Indian market offers good long term prospects

The Indian economy has experienced huge growth in the past decade. With an average annual growth rate of 7% since 1997, it is one of the world’s fastest growing economies. In the last quarter of 2010, the country’s GDP grew by 9.4%, slowing to 7.8% in the first three months of 2011.

The first quarter of 2011 saw a 9.3% growth in trade, hotels, transport and communication and 8.2% growth in construction, according to data issued by India’s Central Statistics Office.

For suppliers of goods and services to the textile care industry, India is a land of both frustration and opportunity. A growing middle class is driving growth in restaurants and hotels, accompanied by increasing expectations of improved quality and service.

However, at the same time, poor infrastructure is inhibiting the establishment of central laundry and other services.

“The lifting of trading quotas and India’s increasing popularity as a top-class business and tourist destination are bringing the right conditions for laundry to turn into a more profitable, better quality industry but big changes are needed,” says Bernard Jomard from Danube, which supplies several five-star hotels in the country, as well as a number of on-premise laundries (OPLs) in the pharmaceutical industry and an embassy.

“Infrastructure is progressing steadily but services still lag behind international standards and laundry is perhaps lowest on the list. That is why international hotels need their own OPL operations.”

Most four- and five-star hotels have their own OPLs using modern equipment from American and European suppliers. Many deal not just with their own hotel linen but also offer laundry and drycleaning services to the local population.

“The middle class is willing to spend more money to send their laundry out,” comments YS Wang from Jensen, whose main sales in India are automatic feeders, flatwork ironers, automatic folding machines and stacking machines.

He explains that hotels are now targeting the middle class customer and most of the time they will set up a valet laundry in the hotel as well as the OPL?for the hotel linen.

Central services rare

High-quality central laundry services are still rare in India, although many believe that they will eventually become more common, creating competition for the hotel valet service, but there is still a long way to go before that happens.

Wang believes that central laundries could work – but only if they are set up for hotels that are located close together. Poor transport infrastructure inhibits the provision of laundry services across long distances.

However, one company is making some headway into industrial laundry services in the country. Lindström, the Finland-based, international textile service group, entered the Indian market in 2007, providing workwear services to local businesses in Chennai and Mumbai. It has since expanded its operations to New Delhi and Hyderabad.

“Our service has been received well in India,” says Lindström’s Mika Hartikainen. “We provide customers with services where we bear the responsibility for the condition and sufficiency of the workwear. The customers can focus on their own core operations.”

The lack of central laundry services means there is currently little demand for heavy-duty products in India.

However, the cost of water and energy has driven many of the higher quality hotels to acquire machines that are more efficient and environmentally friendly. However, there is little to no pressure from the government for laundries – or drycleaning services – to meet environmental standards.

This means demand for higher-tech, modern laundry equipment is largely restricted to the larger hotels and hospitals, while smaller hotels and laundries tend to use less expensive machines sourced from China, India or other parts of Asia.

“Traditionally, laundry has been done by a particular service class, dhobis, which used to collect personal and institutional linen, wash and dry it at the local river and then finish it with coal or electric irons,” Jomard explains.

“Dhobis still provide the main service in some country areas but in towns their significance is declining and some have switched to using basic drum washers and hydro-extractors.”

Hotel laundries tend to be small, with OPLs often working double shifts to get more out of their equipment, according to John Hacker from Kannegiesser.

“The majority of the products that we sell in India are for newly built laundries.” He explains that most hotels do not replace equipment so it is difficult to sell machines to a laundry once it has been built.

Kannegiesser’s best seller in India is its DC50 dryer which is suited to the OPLs as it provides them with “more volume in less space”.

He believes that there is a great opportunity for the market to develop further to improve the standard of laundry in the country. However, he adds: “Local investors are slow to invest in modern automated equipment. If the market is to develop, it needs bright investors to come forward.”

Viewed as low value

One of the problems inhibiting the development of centralised laundry services is that laundry continues to have a low value, so it is difficult to be able to charge a high enough price for the service to be able to make the investment in high-tech equipment feasible.

However, as the country’s middle class – and its expectations for higher quality – continues to grow, this may change.

Another problem is that while hotels can often claim a tax exemption for equipment imported from overseas, a centralised laundry service would have to pay tax on imported equipment as it would be regarded as directly generating revenue for a private business.

“If they are not allowed to chase imported equipment, they can’t upgrade,” Wang says.

Another issue is training. “India now needs experts who can turn the laundry sector round, so that it can offer a better service,” says Jomard. “With the exception of a few hotel chains, the laundry industry is not well-planned. Skills are good but information and expertise are needed.”

Suresh Goyal from Milnor agrees and points out that India has the largest young population (15 – 25 years) in the world (300 million) so there is a need to develop vocational a sector to meet future demands.

“The laundry industry could be another field for development. There is a huge development deficit in tier-II and tier-III cities which are trying to match the modern urban lifestyle.”

High turnover

Another challenge for laundries is the high rate of staff turnover, says Ron Pringle from Ecolab India. This is because unskilled workers change jobs regularly to make more money.

“Hotels have been known to have a staff turnover in the hundreds of per cent,” Pringle says.

To help with hotel staff retention and raise standards, Ecolab operates a small training academy where it runs various workshops on all aspects of the laundry operation. This education not only improves laundry results but it also helps with staff retention.

Another challenge is water quality. “For the majority of hotels, water is delivered in a tanker,” Pringle explains. “They will have 10 – 15 deliveries a day, often from variable sources.”

He says the challenge is washing linen in variable water conditions, where iron and hardness can vary from one delivery to another.

“It takes a skilled manager and good support from a chemical supplier such as Ecolab to get the best from the water conditions in India,” Pringle adds.

Small drycleaning units

As with laundry, the drycleaning market continues to operate as it has in the past, The majority of businesses are family-run units in which both laundry and drycleaning are carried out. In urban areas there are one or two larger companies (such as White Tiger and Novex in Delhi) but they are still in the minority.

The small units are used by individuals and families, while business travellers and tourists tend to favour the in-house facilities offered by hotels.

“The concept of commercial laundries has developed to some extent in urban areas but it is still not the way it should be,” says Massimo Sanvito from Pony who believes that what the market needs is for a large company to enter the market on a nationwide basis.”

“People are looking for good-quality laundry and drycleaning units,” he adds.

Renzacci’s Marco Niccolini agrees. “There are retail shops in the big cities but the number is not growing and it is not what it should be. There is a lot of potential in drycleaning and laundry but there are still many cultural obstacles that need to be removed.”

The majority of machines that Renzacci sells to the Indian market are previous-generation machines, Niccolini says, with most sales being to the hotel industry, although it also sells to the textile industry and retail drycleaning and laundry shops.

It is the same for Pony, although the majority of its sales, mostly presses, are currently to hotels and other OPLs in India rather than to drycleaning shops. In the more commercial laundries, including the larger hotel chains, perc-based drycleaning machines predominate. Otherwise, Sanvito says, local drycleaning machines using mineral turpentine oil (MTO) are still used.

As for the future, Sanvito is optimistic about working in India: “We believe in the great potential of India both as a country and as a good market for our products.”