Spotlight on Germany

Uncertainty is clouding recovery

1 September 2011



Tony Vince asks whether the upbeat mood amongst the manufacturers and suppliers in Europe’s largest market can be sustained


The outlook for Europe's largest economy has darkened during the past few weeks, amidst growing concern over the impact of global uncertainties on German growth.

Germany, which had experienced a strong recovery from its deepest post-war recession, is especially sensitive to global economic shocks as it relies heavily on exports for growth.

In June, the Kiel Institute for World Economy (IfW) – a leading economic research institute that submits a joint report on the state of the nation’s economy – said that it expected Germany’s economy to grow by 1.6% next year. Then in August, a spokesman told the German press that the institute was now more “pessimistic” that this could be achieved in the wake of the ongoing Eurozone financial crisis and the USA debt crisis.

In the same week that US$2.5trillion was wiped off global stock markets and the USA stripped of its AAA credit rating by Standard and Poor's, the front page of Germany’s influential Der Spiegel magazine featured Euro and dollar banknotes going up in flames, with the headline “Is the world going bankrupt?”.

Yet only weeks earlier, Germany's leading economic institutes had sounded upbeat about the country’s recovery. In its bi-annual outlook published in June, the Bundesbank said the economy was entering a broad and prolonged upswing. Gross domestic product was forecast to expand by 3.1% this year and 1.8% in 2012. Much of the optimism was attributed to a buoyant industrial sector that saw growth in domestic demand.

In March this year, German exports surged to their highest level since records began. The Bundesbank said that while exports remain the “pillar” of German growth, the domestic economy has a much larger role to play this time.

With more than 80million people, Germany is also Europe’s biggest market and businesses had reported a considerably better trading than in the previous month and the German government announced plans to cut the budget deficit by a record 80bn Euros by 2014 as part of its tough austerity measures.

The Bundesbank had forecast that the German economy would experience a lengthy period of expansion going into 2012 as the recovery “has evolved into a broad-based upturn ”but the events of early August suggest that the upturn might now be on hold.

While forecasts for growth in 2011 were generally upward until the end of the second quarter, “the exuberant spirit now seems to have changed”, according to Thomas Zeck, commercial director at Kreussler, the manufacturer of chemical products for the textile care industry.

He says that the Federal Office of Statistics revealed that German export sales amounted to €88.3billion for June 2011. This exceeded the June 2010 level by 3.1% but was 1.2% below May 2011 figures.

The Euro and USA debt problems, turmoil in North Africa and the Middle East and their effects on the oil markets are making an impact, Zeck says. “Record growth levels seem to have come to an end.”

On a more positive note, he draws attention to the IfW’s forecast that the upturn should continue "even though at a significantly slower pace".

He says that researchers are optimistic about domestic consumption and are forecasting a surplus of 1.7% this year, the strongest for the past decade. The IfW says that almost half the growth is a result of strong consumer demand and that this may grow in the second half of the year.

“It can be assumed that the service industry too – including textile cleaning enterprises – can expect additional positive impulse, but with a weaker tendency.”

John Balman, senior director of sales, Europe at Alliance Laundry Systems, agrees that the German domestic market reflected a much more positive consumer attitude.

“The German population is spending more than expected in 2011 and it shows in our figures.”

Alliance’s German partners are developing nicely in 2011 just by supporting their home market, Balman adds. He says their sales have increased significantly compared with the previous year. Germany is environmentally cautious, so requests for general energy savings are more frequent. More and more, users are asking for water- and energy-recovery systems, as well as for low-consuming machines.

Balman says that Alliance can meet these demands with its latest innovations, such as advanced dryer controls with over-dry prevention technology that saves energy.

But Rainer Leddin, marketing director of Stahl, the German manufacturer of heavy-duty washer-extractors and finishing equipment, says the company is currently experiencing a pronounced difference in demand between its export and domestic markets.

International demand for its washer-extractors is good in both commercial and OPL sectors. By contrast, the German market for washer-extractors is comparatively weak, as commercial laundries are reluctant to invest and prefer to use existing capacities.

Leddin says: “The situation is similar for OPLs which also tend to postpone investments. The hospitality trade is concentrating its investment efforts on those areas which come into direct contact with the customer, such as room furnishings or the restaurant.”

Although water-saving technologies and water recuperation plants are a dominant concern in Germany, Stahl reports that the health sector is reducing or postponing such investment as a result of a restrictive fiscal policy.

“However, we are optimistic that these investments are only delayed and will take place eventually.”

Zeck at Kreussler says that established laundries already benefit from energy and water-saving technologies developed by machine manufacturers. This implies an enormous potential for improving the cost situation and/or competitiveness, he says.

“While energy consumption of 3 – 5kWh/kg laundry was standard in the 1990s, laundries that have developed good energy management can now work with benchmarks of 1kWh/kg and below,” says Zeck. He adds that there is heavy demand for detergent chemistry, such as Kreussler’s modular wash system, which allows energy- and water-saving wash processes.

Alliance’s Balman says that the latest hospitals and nursing homes are now designed to house only hygienic barrier washers with a "clean" and a "contaminated" side for the main laundry. In existing buildings where those machines cannot be used due to structural difficulties, operators can create specific "hygienic zones" and/or "sterile sections" instead to meet the health requirements.

He says that there is also strong demand for regular washer-extractors for handling smaller volumes and for applications such as washing linen on the hospital ward. Alliance offers a full portfolio of various machines for various applications.

Rainer Leddin at Stahl agrees that hygiene regulations are indeed becoming stricter and that laundries are increasingly required to use barrier type washing machines. Stahl anticipated this development and Leddin says that the company can offer a comprehensive range of suitable machines. It recently developed its established Divimat range. These are made in two categories – the Divimat S for side-loading and the dual bearing Divimat D with opposite loading and unloading access.”

Alliance’s Balman notes that the hospitality sector, hotels in particular, still tends to outsource the laundering of regular items such as table cloths, napkins, sheets, pillowcases and towels.

However Balman does point out that items of high value linen, such as exclusive terry-cloth bathrobes suffer from "high-pressure" laundries that are only focussed on a high throughput.

“We are delighted to see that hotels, spas and fitness institutions are switching back to small OPLs to extend the life-span of their investments now,” he adds.

Lavatec Laundry Technology manufactures industrial washing machines and dryers for heavy-duty laundries, hotels and hospitals at its production site at Heilbronn.

According to managing director Wolf-Peter Graeser, a higher level of investment in the sector could be expected in 2012 but he points out that investment will depend on the credit available from the banks, which remain cautious because of recent economic developments.

With smaller laundries in Germany facing growing problems, he expects further market consolidation.

He says that reducing energy costs will be an important focus in his company’s development. The issue of energy consumption is more important than ever before, he says, particularly with the increase in energy costs following Germany’s decision on a nuclear phase-out.

“Customers now want us to calculate energy and water consumption during the quotation stage.” He adds that the company is now delivering a generation of machines with considerably lower energy consumption than other machines on the market.

Balman at Alliance draws attention to another important sector. Wetcleaning is now seen as an addition to conventional chemical drycleaning, says Balman.

“This can be done in a regular washer-extractor and with Alliance’s various sizes and unlimited programmable control options, we are a serious and most beneficial alternative for all operators,” he adds.

There are surprisingly few drycleaning businesses for a country with a population of more than 80million. The number of cleaners in Germany has fallen to around 2,500 from 10,000 during the 1970s and 1980s and the sector is still contracting.

State-of-the-art technology for solvent management has ensured that perc will remain the solvent of choice for most cleaners in the near future. However, its market share can be expected to go down in the future, according to Henk Gooijer of TKT, the technical knowledge centre for the textile care industry. Figures supplied by TKT on behalf of Cinet show Germany’s annual perc consumption is 3,000tons and its annual hydrocarbon (HCS) consumption is 500tons.

The applied machine technology in Germany currently stands at 50% perc, 24% HCS and 26% wetcleaning. However, the current machine sales show different figures – 15% perc, 60% HCS and 25% wetcleaning.

Goojier predicts that in the long term, perc may be phased out and will make way for HCS. Wetcleaning will be used in 25% of the businesses. Other solvents such as siloxane D5 could see limited acceptance while machines using CO2 may only survive in centralised operations.

Alexander Rohde of Büfa, the German manufacturer of chemical products for textile care, says that most machines in Germany are working with perc and there are no new environmental issues concerning the existing solvents (perc and HCS).

He adds that interest in the newer cleaning systems – such as siloxane D5, liquid CO2, dibutoxymethane (SolvonK4), Ilsa ipura siloxane D5 and ipura HCS and glycol ether – remains rather weak. Rhode says that these more recent cleaning systems will have to demonstrate that they have advantages over perc but it remains to be seen if they can do this in terms of cleaning performance.

Rohde says that Germany’s textile care market is split into two sectors. The traditional textile care sector that cleans consumers’ garments continues to stagnate. The shops are small and are usually owner-managed with only a few employees or part of a franchised system. These drycleaners will have a small perc or HCS machine and occasionally a wetcleaning machine. German drycleaners have to have a licence to use perc.

Rhode says that in addition to the traditional sector there is a growing market for professional textile care services such as workwear. He says traditional blue cotton worker suits are being replaced by garments made of hi-viz or multi-functional materials. All these articles have to be washed and may also have to be treated with special agents to retain special properties such as water repellence or flame retardancy. This is specialist work that must be carried out in professional laundries.

The “Fashion Care” initiative is being taken up quite slowly, says Rohde. This is a quality assurance system for drycleaners developed by DTV, the German textile care association, together with the European Research Association for Innovative Textile Care (EFIT) and four suppliers – Büfa, Kreussler, Seitz and Ilsa Multimatic.

An internationally useable control system, supported by garment manufacturers, machine suppliers and textile care specialists, it allows drycleaners to “manage” their own quality using existing systems and have their standards monitored by external experts.

The traditional drycleaning business is still declining but this can often be compensated by wetcleaning activities, Rohde adds.

Zeck at Kreussler says that in Germany wetcleaning is primarily used as a complementary method to solvent cleaning, especially for traditional formal clothing. With regard to solvents, he says that hydrocarbon machines have increasingly gained acceptance but says that many traditional, quality-conscious cleaners were not satisfied by the cleaning results compared with those achieved by perc.

Zeck says that over 125 businesses worldwide are now using Kreussler’s System K4, which was launched six months ago and has triggered a boom in the drycleaning industry,” says Zeck.

“Businesses already using HCS technology or other halogen-free alternative solvents have praised the cleaning performance, the feel of the textiles and the ecological benefits.” He adds that SystemK4 has also triggered further drycleaning machine development. Along with the FMB Group, other machine manufacturers are also offering multi-solvent machines, with approval for Class Alll solvents and these can be used with HCS, Silicon D5 and SolvonK4.

Andreas Klensch, managing director & CEO of the Fred Butler Group of drycleaning stores says that the share of HCS machines has risen in comparison with perc. He says these two technologies still dominate the German market, whilst other environmentally friendly technologies merely play a marginal role.

Environmentally friendly cleaning is becoming more important to society in general but the most important business parameters remain convenience, delivery on time and price.

Klensch says his company’s CO2 cleaning system has generated a great deal of customer satisfaction. “Surveys have shown that our customers are generally unwilling to go back to traditional solvents. However, our technology is only known in the few regions where we operate, and attracting more customers is a very slow process.”

The Fred Butler company is currently focussing on its catchment areas of Munich and Frankfurt and its nationwide service for fire restoration of textiles. The company also launched a mail order drycleaning service last year.




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