Taken to the cleaners

While the laundry and dry cleaning sector has benefitted from the trend of outsourcing, competition is fierce and consolidation looks set to continue. IBISWorld general manager ROBERT BRYANT finds the challenges and opportunities.

This looks set to continue. Given the discretionary nature of expenditure in the dry cleaning and carpet cleaning areas in particular, it is expected that the pattern of growth of these sub-sectors will broadly follow the forecast decline in real household disposable income, particularly as unemployment rises.

On the whole, IBISWorld estimates that over the five years to 2008-09, industry revenue will increase at an average annual rate of 2.9%.

Outsourcing will continue to drive growth in the laundries sub-sector. Both the linen and uniform rental market still has the potential for further expansion, from both an increase in clients through outsourcing, and from the general employment growth in the services industry, particularly in the healthcare, foodservice and travel and tourism/hospitality.

Rental of dust mats, dust mops and other cleaning equipment is also a growth area, particularly from the retail sector. The major drawback of this sub-sector is its slim profit margins, due to significant price competition between operators.

The forecast for this industry is far more subdued. Not surprisingly, 2009-10 is expected to provide a tough operating environment for all industry segments, but the industrial laundries segment will still benefit from the continuing growth in aged and healthcare services, as well as from prisons and educational institutions. Also, environmental factors will be of increasing importance, particularly with chemical, water and energy use.

IBISWorld estimates that over five years to 2013-14, industry revenue will increase at an average annual real rate of 3.2%, due to continuing strong growth in the outsourcing of laundry and uniform rental services.

The current restructuring of the manufacturing industry will, however, lead to further reductions in demand from this sector, although the availability of wet cleaning services may be a growth segment. Also, low growth in carpet cleaning services, with continuing replacement of carpets by other flooring, will be major factors in the reduction of revenue.

Overall significant price-based competition will remain. This industry will continue to remain very price competitive over the outlook period, even given its expected relatively good real growth rate. To an increasing extent, however, major operators will move towards providing quality service at a slightly higher price and continue to dominate the industry.

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 prior to 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 lay-out 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.

Products and service segmentation

Share of laundries and dry cleaners locations by state

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