Cautiously strong15 August 2016
Business remains strong in the North American markets, particularly for the vended, on-premise laundry and high-end drycleaning sectors, reports Kathleen Armstrong
The US economy crawled forward in the first quarter of 2016, with real GDP increasing at an annual rate of just 0.8%, lower than the previous quarter's 1.4% rise, according to Bureau of Economic Analysis figures released in May.
“For the past several years, the economy in the US has been on the upswing and we have witnessed an increase in capital expenditures, as well as laundry facility construction and expansion. The Federal Reserve Bank has kept interest rates low and fuel costs have stayed relatively low as well. As a result, the overall climate for the laundry industry has been good and sales of laundry machinery in particular have been strong,” says David Bernstein, President of Lapauw USA. However, he adds that there are indications that a slowdown could be coming.
Mark Thrasher, president of Lavatec Laundry Technology, agrees: “If the US economy continues to improve, the Federal Reserve could increase interest rates, which will have an impact on the cost of borrowing money, which may prevent smaller companies from investing in capital projects.”
With regard to the current presidential election, most agree that it is having little impact on the industry. “Historically, the market has shown some reaction 60-90 days prior to a presidential election. It slows down a bit and softens,” Joel Jorgensen, vice president of Continental Girbau, comments. “This is typically reflected in retail sales but seldom has an impact on commercial laundry markets.”
In Canada, he says, business remains strong in both the vended, on-premise and drycleaning markets.
The Canadian economy got off to a brighter start as real GDP expanded by 2.4% (quarter/quarter, annualised) in the first quarter. Nevertheless, Leslie Preston, senior economist for TD Economics, predicted in a statement released at the end of May that this may be a blip, especially with the downward trend in business investment, weakened investment in the oil and gas industry and the impact of the Alberta wildfires.
“The Canadian market is a bit more cyclical than in the US,” says Phil Hart, president of Kannegiesser USA. “For several years the rate of capital investment among Canadian laundries has been rather low. However, right now we are seeing an uptick in the investment in Canada and for many of the same reasons as in the US. However, the exchange rate between the euro and the Canadian dollar, and to a lesser extent the US dollar, have made ROI calculations a bit longer in terms of payback.”
Overall over the past year, growth has been strong across all markets of the industry.
“The general state of the industry seems to be healthy in all regions and in all sectors of the industrial side of the business (healthcare, hospitality, linen and uniform supply, food and beverage), with no major changes,” says Simon Neild, president of Jensen USA. “However, in Canada, the healthcare linen supply sector is experiencing rapid growth. More and more hospitals are outsourcing their linen needs.”
Jorgensen agrees: “Since the first quarter of 2015, there’s been consistent growth in all segments, highlighted by the vended, multi-housing, hospitality and industrial markets. There’s money in the market to invest, whether you are building a hotel, vended laundry, apartment building or expanding a drycleaning plant.”
According to the Textile Rental Services Association (TRSA), the uniform rental sector brings in the lion's share (58%) of revenues in the US. But declines in manufacturing employment and manual labour position brought about by an increase in automation have led those companies to expand to other markets, including food and beverage and healthcare.
The top four public uniform rental specialists – Cintas Corp, Aramark Uniform and Apparel, UniFirst Corp and G&K Services – accounted for 79% of US uniform rental revenues in 2015, according to figures compiled by the TRSA from IBISWorld, Baird and US government reports.
Across the general textile rental industry, 10 companies account for 67% of revenue, including the abovementioned uniform rental companies, Prudential Uniform Supply (industrial), Angelica Textile Services and Unitex Textile Rental Services (healthcare), and Alsco, AmeriPride Services and Mission Linen Supply (mixed).
“Hospitality is the US textile services industry’s newest frontier,” says TRSA president and CEO Joe Ricci. “The youngest companies in the business are specialists in this market, which largely serves its own linen and laundry needs with on-premises laundries (OPLs). TRSA is leading the conversion of these to outsourcing with the formation of a Hospitality Committee, which has created on online calculator for hoteliers [launched earlier this year] to input their key expenses to generate a cost comparison.”
One of the major concerns for the industry is the cost of labour. “Many areas of the US have already passed laws that increase the minimum wage and the effects of these laws are rapidly increasing the labour component of the cost of production. Those areas that have not already passed these higher minimum wage laws are considering doing so,” comments Hart.
Ricci agrees: “At the moment, wage issues represent our greatest concern. Individual states and cities are considering raising the minimum wage to $15 an hour; this may become a federal issue in the new presidential administration in 2017.”
In addition, Ricci says, the Obama administration has put forward an initiative that requires compensating more management personnel for overtime work. Previously, managers who earned $23,600 annually or more did not have to be paid overtime. On 1 December, that figure moves to $47,476.
“Our industry has many management personnel earning amounts in between,” Ricci explains. “We are looking to TRSA committees to determine how to use our programs to guide the industry in this matter. We track wages and benefits through our annual Plant Employee Compensation Report and expect an increased percentage of members to participate in this survey in 2016.”
In addition, Thrasher says the small provider is being squeezed due to the lower prices from end users of textiles and uniforms as hotels and healthcare organisations merge or partner in buying organisations.
As a result, there is a move to consolidation among laundries – a trend that Rudi Moors, President of Christeyns Laundry Technology, has noticed in the areas in which Christeyns operates. “Only the strong independents will survive and strengthen their position,” he says. “In Texas (especially Houston) we see a strong consolidation – large national groups acquiring independent laundries – but here in the northeast we see large independents investing in new laundries.”
Another area that is impacting on the industry is the focus on environment, as the government looks for alternative energy sources and ways of improving water conservation in area of the country being affected by drought – California in particular.
The biggest variance is in regulations dealing with local publicly owned treatment works (POTWs) and allowable discharges of wastewater in terms of suspended solids, oil and greases and phosphates. These vary widely by city or county, Thrasher says, adding: “Often sewerage charges are two to three times cost of water rates, prompting end users to be more in tune with the quality of water leaving the building.”
Ricci says those in larger coastal cities are particularly at risk of regulatory action. “These areas’ sewerage outfall is usually to a watercourse heavily regulated by the Clean Water Act (CWA), so local authorities look upstream to businesses with substantial discharges to their sewer systems to pay the cost of CWA compliance. Compared with manufacturing facilities, laundries are small dischargers, but compared with residential buildings, we are substantial. So we’re a target and subjected to whatever creativity local authorities apply to characterise the impacts of our discharges on their operations.”
As a result, the TRSA's Environmental and Sustainability Committee is advocating for higher pH discharges to sewers and is developing a manual to help members work with their publicly owned treatment works.
In addition, the TRSA Clean Green certification programme verifies laundry companies’ water and energy efficiencies and practices that conserve and reuse resources. Facilities are inspected every three years.
Hygiene is also becoming more of a focus in the healthcare sector.
“This is partially as a result of market forces that are demanding higher standards are hygiene from their suppliers, and also as a result of recent well-publicised incidents of infection that were blamed on laundry providers,” Bernstein says. “As a result, Healthcare Laundry Accreditation Council's (HLAC) certification remains a respected benchmark by infection control professionals around the country. Similarly, the TRSA’s Hygienically Clean Healthcare certification has also grown in reputation not only because of their through inspections and audits, but also because they verify that linen produced by a certified facility is hygiene through third-party biological efficacy testing.”
The TRSA's Hygienically Clean certifications of laundry plants were introduced in late 2012 and early 2013. “The programme has the same three-year renewal requirement as Clean Green and today, like Clean Green, we’re getting essentially 100% renewal,” Ricci says.
The TRSA is also guiding members on how to improve their leadership. “We conduct 20 face-to-face professional development events per year that groom executives on all facets of the industry,” Ricci explains. “Each month we conduct live webinars that enable managers to gather their teams for group training and question our presenters. Live webinars are free to members and so are recordings, through our new On-Demand Learning Center.”
Its newest committees, Young Leaders and Women in Textile Services, are focused on career opportunities. In addition, it has launched a new internet job board, the Textile Services Career Center.
With regard to drycleaning, businesses catering to the higher end customers are thriving, while the middle and lower demographic market segments are not so lucky.
“Cleaners who serve these segments are often closing their doors at the ends of the leases and, unlike it has been in the past, are not selling their businesses to others given the deteriorated piece counts in these market segments,” says Tim Maxwell, president of GreenEarth Cleaning. The new entrants are not current cleaners acquiring existing exit cleaners but rather are largely entering via the franchisee route.”
The situation is similar in Canada with some consolidation taking place in the higher demographic markets.
“Given that a large percentage of our GreenEarth Affiliates serve the upper demographic segment of the market, our rate of renewal continues to remain around the 95% mark,” he adds.
Recently the US House of Representatives passed legislation aimed at targeting and evaluating high risk chemicals in US industry, including drycleaning. “While it remains open to vote in the US Senate, this is one of the few bipartisan actions that has been undertaken successfully and certainly signals the willingness of both the legislators and their constituents to focus on this issue,” Maxwell comments.
“We anticipate a significant change in legislation aimed at eliminated perc on a national basis similar to what has been done by the state of California,” he adds. In California, in 2007 a law was passed mandating the phase-out of all perc machines in the state and it will be banned from use in 2023.
As a result, the use of perc, at least in new machines, has almost disappeared. But this is not just because of environmental regulations, according to Marco Niccolini, general sales and marketing manager for Renzacci. The move away from perc is mainly driven by what customers are demanding and the types of garments they wear.
In addition, he says, drycleaners are supported in modernising how they work by the wide range of shows and seminars organised by trade associations, especially in the US.
Niccolini is positive about the future of the industry. Competition may have driven profits down and limited the ability to increase prices but in certain parts of the US he says businesses are not just increasing turnover but profits are also starting to grow.