CHICAGO — Read most news items related to laundry operations today and what dominates the headlines?
Acquisitions. Mergers. Private equity investments.
Large industrial laundry entities are growing larger in terms of both the number of plants and areas of service.
Laundry businesses no longer service one city or region. Rather, they’ve spread across the country, united under major label umbrellas or owned by private investment groups.
But with industrial laundry business deals dominating the news, one type of laundry has slipped under the radar: on-premises laundries or OPLs.
How have industrial laundry maneuverings affected OPLs? How many still exist in the market? Will OPLs continue to operate in the future?
Let’s dive into the OPL market to find some answers to these questions and others.
OPERATION AND CHALLENGES
With all of the competition and challenges, why would a business choose to operate an OPL today?
“Efficiency and cost savings are two of the main reasons companies choose to operate an OPL,” says James Scotton, regional sales manager for Dexter Laundry in Fairfield, Iowa. “Most locations that operate an OPL are not in the laundry business, but clean, processed laundry is critical to their business.
“For example, clean sheets and towels are essential to a hotel’s success. Business owners realize that clean, processed laundry is a necessity and want it processed as quickly and efficiently as possible, while reducing the risk of lost or damaged linens. Having an OPL on-site reduces turnaround times and par levels and eliminates the risk associated with outsourcing laundry processing.”
Matt Alexander, president of Pertl and Alexander, a laundry consulting firm in Jamesville, N.Y., says certain hotels maintain exceptionally high quality standards that can be difficult to achieve through outsourced services. In these cases, operating an OPL provides tighter control over processing quality, linen handling, and service consistency.
“When sufficient volume and automated production capacity — typically tunnel washing systems — are present, an OPL can be cost-effective,” he says. “In-house operations can also reduce linen inventory requirements and improve overall asset control.”
Gerard O’Neill, president & CEO of American Laundry Systems, a division of E&O Mechanical Inc. in Derry, N.H., says that’s a key reason businesses choose to operate an OPL: control over their own destiny.
“And not waking up one morning with an email stating something along the lines of ‘Sorry, we are no longer servicing you and blah, blah, blah.’ That is the main one,” he says. “Next is quality, price, and customer service, not necessarily in that order.”
Bob Corfield, president and CEO of Laundry Design Group, a commercial laundry consultant with main offices in Las Vegas, agrees that many companies operate OPLs out of necessity, for quality reasons, and to maintain control of service.
“As COG (customer-owned goods) plants have been acquired and converted to rental or alternate services (a hotel plant converts to medical retail or healthcare), OPLs have been resurrected in old locations or newly built in response.”
Scotton shares that many challenges OPLs face today are the same as for industrial operations, including throughput, efficiency and labor costs.
“Properly sized equipment and technology have helped ease or eliminate these challenges by maximizing throughput and efficiency,” he points out. “Technology today gives business owners the capability to monitor performance through reporting tools, identify inefficiencies in the process, and reduce overall costs.”
OPLs face increased difficulty recruiting and retaining experienced operations managers and laundry engineers compared to prior decades, according to Alexander.
“Leading operators are investing in internal training programs and recruiting management candidates with the long-term goal of developing specialized laundry expertise,” he says.
O’Neill adds that OPLs today have more codes to which they must adhere.
“Stricter wastewater discharge limits and permits for compliance,” he says, “and, of course, ADA (Americans with Disabilities Act) compliance is always an eye opener for a lot of operations. OSHA (the Occupational Safety and Health Administration) has some new rules, too, but, for the most part, nothing so earth-shattering or difficult to stop or hinder an operation from deciding to go back and do their own laundry for the foreseeable future.”
For those businesses operating OPLs, they’re overcoming these new codes with proper planning and designing for the new rules and compliance with wastewater discharge permits and limitations, according to O’Neill.
Corfield agrees that OPLs face stricter health and safety (OSHA) requirements, ergonomics requirements for workers, and inevitably the cost to build proper laundries.
“The cost to build an OPL has doubled in the past eight to 10 years,” he adds. “Labor cost to operate and maintain has also. But linen service costs for rental are 50% or more higher, as well. (OPLs) need to research some very hard questions about capital and available skilled labor in their market.”
OPL FUTURE OUTLOOK
So, in the coming years, will OPLs be declining or increasing in number?
The long-standing trend of hotel OPL closures appears to be slowing, says Alexander. In many markets, the financial advantage of outsourcing is no longer as decisive as it once was.
“In healthcare, interest is growing in partnership models that allow hospitals to retain some operational influence, including cooperative or shared laundries,” he points out. “However, a broad return to on-site hospital laundries remains unlikely.”
Alexander goes on to says that for hospitality operations, “For nearly two decades, our analyses almost uniformly favored outsourcing hotel laundries. That trend has shifted over the past two to three years.
“A notable example is the Pierre Hotel in New York City, where we coordinated the rigging and installation of a new three-roll ironer and folder/cross-folder — routed through a second-floor ballroom and down an elevator shaft. This level of reinvestment in a New York City hotel OPL had not occurred in more than 25 years.”
“I strongly believe OPLs will continue to operate,” Scotton states. “While some business segments will continue to grow rapidly, and some may decrease, OPLs overall are here to stay.
“As the world population continues to grow, so will the demand for clean, processed laundry across all business segments.”
O’Neill believes OPL operations are going to continue to grow as hotel business and construction rates easily outpace laundry construction rates and overwhelm the existing operators, especially in high-growth population areas like Florida, Arizona and Texas.
“They are going to explode in the sense of having no choice, really, to do so as there is not enough existing nor even new operators with the capability to keep up with the hotel, condo and rental explosion in those areas,” he says.
“The same thing is happening to healthcare with the off-site clinic explosion all over the country. But in those states, hotels and hospitals both cannot keep up with the surge in population growth for permanent relocations, seasonal snowbirds, and permanent retirees.
“And in the older age brackets that will need a lot of medical care, there is a huge influx in some areas that amount to a new city being born, so to speak, every year. In one region, 300,000 to 400,000 new relocated people yearly is a lot of strain on existing infrastructures.”
OPLs, and hotels in general, will need to be more self-sufficient because the capacity at existing laundry operations is just not there to handle this growth, O’Neill concludes.
“A recent client was looking for a business case analysis for a second laundry and/or more as the group expanded by approving to build 25 more hospitals and 200-plus clinics in the next few years.
“That’s the type of growth we are witnessing here.”
Click HERE to read part 1 about the effect of national/regional/private equity industrial operations on OPLs, and HERE to read part 2 for a look at OPL numbers by markets and locations.
Have a question or comment? E-mail our editor Matt Poe at [email protected].
