This is Chapter 4 of the book ‘Investor’s Guide to Coin Laundries’, compiled in 2012 by Jay McDonald, Vice President, Distributor Sales for Alliance Laundry Systems.
An Investor’s Guide to Coin Laundries | Cash Versus Smart Cards | Chapter 10
Alliance Laundry Systems is the largest manufacturer of commercial laundry equipment in the world and has over 50 years of experience in helping investors just like you, get started in the coin laundry market. This book is a compilation of experiences, ideas and input from hundreds of successful coin laundry owners and distributors from all over the world. Taking data and industry knowledge, it is a road map to help you succeed. At the end of it, you will have a general understanding of the industry and what it will take to operate a successful business.
A NOTE ON COIN-OPERATED LAUNDRIES IN SOUTHERN AFRICA
In Southern Africa, coin laundries are typically found in flats or townhouse complexes, caravan parks, holiday resorts and universities. Historically coin-operated activation systems have supported these laundries. However, this system is largely being replaced by our LaundryConnect Cashless Payment Gateway, which is convenient, hassle-free and the way of the future. It is easy to integrate or replace your existing coin mechanism in order to offer cashless payments or to use a card to activate machines.
Cash Versus Smart Cards: Pros and Cons
Chapter 10 : CASH VERSUS SMART CARDS: THE PROS AND THE CONS
The average person is using it less and less, cash that is. With consumers now able to pay bills online, use debit or credit card machines at the petrol station, at grocery stores, at retail stores, the question becomes, cash or card? For vended laundry owners it’s a question of what you feel is best for you and your business. There are pro’s and con’s to using either payment method.
When the vended laundry industry began, washers and dryers were equipped to accept coins for payment. And a majority of stores still use coins today. However, there has been a growing trend to use alternate payment systems. Therefore, you really do need some research and some thinking before deciding on using a cashless system in your coin laundry. After all, if your customers won’t use it, there isn’t much point in investing in it. So, let’s start with the basics.
Most of these card operated laundries have a system installed that accepts a special card. At the laundromat, the end customer can add value to that card and only redeem that value at the laundry. For the purposes of this guide, let’s refer to them as smart cards.
A smart card is similar in size and look to a credit card. It comes equipped with a magnetic strip or computer chip that activates the laundry equipment when the user inserts the card into a card reader that’s been installed on the washer or dryer. Using a card value center, your customers would add value to their cards using cash, a credit card or a debit card. A relatively easy concept, this is one laundry technology where your demographic and competitive information may play a major role in your decision.
Smart cards and the competitive advantage
One of the most common reasons a card system is selected is because it allows the owner to price the washers and dryers in one penny increments. This reason can be a rather significant competitive advantage. Most laundries using coins for vending in North America accept quarters as the smallest coin amount.
For example, let’s assume that your washer has a vend price of eight quarters ($2.00 US) to start the machine. Now let’s assume that a nearby competitor is using a card system and to try to take away some of your customers, he prices similar capacity machines at $1.95 US. Since your machines can only be priced in quarter coin increments, you have a dilemma. Do you decrease your vend price to $1.75 US (over 10%) or keep your prices where they are or hope that not too many customers start going to his store? It is a difficult decision.
In an earlier chapter, we cited statistics that vend price is not one of the top 5 reasons why people surveyed said they visit a particular laundromat. But price is still in the top ten. A card system may add considerable expense initially to a new laundry but it just may be an investment worth making. Discuss this with your distributor partner. The ability to set a vend price in smaller increments can give you more revenue flexibility too. Many newer stores are charging more for a hot or warm wash and less for a cold wash. This not only conserves energy but conserves your energy expense too. Our machines are designed to allow this in both coin and card vended systems.
One drawback to a card system is that your customers have to be trained how to use your system during their first visit. The systems are quite easy to use and some even offer video and audio to guide your customers through the process. Another drawback is that there are customers out there that refuse to accept and embrace new technologies. These customers will probably stay at a coin operated laundry — that is what they are comfortable with. You have to accept that you cannot please 100% of the people, 100% of the time. Thankfully, the percentage of these people is shrinking every year. Consider starting a customer-training program where you or your staff can work with customers one-on-one to educate them on how to use smart card. I would not recommend a card payment system for a store that will not be attended.
Other benefits of card payment systems
As the owner, you need to dedicate your time each week to collecting money. With a coin system, you collect from every machine and there are a lot of coins. With an installed card system, this task is much faster. All of the money is collected from a single source — the machine your customers use to add value to their cards. And this is paper money, not coins, taking less of your time not only to collect but also to count. Some store owners have estimated this saves them 40 hours per year or more.
As more and more businesses are looking to build customer loyalty, coin laundry owners are continually looking for ways to attract and retain customers. Using smart cards to offer in-store promotions is just one way you can develop a customer loyalty program.
With smart cards, it allows you to develop promotions such as adding bonus dollars when a certain dollar value is added or even a free wash cycle on the machine for the 10th load washed by that customer. Tapping into the marketing potential of the cards depends on the ability of your customers to accept them, but the potential marketing options are endless.
They also allow you to run promotions during off-peak store times, lowering the vend price during those hours when customer usage is slow in order to increase turns during those times. However, we do manufacture machines that give you flexibility to offer these promotions with a coin operated system too.
Smart cards and safety first
One of the other big benefits to using a cashless operating system is in the improved safety within your coin laundry. With any business, there is always the possibility of theft or vandalism. Machines built specifically for a laundromat environment use more metal and steel, especially in the area where the coin vaults are located. But there are criminals out there who may still try to break into your machines. The possibilities of this are minimized in stores that are attended with security systems installed. With coin operated units, a criminal may damage several machines until they figure out that the effort is just not worth it. But now you have to repair the damage they caused. In stores with a card payment system, there is no money in the machines and so there is no reason to damage them. And typically, the card value stations are built directly into a secured wall making theft very difficult. And some have the option of only allowing collections from the rear of the unit, behind the secured wall and out of sight of any customers.
These are just a few of the benefits for using a card payment system technology, but in order to make an informed decision you really need to look at both sides of the coin, so to speak.
Smart cards and the investment
Whether you are converting your existing equipment to cashless or purchasing smart card-ready washers and dryers, smart cards are a rather significant investment. With a new large store, the additional expense may be $40,000 US or more. In addition, you have to purchase smart cards to either give or sell to your customers. And as user cards become damaged or lost, the owner will usually provide a replacement card at no cost to the customer to keep them coming to his or her store.
With smart cards, customers “prepay” their laundry expenses giving you the revenue now instead of when they actually use your machines. And there is usually a balance remaining on their cards. This encourages them to return to your store for cleaning their laundry which is of course a good thing. This balance is referred to as “float”, the time period between when consumers spend money to add value to their cards (incoming revenue to you) and when they use the washers and dryers (outgoing expense in utility costs). We recommend that you not only track revenue from value being prepaid on cards but also actual machine cycles using our audit features. This will help you estimate the size of the “float” in your business. Depending on the size of your store, this will vary. We suggest working with your distributor to determine an average amount for this as it can easily range from a few hundred to a few thousand dollars.
Credit and debit cards
Over the last few years, there have been new systems introduced to our industry that allow your customers to use an actual credit or debit card to pay for their laundry.This can be very convenient and worth investigating. But remember that credit card companies charge you a fee when processing payments which will impact your profitability. And depending on your specific demographics, the percentage of potential customers with credit cards in your area may not be as high as you need to reach your ProForma projections. Whether you choose to use a card payment system or coin, new technologies are helping laundry owners look at new ways of doing business every day. From building customer loyalty to increasing safety, to offering unique promotions, the possibilities are endless.
ABOUT THE AUTHOR
JAY McDONALD has been active in the laundry industry for over 30 years. He is the Vice President, Distributor Sales for Alliance Laundry Systems, the largest manufacturer of commercial laundry equipment in the world. He also served on the board of directors for the Coin Laundry Association and received the Distinguished Service Award “in appreciation of his leadership in furthering the welfare and best interests of the coin laundry industry” in 2009.
SA’s FIRST COMPLETE CASHLESS PAYMENT SOLUTION
Laundry Connect offers an affordable and adaptable payment gateway that is fast becoming the system of choice. It is easy to integrate or replace your existing coin mechanism in order to offer cashless payments or to use a card to activate machines.