Spotting an opportunity in a mature market

Financial gurus still describe the Benelux economies as stable and reliable, but until recently the laundry and drycleaning experts would have said static. However, their mood is changing.

For although the economic forecasts might be for higher interest rates, the overall mood amongst those involved in textile care is one of growing optimism.

The Economist Intelligence Unit forecasts that inflation in the Netherlands will rise from 1.6% last year to 2.1% this year, thanks to higher indirect taxation, and therefore there is less money in consumers’ pockets. However, the inflation rate is among Europe’s lowest and business investment is predicted to grow robustly.

There is a similar forecast for Belgium, where interest rate rises are expected to peg consumer spending, while investment should grow strongly during the coming year.

There is little in the economy to worry Luxembourg. With the world’s highest gross domestic product per head of population, it still thrives on its financial sector, though the pace of its economy could slow a little this year.

Laundries and drycleaners, however, should continue to thrive in this rich little country.

In fact, it is this kind of optimism that you find at Alliance International, the company that owns the Ipso brand. Sales director John Balman says: “There is still a lot of opportunity here. Our business has grown very substantially in the Netherlands and Belgium in three years, and we see potential for growth.” He finds the growing market in on-premises laundries particularly hopeful.

This optimistic attitude is shared at Jensen Group. To regional director Jan De Smet, the Benelux area is an important market because its 25million people enjoy a high standard of living and he believes it will remain a good market.

Continuing replacement sales are the most important factor for most laundry equipment manufacturers in this mature market.

There is a lot of replacement business says Karl Schubert general manager of Milnor International, the Belgium-based marketing company for Pellerin Milnor.

The equipment makers can thank the hospital and care home sector for much of the business.

“This is a good market simply because people are living longer,” says Balman at Ipso.

“Life expectancy is rising every year and the number of care homes is also growing every year,” he adds.

Two other main factors are behind the business that is being created. The first is the demand for automation. As you would expect from countries with a good standard of living, labour costs are high. Consequently, laundries are trying to contain and reduce their payroll bills with more automated processes, and this means new automated machinery.

The other factor is the growing demand for machines that are economical on water and electricity. “Environmental factors are becoming increasingly important,” says Balman.

“There is a focus on water use and electricity consumption.

In particular, companies want machines that can be programmed for lower water consumption.”

The green trend is encouraged by the governments but it helps to hold down costs too.

It’s also a trend that promises to continue. “Energy saving will be an issue for years to come,” predicts De Smet at Jensen.

He says it is an encouraging sign when manufacturers can go on improving the efficiency of their products. At the same time, the technical improvements are expected to satisfy customers’ demands for performance.

A higher quality of hygiene is now required by hospitals and spotless cleaning by hotels and restaurants, says De Smet.

While it is a generally cheerful picture of business in the Benelux countries, there are, of course, a few differences of emphasis as you cross borders. In the Netherlands there are just two main laundry companies, which means the laundries themselves are generally bigger. This appears to work better for the Netherlands as the larger units are better on price.

Christeyns, the company that supplies cleaning chemicals, regards the Netherlands as a good market.

Michael Cees Van Haasteren, Christeyns’ managing director for the Netherlands, sees the main business coming from hospitals, hotels, restaurants and the employers that have to provide workwear. Table linen is a plentiful source of business because more people are eating out.

“It’s because the economy is doing better,” says Van Haasteren.

By contrast, the sector in Belgium is dominated by smaller laundries. “They are fiercely independent,” says Milnor’s Schubert.

Restaurants seem to prefer the quality turned out by the small laundries. According to Wim Demeyer, export manager of the Belgian manufacturer Lapauw, one restaurateur told him that: “You can’t get such good service from a big laundry”.

Healthcare and hospitality make up much of the business. Uniforms and workwear are also growing markets in Belgium, though less of the work is handled under textile rental terms than in the Netherlands. If there is a shrinking market for Belgian laundries, it is in the domestic sector.

Michel Richir, managing director of Automatic Industries, Girbau’s distributor, puts it down to the greater popularity of casual clothes, the low cost of washing machines and coin-operated laundrettes.

There is a warning for the small Belgian laundries. Several have closed and some small businesses have been taken over by large companies. “We expect more consolidation,” says Franck De Meulemeester, Christeyns’ operations director for Belgium and Luxembourg. “Perhaps there will be more acquisitions in 2008, 2009 and 2010.”

In Liège, a large new laundry is being built by the Ardennes et Meuse company. In Lokeren, Initial has built an industrial textiles plant, replacing two closed units. Both could be signs of changing times.

In addition, big changes are happening because of environmental concerns.

The Belgian government is watching out for pollutant discharges and the amount of water being used. The politicians are also taking an interest in energy consumption. It has worked to the advantage of the manufacturers because many laundries have switched to steam heating, which reduces the amount of energy used and therefore cuts costs.

This has led to the renewal of a lot of older equipment, says Demeyer.

The switch has another valuable financial pay-off. A tax concession is granted when a laundry turns to greener energy.

The Dutch system is more formalised. The laundries have set up an organisation that works with the government to establish goals on energy and water economies.

The news for coin-op shops is not so good. The market is saturated, says Ipso’s Balman. There are replacement sales in the larger Dutch and Belgian cities and some scope for growth in towns without laundrettes. The market for business is mainly restricted to people without washing machines and those who lack the time to do their washing at home.

Pickings are poorer for the manufacturers in the Netherlands partly because many laundrettes are run by immigrants who often have little money and buy second-hand machines.

A somewhat cautious note is also sounded by Bernard Jomard, managing director and export manager of Danube International, which is headquartered in France.

Jomard finds that the Benelux laundries tend to buy from Dutch and Belgian manufacturers, so competition is stiff. Their first consideration is price, not environmental acceptability.

Jomard comments: “It is an OK market, nothing good, nothing bad. But the real boom is coming from eastern Europe.”

Under pressure

Rather more uncertainty still surrounds the drycleaning sector. “The industry, with one or two exceptions, is under pressure,” according to Chris Tebbs, executive director of the International Drycleaners Congress.

The main reason is the drift to more casual wear, which doesn’t need drycleaning, he says. This is particularly true in the Netherlands, where dress has always been less formal than in Belgium.

The industry is also suffering from the costs of ground decontamination. The government has established a fund to help with the costs, but individual businesses still have to contribute up to Euro4,000 a year for 30 years, complains Johan Stuyven, director of the distributor LDL Equipment.

However, shops should not have a problem with this, said Peter Wennekes, secretary-general of the drycleaners’ umbrella body Cinet, based in the Netherlands.

This may be because such a cost can always be passed on to the customer. Nevertheless, this is only one reason for fairly widespread closures, particularly in Belgium.

Stuyven observes that only a few young people are entering the sector and many of them don’t know how to run the business.

Yet Wennekes sees young entrants into the sector as a sign of hope. They may be able to deliver the higher quality now being demanded by customers.

Wennekes believes they are more customer-orientated and are ready to introduce innovations. One of the initiatives could be a delivery service, which would be welcomed by busy customers.

Younger entrepreneurs in the business and an improving economy feed Wennekes’s optimism. Last year was disappointing after a good 2006, but Wennekes believes the outlook for 2008 is much better.

This optimism can also be found amongst the manufacturers.

Marisa Stefanini, export manager of the Italian company Realstar, sees the Dutch market increasing, while the Belgian market looks “steady”.

She points out that Realstar’s Benelux business has increased in recent years.

Marco Niccolini of Italian manufacturer Renzacci welcomes the centralisation of the Benelux market into bigger units. This has become necessary for the businesses to stay afloat, he says.

He has one complaint, however. The rigorous inspections that are carried out at drycleaning businesses should also be applied to laundering and wetcleaning, he says. He believes drycleaning is environmentally better anyway and that the market will revive in the next few years because of it.

Perhaps the best prospects for drycleaning are in Luxembourg.

Against the background of closures elsewhere, Chris Tebbs says: “Drycleaners have always done very well in Luxembourg because it is a high-income country.”