However, once tenants are secured, switching costs are high and so rent increases can be imposed. As fixed costs are high there may also be the temptation to cut prices to fill capacity. Hence there are many players in a fragmented industry. The site acquisition and build costs are low, lowering barriers to entry. Like truck rental, self-storage is a commodity offering. The other major use of the company’s operating cash flow has been the purchase and greenfield development of self-storage facilities. highlighting the economies of scale in the industry and U-Haul’s network advantage. Budget generates 15% of the revenue of U-Haul with a truck fleet one quarter the size and has been retrenching. The industry has consolidated down to three main players today: U-Haul, Budget Truck Rental and Penske Truck Rental. Several competitors have tried to enter or grow in the space, but none has succeeded in denting U-Haul’s market share. Since its inception U-Haul has grown its dominance in DIY moving.
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The orange and white livery and U-Haul logos adorn its 100k trucks, 80k trailers, 20k truck rental nodes and 1,100 storage locations, serving as a free mobile and ubiquitous advertising machine. The U-Haul brand is well-recognised and ubiquitous there are 65% more U-Haul locations in the North American network (20k) than there are Starbucks coffee shops (12k). The accumulation of independent reviews also creates stickier supply and encourages better customer service, increasing demand. As the number of providers of labour grows, the more users are attracted by greater availability. is a platform bringing together supply of and demand for moving labour. It is very possible, however, that Amerco captures an increasing share of the total costs incurred in making these moves.Īnother example of management directing capital to widening the business’s unfair advantage is the development of.
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If humans live in houses, regardless of how those houses are financed, and if changing life circumstances cause them to move homes several times through their lifetimes, none of these drivers of demand is set to change materially long into the future.
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The need for more affordable housing is a significant reason for moving, likely a countercyclical driver of volumes. Moving depends on idiosyncratic factors such as the need to upsize, downsize, get divorced, get married, move jobs, attend and leave college etc. Trucks are necessary for moving but people move infrequently these characteristics lend themselves to a rental business model.
This network advantage limits the ability to add supply in the ‘one-way’, inter-city moving market. Management has clearly identified the source of the moat for this business and has continually reinvested capital in widening it over time.
Today U-Haul as eight times as many locations as its nearest competitor, and four times as many trucks. This virtuous circle drives market share and revenue growth, which has been reinvested in more locations and vehicles, making U-Haul’s dominance increasingly difficult to replicate. Franchisees are attracted by the number of U-Haul customers customers are attracted by the convenience of franchise locations. This should increase the steady state asset utilisation of the business. Each additional location increases the value of existing locations by enabling more convenient pick up and drop off logistics for an increasing number of moving routes.
U-Haul, the brand behind Amerco, has made the most of its first mover advantage by aggressively expanding its network of franchised moving service locations. Shoen spent decades signing up land-owner franchisees across North America, developing a network across the country which allowed users to collect vehicles in one location and drop off at another, facilitating ‘inter-city’ house moves. Today 40% of movers in North America are DIY vs. The DIY moving market was essentially created with the founding by Leonard and Anna Shoen of Amerco in 1945. Amerco ticks all the boxes of a reinvestment moat, stewarded by excellent long-term business owners and capital allocators, and trading at a modest multiple of normal earnings power.
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