Mister Car Wash, Inc. (MCW) Earnings Call Transcript & Summary

Yes, as John said, so it was about 70% of our stores where we get the price increase, and it was just on the retail side of the business. And what we expect and what it will equate to is low single-digit impact to our total comp going forward.

Okay. I want to talk about some of your initiatives in a moment, but I just want to talk also about the competitive landscape because that's kind of a concern that's growing because there's a lot of chatter out there around private equity money coming into the space and there's a lot of different car wash businesses that are now claiming they can grow to several hundred units. So maybe just kick-off, what happens, we know legacy Mister Car Wash and a competitor opens up maybe within a 0.5 mile, 1 mile radius of that?

Yes, before I answer that question. So we were a privately held company. We can make a lot of bold claims. [indiscernible] same standard as we are as a publicly traded company. So any power points that you see are now more measured and definitely, the margins have kind of come in, in that spirit of underpromise and overdeliver. So I do roll my eyes a bit on some of the very ambitious plans that we hear from others because it's taken us 25 years to get to 410 stores. This is not an overnight success story. We grounded out, granted for the first 10-plus years of our existence. There was very much the learning curve and the fundamental building blocks and the mistakes that need to be made. But then we kind of went on this more accelerated ramp. But at the very core throughout that journey, what we learned is to focus on the fundamentals, which sounds very basic. But you can add store, you can build stores, but if you're not delivering an exceptional customer experience, focused again on quality, speed and customer service, over time your business will be impacted. And what we see with respect to some of the new institutional capital has come into the category trying to replicate our success, looking at this thing through the lens, how this is a highly fragmented industry, it's primarily mom-and-pop. This is right for consolidation or some roll-up. We say to them good luck because we also initially saw that as a potential opportunity. As we went forward, we realized that through an M&A lens, there may be businesses that are for sale, but they are not attractive assets or maybe this is better for sale that are not priced reasonably. And with respect to more demand, particularly from private equity that is all competing for the next great platform, there's been multiple expansion. And as a result, prices have gotten a little wonky, another technical term. And as we look at our M&A approach, we think we've been very disciplined, very focused on quality, and paying a fair price for those businesses, and we want to maintain that discipline. So we have not swung at every pitch. There's been a lot of marketed deals in the last 6 months that, quite frankly, haven't realized what the original vision was for the folks that we're selling. And I think that's because some of the smarter money now is realizing you can buy a bunch of EBITDA, but you need to now grow that EBITDA, and what do you have? Do you have a good management team in place, are those quality assets? And given our experience in looking at a lot of car washes over the years, not all of them are attractive. So that has really resulted in our pivoting to greenfield and the greenfield side of our business. We're almost myopically focused on right now, we'll continue to do bolt-on acquisitions, and look for strategic platforms that allow us to get into a new geographic region. But for us, the greenfield model is taking all of the learns over the last 25 years and baking that into this prototype that is just crushing it right now. We're over 70 stores up to wash, super high volumes and generate super high AUVs.

Okay. I think -- I mean, the one thing I would add is so when you look at the investments that we're making to build on that, right, it's to further fortress and leverage the scale of the business and looking at how do we better communicate to the customer and build awareness to drive more frequency, particularly on those retail customers giving us more at bat. You've heard us talk about the digital experience and some of the improvements we're making with the mobile app and helping drive even better engagement with our EWC members. So looking at these different areas -- but doing that on top of continuing to execute, continue to do what has got us to where we are today, and then the layering on these different -- and we intentionally stay a little bit vague about this, just because there's so many folks from the competition that listen to these types of things. So we are always a little bit guarded, but there is quite a bit in the pipeline as we look ahead 1, 2, 3 years down the road and the focus on how do we differentiate ourselves even further from the car wash that it's going to open up down the road.

Okay. Well, maybe we'll expand upon that a little bit and talk about marketing. I think John, you characterize marketing as a rounding error, I think, in the past for the business. You are now starting to do some testing and maybe make broader pushes in 2023. Maybe there's some -- you still want to hold back, but what can you share with us today on what you're working on and how the marketing efforts might evolve?

Yes. So a quick walk through the part and our history of -- and it's really marketing, advertising and then I'm going to throw in discounting, promotional tactics and schemes. And so we come to this conversation with, I'd say, deep scar tissue and issues around what we originally started with was an industry that was riddled with a lot of discounting and a lot of coupons that really didn't move the needle. So we were very successful in winning the entire business off of some very inefficient promotional tactics in advertising to get to almost a zero-ad spend. We're very proud of that fact, right? So we shifted the conversation away from price, price, price and really focused on all the other things that we found are really important to our customers. That said, we may have swung perhaps a little too far. And looking at our retail business, which we do know is the pipeline and the funnel for our membership growth that we still need to do a better job of creating awareness and generating trial and getting folks in the door, but doing it in a smart way. So Jed alluded to our digital initiative, which we're still working on, and we're in the test right now. But we think that through that digital app, we're going to be able to drive not just customer acquisition and member acquisition, but increase our member engagement which is another piece of the equation. So you can bring somebody into the program. But the key is to keep them there for a long time and continue to have them utilize your service on an ongoing basis. So that's the vision. We're not going to get into specifics on tactics and some of the things we're doing inside of that because we don't need to tip our hand. But we're really, really excited about that initiative. And so we will be turning up the dial, but in a smart way. And I think, again, there's some -- there's tremendous value in the learns that we have gone through. So if others are coming into the space right now, and they have a vision of driving traffic through discounts, we wish them luck. And we, actually, are encouraging them to use price as the lever. We know that it's way more than price and price is one piece of the overall value prop.

Okay. So another growth initiatives as we think about next year, you teased it out earlier, you have your subscription tiers. So you're looking at what we call ultra-premium. And then the second thing, and you just alluded to it on the conference call that you also have a new service package. John, you've used the word revolutionary...

Game changer.

Game changer...

Yes. Next-gen online extra services. So we have a long history of creating tremendous -- our term for online is not Internet-based, but it's on the line, on the track. So online extra services are the waxes and protections, protected services that you get as extra services in our packages. And we introduced HotShine, which is this Carnauba-based wax waterfall that engulfs the entire vehicle with a silicon-based emulsion that really makes your car pop. We introduced Wheel Polish. There's a very huge wheel culture in America, where not only do you need to get the break dust off of your rims, but you want to make those rims shine. And can you do that through automation and mechanization? And the answer is yes, we have done that. We are now in test and our R&D team has been working feverishly behind the scenes in our next-generation online wax and protection that we hope to roll out in 2023. And with that, while others are taking price increases and creating packages that you can question the value and the efficacy. For us, we want to have products with integrity and then products that have great show and great appeal. And then with that product introduction, we will be able to introduce perhaps a new premium package. And again, I want to stay on soft ground that will be coming in 2023, as we go through our test. And I think the beauty is when we look at our portfolio, today north of 410 -- 420 now?

400 -- just over 400, yes.

Okay. That we roll this out on a region-by-region basis. So it's not going to be a January 1 rollout because there's a lot of work that goes into readjusting the configuration of our stores to be able to support the sector service. But when I say revolutionary, you might say, this is just CEO hype that he's talking a big game. You have to see it to believe it and your jaws will drop. It truly is a wow experience.

Okay. Great. So that's interesting. So you've talked about another subscription tier. And so I guess this kind of go hand in hand with new service offering that will be embedded into this new premium subscription tier?

Yes. And I had a guy years ago, put his arm around me and this is like 30 years ago and said, "Hey, if you're going to take a price increase on the product, give the customer something more, just don't take a price increase." So it's a very simple novel concept, but making the customers excited about what they're receiving is really important to us.

Okay. Great. Let's see, one other big initiative is you were fairly acquisitive right at the end of 2021 if Clean Streak is the big one Downtower or kind of bunch everything together into the Florida market. It seems like there's a little bit of SG&A pressure near-term because you've bumped up wages. But let's just talk about an update on how that integration is going and then progress as you look out to 2023 and to drive average unit volumes.

Yes. So again, I'm going to be very blunt and direct with this audience. Any monkey can buy a business, it's what you do with the business after you buy it. And so for us, post-acquisition integration is not for the faint of heart, there's a ton of work. And there's the obvious stuff, right? So implementing the technology, training the staff, getting the culture right, refacing the building, getting the point-of-sale systems all in place. All that sounds very basic, but that takes time. And in order to do that, you have to, in many cases, take 1 step back and take 2 steps forward. I know it sounds cliche, but it's true. So with a long time horizon around really connecting all the dots and creating a halo, a unified singular company, for us it's almost a year-long venture. So with Clean Streak at the 9-month-mark-ish, we're still in the swamp digging it out right now and taking the business to where it needs to be. So while others buy and perhaps put up a new sign and take a price increase, for us, that's the last step in the multistep journey of improving the business. And we're doing that again when you look at the Clean Streak and our Florida footprint, and by the way we're very bullish on Florida. We think Florida has just got a huge kind of growth dynamic around it, which is why we elected to pull the trigger on that deal to double our footprint in a market that's already very strong. I think it's our second largest state today behind Texas and close to third, I think, is California. So there's a huge growth dynamic. It really strengthened our position in Central Florida, Tampa, St. Pete. And then with the Downtower deal that you mentioned and Clean Streak, we moved very aggressively into Cape Coral and Fort Myers. And if you move further to the east, the Melbourne and Daytona market is also an area of great interest to us.

Okay. Great. Well, we look forward to hearing more about that. It sounds exciting. Well, that does it for time. So thanks so much for spending some time.

No Q&A? No -- I guess we have no time.

It's my first fireside chat in this format. I'm still learning myself.

No, no, no. Great. Thanks for having us. Appreciate it. Okay. Thank you.