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Q&A: Industry Consolidation Impact (Conclusion)

Experts wrap up with look at major issue for services

CHICAGO — Consolidation.

It’s not a new phenomenon in the laundry/linen services industry, but it seems to be occurring more frequently. 

For example, in just the past couple years, Cintas acquired G&K Services, and AmeriPride Services merged with Aramark.

And it’s not just happening with laundry operations. Entities in markets that facilities service, such as hospitals and hotels, are merging and being acquired.

What is the effect of this consolidation, and what does it mean for the laundry/linen services industry?

American Laundry News contacted Bob Corfield, founder of the consulting firm Laundry Design Group; Linda Fairbanks, executive director of the Association for Linen Management (ALM); and Joseph Ricci, president and CEO of TRSA, the association for linen, uniform and facility services.

Q. How have you seen operations deal with consolidation in the marketplace?

CORFIELD: PE firms and successful linen service companies are purchasing plants in response to the opportunity of these market consolidations. Plants are being purchased based on location and ability to expand or with solid management teams that can fuel growth.

FAIRBANKS: The laundries sometimes have the opportunity to secure additional experienced workforce, which is a win. Plus, there are also opportunities to acquire equipment from an operation that is closing.  

But the challenges come when there is short notice for the transition. In the healthcare marketplace there have been concerns over the emergency back-up options available. These are discussions that hospital management needs to have. Even though the hospital’s laundry may not have closed in a consolidation, if the closed operation was the emergency back-up, what now? You don’t want to wait until the emergency occurs to discover the problem.    

RICCI: Suitors who acquire operations face the challenge of integrating operations, retaining customers and melding cultures regardless of whether the acquisition is local or national. 

Consider the federal Securities and Exchange Commission’s deliberations on the Cintas acquisition of G&K Services, which closed in 2017. Observers predicted that because consolidation had already affected so many local markets, especially those where both companies operated, that the potential merger may be in jeopardy. That proved not to be the case. 

With nearly 400 uniform rental/industrial laundry companies operating 1,800 laundry establishments, there is still plenty of competition and opportunity. Established local competitors facing newly consolidated competitors in their market sometimes welcome such combination because they can promote their sustainability against them.

Q. What is the major issue for the laundry/linen services industry when it comes to consolidation?

CORFIELD: Locations with available labor pools, experienced management and service teams to sustain and drive that growth, and capital to expand. These elements are not new to our industry. But as plants close or change hands and volume consolidates, there is a chance for profits in our industry to grow, which is what the PE firms and regional private companies are betting on.

RICCI: Many TRSA members do not view the biggest competition to be other laundries; they see bigger challenges from employees purchasing their own workwear at Walmart or online and disposable alternatives to reusable textiles, as well as the economy and energy prices. 

Baird and other analysts remain confident that the industry will continue to grow faster than GDP with opportunities to increase the U.S. market from $20 billion to $34 billion by focusing on non-programmers.

Since joining TRSA more than nine years ago, I have visited with nearly 300 members, both laundry operators and associate suppliers, and their biggest issue is the availability of labor. 

Will industry revenue continue to increase faster than GDP? While operators of all sizes grow, the larger multi-plant operators usually lead the pack, investing heavily in sales and marketing and positioning their services as a strong value. They leverage their massive economies of scale, running increasingly automated facilities at optimal capacity. That leverage increases when they acquire competition. 

Will technology continue to evolve enough to provide them with increasing efficiencies, playing enough of a role as in the past to increase ROI and support their profitable growth? Or will they need to rely more on acquisitions?

How much does the next generation of families in the business want to stay in the game? Looking at the more stable segment of the industry (companies with 20-plus employees), a very large percentage are family businesses. Faced with the option to cash out by selling the business or to continue in a highly competitive market, how will young executives react? 

Based on the interest in our Young Executives and Emerging Leaders programs, we are optimistic that the next generation currently in the sweet spot for business sustainability (100-plus employee companies) are seeing plenty of good reasons to stick around.

Miss part 1 about the effect on operations, quality? Click HERE to read it.

Miss Part 2 on the effect on vendors/suppliers and consolidation in markets served? Read it HERE.

People who appear in this article:

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Even with consolidation, competition still exists in the industry, so price increases are nominal. (Image licensed by Ingram Publishing)

Have a question or comment? E-mail our editor Matt Poe at [email protected].