked about, and there's tremendous white space. We typically talk about 12,000 units of white space across the service cadence that we have today. We certainly see that opportunity. We are presenting to the consumer very differentiated concepts to have fantastic unit level economics and therefor great returns for Driven brands. So taking advantage of the opportunity that we see to further the evolution of the space and consolidate the auto aftermarket is important. We want to take that opportunity as quickly as possible. But we do want to make sure that we're balancing our capital allocation decisions with our -- with a risk profile that is appropriate for the current environment. So if you were to look at the guidance that we gave for 2023, we are talking about self-funding the growth in this current year. We don't expect to take any additional -- raise any additional capital in the capital markets to be able to fund it. And our leverage ratio, which today is about 4.5x net-debt to EBITDA, will naturally deleverage with the growth in EBITDA over the course of the year to somewhere around that 4x level.

And to throw a little wild card in given the recent events, would you expect if we do start to see some squeezing of the credit market that opportunities for M&A would only [ decelerate ] as some underfunded competitors might need to find a partner?

Potentially, but I think -- we think about M&A definitely as opportunistic, especially as we get further in the evolution of any given concept. So I sort of laid out how we grew the Quick Lube business starting with the platform acquisition, layering in tuck-in M&A, and then turning on a greenfield pipeline to be able to develop our own site, whether it was company owned or franchise to the franchise pipeline. That playbook is sort of our -- that's our standard play. So you're going to see us do the same thing in the Car Wash business. In fact, if you think about where we are with Car Wash , got the platform acquisition in August 2020, spent about a year building out that platform nationally. And then started to shift last year and certainly in '23 to greenfield. So we'll do the same thing in glass. It's just the most nascent of the three, but I think Michael's to your point, we always look at M&A as opportunistic. And if there's a place for us to take market share at a very reasonable price in the market, we'll certainly do that, but M&A is a means for us early in an evolution of a concept to build scale.

Yes. One of the critical concept -- discussions, conversations in the economy today is just what's happening with the labor market. Driven employs a lot of people and it's been at the intersection of some of the labor market dynamics. So how is Driven planning labor investments for this year? What are you seeing from a labor cost perspective and will you have to continue to wage -- raise wages in 2023 [indiscernible]

So from a wage perspective, certainly not immune. We compete for talent across the retail landscape in our 3 highest growth business that have a company-owned element, which is where this is most appropriate. Those are low labor models, first of all. So we're talking about 3 to 5 people at any given location. So far less people than it takes to run other retail concepts. We're also talking about unskilled labor, so we don't necessarily need ASE-certified technicians to be Quick Lube techs or Car Wash attendants or Glass employees. So that means we compete across the retail landscape for that labor. We need to be competitive on price, but there are a couple of things in our model that make us unique and a little bit more competitive when we think about the talent pool. Number one is the operating hours. So our business is typically operated from 8 to 6, 6 days a week, that's very different than other concepts that might have round the clock, needs for staffing or staffing in the evenings and on the weekends. So little bit more flexibility for the work force. Second thing is we provide variable comp at all levels of our shop locations. So we have opportunity, whether you're work in Quick Lube, Car Wash, Glass to earn additional compensation over your base wage based on certain metrics and it's different by vertical but you just think about quickly for a minute to the extent you attach wiper blades or you attach some of the other ancillary services or you can maintain your less than 10-minute service level, you can get comped from a variable comp perspective for that. We also have a fantastic career advancement programs in our shops. So we tend to talk about [indiscernible] to that's taking somebody who's unskilled looking for a career path, bringing them in, training them in this case as a Quick Lube technician and then showing them the path and the skills required to get up through the ranks, whether it's site manager, district manager, Regional Vice President et cetera. And the last thing I'll say is people that tend to work in automotive have a passion for automotive. But I think the passion that akin to the automotive industry is different than any passion somebody might have to work in QSR or elsewhere and that's certainly a selling point for us as well. So again, not immune to the challenges in labor market and we do have some wage inflation built in to our guidance and our plans for 2023, but we have a reasonably good time competing in the market for the talent broadly.

And it's fair to think that some of the pricing that's being passed along is covering the wage inflation that you're...

It is. We've had great experience managing our margins, both at a 4-wall level as well as the overall corporate margin. In fact, since 2019, we've expanded margins -- corporate margin over 300 basis points. So this is definitely a concept where the more volume we can get at the top line, the more flow through potential there is overall. And again with the needs-based nature of the service and the infrequency of the visit, the inelasticity is real.

In about core of the business is the Car Wash segment, a little less than 1/4 of your profitability. What have you been seeing from a competitive dynamic standpoint? There's been a lot of money that's poured into the Car Wash space in the last few years. The perception is may be this is changing some of the competitive dynamics what has been the experience for Driven?

Yes, so without a doubt. We've seen a lot of new interest flow in from private equity and otherwise. The Car Wash, I would say is definitely sort of a race for market share. If you look back at multiples that were being paid by folks that were coming into the space for the last couple of years, it's gotten pretty frothy. We've been able through our standard playbook to keep our wits about us and make sure that we're paying very reasonable multiple versus some of the things that you can see in the marketplace. And that's because of those legs to the stool that I talked about, right? So starting with the platform acquisition, spending a year really cultivating M&A, while we build the greenfield pipeline and then shifting into greenfield building, which is certainly more economical for us. So it's interesting. I think as we enter into '23 and as the consumer environment might be a little bit more volatile than we've seen in the past as certainly as the capital markets and rates have gotten increasingly more expensive I think there's an opportunity to stabilize the Car Wash market in terms of not only rationalizing competitors, but rationalizing prices paid for assets. And I think given a year, and I think we'll see, things start to settle out. We're one of the largest players now. So we are here today. And we certainly know as much that investing in Car Wash as we do about operating and running the Car Wash over the long term. So we'll see how '23 plays out, and then there might be some interesting opportunities for us to gain some additional share from players that just weren't able to make it.

And is it fair to think this would be the most economically sensitive segment of the business such that if there was softness, it may be an opportunity to gain increase in amount of market share to the extent that some of the other players in the industry encounter even greater softness.

Yes. I think that's a fair statement. Again, I hesitate to say that Car Wash is entirely discretionary. I think a lot of the folks outside looking in may take that point of view. I would suggest that's not the case for all the reasons I said before, right? You've got - I need to get pollen off your car, or snow and cinders and salt. And it's just sort of personal hygiene regimen that consumer start to adopt. The most important part of the Car Wash business is driving that subscription revenue component. So we're about 55% penetration on our Wash Club subscription program today. That's about 10 to 15 points since the acquisition in August of 2020. But we know best in class is somewhere around 65% to 70% range. So we have tremendous opportunity to continue to drive that subscription program, which gives a nice sort of shield or [indiscernible] volatility in the segment over various seasons or economic times. And I think one of the things that for those you may not know is we're rebranding our Car Wash business with the Take 5 brand name. We are about 50% complete through that rebranding exercise in 2022. We'll finish the estate in 2023 and that's really important to driving this Wash Club subscription. The reason that is important is with 8 to 10 different brands in the portfolio that we bought in 2020, consumers didn't realize the network impact to the network value that was [indiscernible] in their local markets. And our experience frankly wasn't very consistent. So I've taken the Take 5 name applying to Car Wash business. We've now created a standard playbook and was unlocked for the consumer, just how many of the Take 5 Car Washes are in your network. So if you have a wash subscription and you are washing at one Car Wash, you may have 10 or 15 different opportunities throughout your market today, which is a much better value proposition to consumer than just single location. So Wash Club subscription is kind of Holy Grail as you think about Car Wash and we're certainly excited about the opportunity to continue to penetrate there.

And do you want to remind us what type of lift you're seeing when you do make that conversion because it does seem quite powerful?

Yes. Absolutely. So we started it with a pilot in Nashville, Tennessee early last year, early 2022. And we read out at the end of the second quarter, we said we were seeing about 10% revenue lift for rebranded locations and we were seeing 2x the amount of Wash Club conversions as we continue to roll the rebranding to the other 50% so far of the chain, we're seeing very similar results. So we're very excited about what this rebranding exercise could be and rebranding. We're running almost undercuts, right? Because it's not just the name on the store or the color of the building. It's about the point-of sale signage. It's about the way that we use labor efficiently. It's about the quality of the wash, the number of vacuum stations and the free vacuum lot. So it's the full experience in addition to unlocking for the consumer, the opportunities for them to shop in multiple locations in any given market.

And I think one of the takeaways from this is going to be that getting your Car Wash is as much of a personal hygiene habit, as brushing your teeth. So this is very important. I want to end our conversation, which is the longer-term topic, I'm sure you increasingly get it, it's on a topic of EV as you very well pointed out that replacing your windshield is agnostic to the engine, getting your car wash is agnostic to the engine is probably more focused on the maintenance categories, maybe some collision area to the extent that autonomous becomes more focused. How does Driven think about the impact of the changing vehicle population over the long-term outlook for this sector?

So let me start by saying that we pride ourselves on being good students of retail, and we want to make sure that we continue to be relevant to the consumer. So the fact that the introduction of electric vehicles into the car park and again the car park is 285 million vehicles today, still vast majority is internal combustion. But that introduction of EV into that car park is a really interesting opportunity for Driven and it's the most change we've seen in a century in the automotive landscape. The only part of our business that is wholly susceptible to that change is our Quick Lube business. Obviously, if you have an electronic vehicle -- electric vehicle, you don't need an oil change. You don't have an internal combustion engine. However, when we decide where to put our Quick Lube shops, myself and our CEO, Jonathan Fitzpatrick, we Chair a Capital Committee, we meet weekly. And when we think about planting a new box for a Quick Lube shop, we think about it real estate first. So we make sure that we're getting great locations on main and main and have great visibility, great traffic. And then we plant a box that is effectively 3 days in a great market. It's really a little stationary equipment, right? So sort of wire and equipment that's enough in a given shop. So as the car park changes, we can turn the dial on the services that we offer in those days from what we do today, which is a purely Quick Lube to other service occasions that are relevant to EV consumer. The challenge right now is there's no standardization in the EV market. So identifying what those longer-term service occasions are Is still on the [indiscernible]so cost into retail. We did some modeling a little over a year ago, where we said let's just take a very extreme case. And if we were to say that every car that came off the manufacturing line today was an electric vehicles. How long would it take for that car park? So 285 million vehicles that have to be beyond their manufacturer's warranty so older than 5 years for them to end up in our addressable occasions. We're talking about 15 years, and that's the extreme version, 15 years to see the tipping point in the car park. So we are excited about the opportunity. We continue to study the opportunity and look for standardization and therefore, new service occasions. We know we've got great real estate that we can use to address the needs of the consumer but we also know this a very long tail.

Well, the great news is you can come back to the UBS Consumer Conference for the next 15 years and each year we're going to ask you about it. So please join me in thanking Tiffany and Kristine for telling a great story and our time together today. Thank you.

Thank you.