Russia bears witness to rise of textile care market

The Russian market for laundry and cleaning services may reach US$1 billion in value terms over the next few years, despite the consequences of the financial crisis in the country, according to recent statements by Denis Manturov, Russia’s Minister of Industry and Trade, who has responsibility for the development of the laundry and cleaning industry.

During the period 2011-2013, the industry almost doubled in value terms and reached US$500 million, mainly due to a significant increase in demand for laundry and cleaning services. However the introduction of Western sanctions against Russia associated with the economic crisis in the country, resulted in a significant decline of the market, both in volume and value terms, due to a significant cut in spending by the majority of Russian households.

In contrast to other market segments, laundry and cleaning services have enjoyed great popularity in the former USSR. During Soviet times the number of enterprises specialising in the provision of laundry and drycleaning services in the USSR was estimated at more than 7,000, with 100% of them owned by the state. The collapse of the USSR in 1991 resulted in the stagnation of the industry during the 1990s and bankruptcies for the majority of enterprises. However, the industry began to head into recovery of the industry in the early part of the first decade of the 21st century.

At present the Russian industry comprises more than 1,000 enterprises, the majority of which are located in Moscow and St. Petersburg. Of these, the 10 companies that can be considered as large have seen their market share growing steadily.

Becasue of the current financial crisis in Russia, the number of enterprises  is declining, as the market experiences a period of consolidation.However, despite this, the market demonstrates growth, both in volume and value terms.

According to predictions from analysts at the Russian Ministry of Industry and Trade, the annual growth rates of the Russian laundry and cleaning services market are expected to be in the range of 15%-17% during the next several years, while in the case of Moscow and St. Petersburg these figures will be higher.

Among the leading market players companies such as FACILICOM Group, SC Ronova, and Diana dominate. The latter, a local network of dry cleaning and laundry enterprises, remains the largest player in the market, with its share currently estimated at 30% and this continues to grow.

At present the average profitability of Russian laundry and cleaning enterprises is estimated at 7%-8%.  According to the Russian Ministry of Industry and Trade, the industry as whole  experiences a process of consolidation, reflected by a significant decline of the number of laundries and dry cleaners in the local industry and their acquisition by larger players. Manturov believes this consolidation remains one of the most pressing problems for the industry, as it is preventing the growth of competition in the market. 

At the same time, other industry problems are the ever growing prices for the majority of cleaning services in Russia and the decline of consumer demand for them. The generally low level income of local population and a lack of awareness of such services could be considered as another problem, which prevents rapid development of the industry.

Finally, the industry is still characterised by a poor level of technical equipment, despite the fact that in recent years sales of specialised equipment in Russia has significantly increased. Local drycleaners and laundries prefer to buy equipment abroad, due to the low quality of local production, which is reflected in low quality of steel, as well as low lifetime expectation for the equipment. Until recently there was no production of textile equipment in Russia, although in recent years some capacities were established.

 Another problem for the Russian textile care industry is the lack of insurance schemes. In contrast to the EU and the USA where local insurance systems cover about 70% of the cost of damaged items (due to technology failure or breakdown) Russia still does not have such a practice.

Bucking the trend from previous times, a significant part of the industry’s orders account for corporate clients. According to Marcel Khasanshin, head of Edna-STROYTORG, one of Russia’s largest networks of laundries, public institutions and state agencies account for about 40% of orders. The remaining account for private business, as well as individuals. This is in contrast to the Soviet era, when the majority of orders (up to 97%) accounted for the country’s population.

Currently, drycleaning and laundry services account for 2% and 3% respectively of the total volume of consumer services in Russia. At the same time in the case of Moscow and St Petersburg, Russia’s largest cities, these figures are higher, being estimated at 1.8% and 2.4% respectively.

The Moscow laundry market remains the largest, both in volume and value terms, being estimated at 20,000-22,000 tonnes per year in volume terms.

At the same time, according to data of the Russian Federal State Statistics Service (Goskomstat), the installed capacity of drycleaners in Moscow is estimated at 10kg of clothes per 10,000 inhabitants, significantly higher than the average Russian figures.

According to plans announced by the Russian government, these figures should increase significantly over the next few years, while particular attention will be paid to an increase in the number of laundries and drycleaners in  the vast Russian province. This is expected to be achieved through the provision of subsidies and other support to the potential investors in the establishment of drycleaners. However, the amount so far has not been disclosed.

 In the case of Moscow, according to the Department of Consumer Market and Services of Moscow, the city has about 180 drycleaning and laundry enterprises with a number of pick-up points amounting to around 1,000 units; 18 large laundry enterprises with the capacity up to 30 tons a day, as well as more than 50 institutional laundries and drycleaners owned by hotels, hospitals and military units.

At the same time, in contrast to the EU and the USA, the majority of local laundry and drycleaning enterprises prefer direct expansion to franchise development, which remains uncommon for the industry.

Seasonality of demand could be considered one of the main features of the domestic market of drycleaning services, with the highest demand observed during the period of August to October and from April to May. At the same time the demand for laundry services is more or less stable throughout the year.

 The Russian laundry and drycleaning industry still lags behind the EU in terms of rates and level of development. For example, if in the EU each dry cleaner accounts for 10,000 residents then in Moscow this proportion is estimated at 1 per 100 000-150 000 people, with significantly higher figures in the Russian provinces.

Another difference between the local market from the EU is the almost complete lack of self-service laundries, as well as the practice of outsourcing. Textile service has not yet gained the same popularity in Russia, as in Western markets. In contrast to the EU and the USA, where laundry and drycleaning services have long been the norm, in Russia, most people still prefer to do their washing at home.

Still, despite the existing problems, according to predictions of analysts of the Russian Association of Laundry and Dry Cleaning (RALDC) Enterprises, the domestic market will continue to grow in the future, amid the ever improving local standards of well-being and level of culture.

The latter is reflected by the fact that currently more and more Russians prefer to turn to specialised dry cleaning and laundry, instead of doing their own washing at home.

The most intensive growth is expected to be observed in major cities, including Moscow, St Petersburg, as well as the largest Siberian city, Novosibirsk. According to predictions, the number of laundry and drycleaning enterprises in the largest cities should grow by around 15-20% annually, over the next few years. More enterprises and pick up points are expected to be opened in shopping centres and other similar facilities.

 Russia’s Industry and Trade analysts also predict that during the next several years the majority of leading local players will start expansion into the regions, which provide huge potential for further growth. However, at the initial stage the expansion is expected to take place in cities with populations of about 1 million people, and later in other densely populated regions of the country.