Published on 10/06/2016 by Punchmedia

Why This Service Industry is Cleaning Up

Let's be honest, none of us like doing the washing and we all need our 'Sunday best' dry cleaned on a regular basis. Everywhere we look there seems to be a laundrette or dry cleaning business alongside the local Subway, milk bar or coffee shop - here we take a look at the industry and the how and why it continues to be profitable. Laundry Services Increased outsourcing of laundry services, particularly linen and uniform hire by private and government organisations, has contributed to growth in the industry’s laundry segment over the past five years. The linen and uniform rental markets still have the potential for further expansion. This growth will likely be driven by the continued increase in business outsourcing and steady employment growth in the services sector, particularly in health care, food services and hospitality. The available market for linen laundering in some areas of the healthcare sector is weakening, due to the declining average length of stay for hospital patients and greater price competitiveness in this market. However, demand for industry services is increasing in new growth areas such as nursing homes and retirement villages. A declining volume of hospital linen is still laundered through in-house or central linen services, which are attached to large hospitals. These services have increasingly been outsourced over the past two decades, to the benefit of the industry. Other growth areas for the industry include the food-service, travel and tourism sectors, although these markets have become particularly price-sensitive over the past five years due to increased competition. Demand for the rental and laundering of uniforms and clothing has also been increasing, both from businesses outsourcing these activities and from the expansion of employment in certain areas, particularly in health care. Major hotels have increasingly moved away from on-premises laundries in favour of commercial laundry services, due to the heavy investment and overheads required for in-house laundry services. This has led to increasing demand for industry services from hotels and other accommodation providers. Revenue and Profit Over the five years through 2015-16, industry revenue is projected to increase at an annualised 1.2%, to reach $2.0 billion. This includes estimated growth of 2.1% in 2015-16. This steady revenue growth can be attributed to solid increases in the outsourcing of laundry and uniform rental services across the healthcare, hospitality and retail sectors. However, growth in carpet cleaning services has remained weak, as other types of flooring have increasingly been used in favour of carpets, and as housing construction levels have decreased in the past five years. This has led to significant price-based competition within the carpet cleaning segment due to a high number of franchises. Consolidation has increased in some industry segments - such as industrial laundries - as firms have benefited from economies of scale and a greater number of major contracts. With higher demand, industry profit margins are expected to increase to 11.3% of industry revenue in 2015-16. This is due to increased outsourcing by clients and increased demand for textile and uniform rental by large and medium-size businesses. However, higher road freight service prices have hindered profit growth as collection and delivery service levels have increased. Outsourcing and Demand Subdued economic growth and higher unemployment led to revenue declines in 2011-12 and 2012-13. The industry felt the adverse effects of rising unemployment as demand for services fell, particularly from the manufacturing, services and retail sectors. Demand from the health and aged-care sectors remained buoyant during these years, although price-based competition was heightened as operators sought to retain existing agreements or win new contracts. A return to more stable economic conditions has driven stronger growth over the past two years. During this period, the outsourcing of laundry services remained solid, particularly for linen, work clothes and uniform rental and cleaning. This occurred due to strong growth in the hospitality sector and robust demand from the healthcare industries, particularly the aged-care sector. Population growth and higher household discretionary income have aided the domestic dry-cleaning and carpet cleaning segments, although growth in these segments has remained subdued. Competition and Efficiency Competition, at least for the major operators, has been moving away from a price-only basis, as service quality becomes increasingly important. Over the past five years, some industry players have also taken a more profit-oriented approach, typically on an individual contract basis. Specialist services have been provided to higher quality clients in food-service, pharmaceutical manufacturing and electronics industries. For example, the range of specialist uniform and apparel rental has expanded to include the provision of clean-room facilities for clients that require dust-free or sterile linen or uniforms. The industry continues to expand the range of services offered, and continues to venture into new areas and industries.          

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Curtis is a leading expert in the business-for-sale industry, serving as a senior content creator at anybusiness.com.au.

With a career spanning over fifteen years, Curtis has accumulated extensive knowledge in the domain of business sales, acquisitions, and valuations. His deep understanding of market dynamics and his ability to translate complex industry jargon into accessible insights make him a trusted resource for entrepreneurs and business owners looking to buy or sell businesses.

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