Cleaning up

The $1 billion laundry and dry-cleaning sector has enjoyed good growth in the last five years, but as IBISWorld’s ROBERT BRYANT explains, consolidation and tighter regulation loom as challenges.

By Robert Bryant

The $1 billion laundry and dry-cleaning sector has enjoyed good growth in the last five years, but consolidation and tighter regulation loom as challenges.

The outsourcing of services by the government, business and household sectors is one of the biggest trends affecting the Australian economy.

That is particularly true for the laundry and dry-cleaning sector, which has enjoyed strong growth thanks to outsourcing from the hospitality and healthcare industries, particularly the aged sector.

IBISWorld estimates that this industry grew at an average annual rate of 2.9% over the five year period to 2007-08, thanks to relatively strong economic growth and increased demand due to rising household disposable income. Revenue growth accelerated in 2007 and 2008 as the laundry segment continued to benefit from strong general employment growth in the economy.

There will be increasing demand for the services of this industry. The outsourcing of laundry services, especially for linen, workclothes and uniform rental and cleaning, will continue to be led by strong growth from the hospitality industry and the wider healthcare industry.

IBISWorld estimates that this industry will grow at an annual average rate of 3% during the five year period to 2012-13. The industry should reap the benefits from generally improved economic growth over the outlook period, except for 2008-10 when a significant slowdown in economic and employment growth is forecast.

The industry is also expected to benefit from improving business and consumer sentiment, increased international and domestic travel and further outsourcing of laundering, textile and work clothes rental and cleaning services. It is expected that this industry will continue to remain very price competitive over the outlook period. Major operators will move toward providing quality service at slightly higher price.

The laundry services component industry is expected to undergo further rationalisation, through mergers and acquisitions. Restructuring of the dry cleaning component will continue. The industry will also continue to feel the effect of stricter enforcement of government regulations in the areas of both environmental and occupational health and safety.

Products and service segmentation

Share of laundries and dry cleaners locations by state

Key success factors for operators in the industry

• Provision of superior after-sales service. A high commitment to quality and customer service to ensure repeat custom.
• Production of premium goods/services. A high commitment to quality and customer service to ensure repeat custom.
• Having marketing expertise. A marketing “pitch” or focus must exist, for example, on a particular socio-economic class or garment-type specialisation to distinguish one shop from others.
• Having a good technical knowledge of the product. An understanding of garments and fabrics, stains and chemicals and the effective and appropriate “spotting’ of garments before cleaning is necessary to ensure quality cleaning is provided.
• Market research and understanding. Good knowledge of local area and customer needs, to provide services in need/demand.
• Having a good reputation. Good word-of-mouth recommendation to be exploited, to ensure new and repeat customers.
• Ability to franchise operations. Having an agency system for collection of clothes for cleaning, but with an appropriate legal agreement covering aspects such as liability for lost or damaged garments from any act, neglect or default or fraud by or of the agent.
• Effective product promotion. Local advertising needs to be effective and targeted to reach required markets/customers.
• Proximity to key markets. Need for a convenient, high-traffic location, to generate customer traffic, in particular for drycleaning at regional shopping centres, shopping arcades, railway concourses, certain strip shopping centres and CBD locations.
• Provision of a related range of goods/services (“one stop shop”). Possibly examining new areas such as uniform rental and dust control to generate new revenue sources.
• Use of production techniques that add value to base product(s). Production of extra “value-added” services such as mending, water proofing, shoe repair, tailoring, express bags and wet cleaning to generate more revenue.
• Having a diverse range of clients. To have a diverse client/contract base in the industrial, commercial and hospitality industries to ensure any fluctuations in demand from clients is not too drastic on revenue.
• Having an extensive distribution/collection network. To have an efficient pick-up and delivery system to ensure quality client service.
• Automation – reduces costs, particularly those associated with labour. To have an efficient plant layout and automated materials handling equipment to operate at lowest cost.
• Ability to control stock on hand. To have an efficient stock control and identification system to ensure quality client service and for record keeping and invoicing purposes.
• Ability to compete on tender. To have experience in the tendering process and in preparing tenders for large outsourced contracts, if relevant.
• Ability to quickly adopt new technology. To increase the use of new technology, particularly in water use and recycling.
• Must comply with government regulations. To meet all government environmental and health regulations, particularly for any chemical use and storage.
• Level of competition existing in the market. To try to move away from price-based contracts and competition and more towards quality and value-added services, at a higher price.

IBISWorld supplies business information databases, including industry reports, company reports and business indicator reports. www.ibisworld.com.au