Russian laundry and drycleaning sector under pressure…
The Russian laundry and drycleaning sector is having it tough these days, as ever-tightening sanctions and the growing isolation of the country in the international arena continue to put on serious pressure. Despite the fact the market shows stable growth rates this year, most analysts believe its long-term prospects are gloomy due to the ongoing deterioration of the Russian economy, which is experiencing serious pressure from huge military and industrial demands.
According to the only official data available, the share of military spending in the Russian state budget is estimated at 40-50%. However, in reality, these figures are in the range of 70-75%. That has a negative impact on the majority of civil segments including laundry and drycleaning and may lead to a sharp drop in the near future.
Still, the market shows a generally good dynamic, while, according to data from the Russian research agency AnalyticResearchGroup and some independent local analysts, the market has grown by up to 40% since February 2022 and is currently estimated at about RUB 20 billion (US$200 million).
The positive dynamic is mainly due to record inflation in Russia, which contributes to the constant increase in prices for drycleaning and laundry services and, consequently, the growth of the industry both in volume in value terms. In addition, the development of the market is supported by the introduction of new technologies, as well as the expansion of the range of services provided by both domestic and foreign players, many of which continue to work in the Russian market while trying not to advertise their ongoing presence in Russia.
While this is the highest figure in the past 30 years, most analysts expect the industry will face serious problems at the beginning of next year. One of the biggest will be associated with the everdeepening shortage of personnel in the sector. Already laundry and drycleaning services, and Russia in general, is facing the deepest shortage of personnel since the end of World War II, caused by the ongoing mobilisation in Russia and the massive exodus of migrants from the country, which historically accounted for a significant part in the overall structure of the workforce employed in the industry.
As for mobilisation, according to preliminary estimates, the industry lost about 30% of its workforce as a result of active recruiting of troops to the Russian. Such recruiting usually involves offering record contracts for people with monthly wages seven to eight times higher than average salaries in Russia at present. That leads to their massive exodus of professionals signing contracts with the military. As for migrants, many preferred to leave Russia due to the high threat of mobilisation and ever rising nationalistic threats, caused by a recent terror attacks in the country, such as Crocs City Hall attack in Moscow this March.
In the meantime, in addition to the lack of personnel, there are serious risks of a significant drop in demand for laundry and drycleaning services, which is expected to be observed in Q1 and Q2 of next year.
According to data from the Russian Ministry of Economy, despite the current consumer boom in the nation, purchasing power for many Russians has significantly decreased in recent months (by up to 30-40%). That was caused by the rouble weakening, the growth of the key rate by the Russian Central Bank and other factors.
Representatives of most of global laundry and drycleaning operators told LCNi about the suspension of most of their operations in Russia and the end of supplies of their machinery and equipment to Russian laundries and drycleaners. Prior to the beginning of the Russian-Ukranian war, Russia was one of the major markets for them (at least in Europe).
Still, despite this, machinery and equipment is still supplied to Russia these days, being mainly carried via parallel imports. Most such deliveries are conducted via third countries, such as Georgia, Kazakhstan, UAE and some others. Despite the fact that the cost of such supplies is very high given additional logistics, transport and other issues, the demand for them from some leading Russian laundry and drycleaning networks (primarily those, which are located in rich Moscow and St. Petersburg) is high, while many of them are ready to pay more for highly efficient Western imports.
In addition to equipment, the supplies of foreign chemicals for the needs of laundries and dry cleaners to Russia has significantly decreased, which forced some leading local players to establish their own production of such products. For example, Diana, one of Russia’s oldest and largest networks of drycleaner’s has recently launched its own line of products. “At the moment, there are 10 products for washing and cleaning. We continue to actively develop this area,” according to Elena Markevich, CEO of the company.
With the departure of foreign brands from the Russian market, the range of chemicals available in Russia has significantly decreased, although this niche is gradually being occupied by Russian companies.
In recent years a number of other domestic players has significantly increased the supplies of their chemicals for leading Russian laundry and drycleaners. An example is NEFCOPRO, which is considered as one of market leaders.
Meanwhile, in Ukraine, laundry and drycleaning businesses continue to develop despite the ongoing war with Russia and the overall tough business environment in the country.
Even though the war has resulted in the loss of up to 20% of territory by Ukraine and massive migration of citizens from 40-million people Ukraine, that has not led to the catastrophic effect to the industry, which development is ongoing with generally positive dynamics in the largest cities of the country among which are Kiev, Kharkiv, Dnepr, Lviv and some others.
Prior to February 24 2022 textile care was one of the most developed segments across the entire Ukrainian consumer services sector (with annual growth rates of up to 10% and big potential for growth). However, the situation has changed.
The beginning of the war led to a significant slow down in the opening of new industry facilities, the number of which was generally low even prior to the war.
According to data provided by the Ukranian Agency of Strategic Researches – the Ukranian research agency – there is only one drycleaner and laundry per approximately 15,000 people in big cities, and for 45,000- 50,000 people in the case of small, provincial towns. That means that Ukraine significantly lags behind most European states in terms of the number of facilities. The ongoing war also complicates opening of new laundries and drycleaners. This is mainly due to the risk of attacks and the generally low profitability of such business.
Moreover, the current complex business environment in the country these days also prevents local business from opening laundries and drycleaners in the local market. As the economic situation in the country remains tough, most local banks refuse to provide loans for the launch and development of laundry and drycleaning business in Ukraine.
One of the most negative consequences of the war for the industry is the exodus of many foreign players, which led to suspension of supplies of important industry equipment and various products. While in 2024 the situation generally stabilised, the industry still experiences a shortage of modern equipment and expendable materials.
Due to the rapid growth of inflation, the decline in the purchasing power of the population and the rise in the cost of services, the demand for laundry and drycleaning services in Ukraine remains relatively low these days, as local people are increasingly saving on the services of laundries and dry cleaners, preferring to take care of their things themselves.
If in the Ukranian capital – Kiev – the demand remains relatively stable due to the increase in the number of visitors from other regions and the generally high level of business activity, the same can not be said for other regions.
At the same time, the decline of demand was even higher as many businesses now shun using drycleaning services due to cost issues. Many of them prefer to spend money on the purchase of their own equipment and installation of their own mini-laundries rather than paying contractors to service their textiles. The lack of new shopping centres, which provide space for laundry and drycleaning points also negatively affects the industry.
In an attempt to attract additional customers, both laundries and especially drycleaners are increasingly diversifying their range of services. Today, it is not limited to just washing, cleaning clothes and removing stains – many local players offer customers ironing services, clothing and shoe repairs, along with storing fur products and even treating items with silver nanoparticles to prolong the cleanliness of products and protect them from pathogenic microbes and viruses.
And, some companies have even begun to provide cleaning services along with ‘home handyman’ services to perform minor repairs in the apartment.
As the war with Russia carries on, the provision of services for the needs of the military is considered one option for many local businesses to stay afloat. Due to the current number of troops in the Ukranian army, the demand for laundry and drycleaning services from the military remains high.
Despite the fact that as a result of hostilities, a significant part of industry facilities in industrially developed Eastern Ukraine are currently under the control of Russia, that has not led to massive decline in the number of industry enterprises.
At present the industry consists of about 300-350 enterprises of various sizes, which employ about 3,000 people.
