CHICAGO — Many laundry and linen services started as small, mom-and-pop businesses.
Then the industry grew and larger companies emerged.
Laundries consolidating or organizing into larger regional or national entities isn’t new, but a scan of the business headlines indicates the phenomenon has been accelerating over the past few years.
American Laundry News reached out to operators and organizations to get their thoughts on the trend and how it affects the industry.
ACUTE HEALTHCARE LAUNDRY’S REGIONAL FOCUS
The Healthcare Linen Alliance (HLA) agrees the acute healthcare linen sector is down to only a few large regional operators that include Unitex, Emerald, Novo, Ecotex, HLSG, Crown, and Crothall, as well as ImageFirst and Cintas, which dominate the outpatient linen market.
Other smaller, independent companies like Century Linen in upstate New York, and Up To Date Laundry in Baltimore, also recognize the value of growing their regional influence by expanding to become multi-plant operations.
Why is the focus on regional, versus national operators? As there are no acute healthcare hospital chains that are national in scope, there is not the same value for the creation of national acute healthcare linen providers.
Health systems today remain regional, or multi-regional, in scope, and as a result, healthcare linen providers have mirrored this regional, or multi-regional dominance.
Providing better service coverage for hospital clients has been a catalyst in the regional consolidation that has been witnessed over the past 10 years.
The trend of consolidation is not going away.
HLA was formed in 2016 so its members could better meet the service demands of larger, regional health systems. The Alliance is made up of six members that own and operate 38 dedicated healthcare laundries in the United States and Canada and processing more than 1.2 billion pounds annually.
The consolidation of independent and single-plant healthcare laundries into larger regional operators is being driven by a few different factors.
Rick Gaffney, director of business development of the Alliance asked some of his members to comment on the major factors driving this trend.
Randy Bartsch of Ecotex remarks that consolidation has led to cost savings due to economies of scale, improved efficiencies, streamlining of processes and reduced redundancies. Large regional operators can often negotiate better prices on supplies and equipment and consolidate resources across multiple locations and wider service areas.
Larger, well-financed regional operators have easier access to capital to fund growth and expansion and invest in new technologies and equipment, allowing them to be more competitive. By operating more efficiently they have the potential to offer better pricing to customers.
As local, state and federal regulations and compliance requirements become more complex, large regional operators gain an advantage in navigating these requirements.
Gary Fuller at Century Linen manages four healthcare laundries and comments that having a larger regional footprint gives them economies of scale and creates synergies allowing them to streamline their operations.
It allows them to attract better talent at a higher level for managing different business responsibilities. An example is they now have a director of environmental, safety and health. As part of a smaller operation in the past, their managers were often required to wear many different hats.
He adds that they have better purchasing power with vendors and that also gives them better quality control and consistency on products. That helps them with standardization and compliance with their regional customers as well.
Mark Carter of Up To Date Laundry operates two healthcare plants in Baltimore.
“The healthcare market sector of our industry provides a very predictable and sustainable revenue stream,” he says. “It allows us to focus more on our customers and provide better quality and service.
“We believe investing in technology, equipment and facilities is the key to remaining competitive and growing our regional footprint. These capital investments allow us to make more efficient use of labor and provide safer workplaces for our team. Having multiple plant operations and distribution centers allow us to meet the supply chain surety requirements in this region.
“In a changing healthcare environment, our ability to service all sectors, acute, non-acute, EVS, apparel and distribution services helps us to meet the complete needs of our customers.”
Carter says that its customers realize how critical its services are in emergency situations like a pandemic, hurricane, flood, etc. Up To Date Laundry can duplicate systems that provide consistency to its customers in quality, services and products.
“I also believe our impact on jobs helps support the communities we operate in,” he adds. “As regionally focused providers, our growth and investments alongside our local customers create long-term partnerships that are vital for success.
“HLA members together have a tremendous impact in communities across the country and our ability to service customers in a majority of the major markets positions us well to meet the needs of multi-region and national health systems.”
Karl Fillip of NOVO Health Services operates 12 healthcare laundries in the Eastern half of the country. He recognizes the consolidation in the industry and adds that with acquisitions over the past few years, they have expanded their geographical footprint.
One factor driving this trend has been the consolidation of healthcare systems. As systems consolidate and grow their geographic footprint, they are looking for vendors that can service them across the multiple regions in which they operate.
At the same time, as integrated delivery networks (IDN) and group purchasing organizations (GPO) expand, their purchasing power also grows, driving consolidation on the vendor side. This all coincides with supply chains looking to streamline their operation and reducing the number of vendors they have as part of that vendor consolidation process.
Fillip says it is only natural that as the industry looks to meet the evolving demands of its customers, the formerly disaggregated healthcare laundry industry would rapidly consolidate to meet those demands.
Additionally, he says the barriers to entry and costs of staying competitive from a capex standpoint have made it far more difficult for smaller operators to stay competitive. This has created an environment where only the larger, well-capitalized players can remain competitive long-term, leading to multiple smaller operations selling to larger players.
The consolidation of the market is helping to create more standardized practices across the industry. This allows for a more standardized level of service to be deployed across large healthcare networks.
Fillip goes on to say that these changes have also helped to ensure that market dynamics stay healthy by balancing supply and demand across the country. A balanced supply and demand equation is critical for the well-being of the healthcare linen industry.
Operators need to make a fair profit that warrants the continued reinvestment required to do healthcare laundry the right way.
The primary challenge, Gaffney shares, is the integration of various businesses with different operating methodologies and cultures. Execution risk around these consolidations can have negative effects and can potentially unravel the benefits of consolidation.
The secondary concern is grounded in the idea that not all growth is good growth. Consolidation through combining best-in-class operators is a clear recipe for success, but consolidation for the sake of consolidation can have tremendous negative consequences.
As such, consolidators need to make sure they are focused on buying quality assets that fit with their overarching mission and then focus on the proper integration of those businesses. The real work never starts until after the acquisition is complete and if you get too focused on the consolidation play and on making every acquisition/integration a success then you are likely to face a lot of challenges.
The primary benefit for the customer, Gaffney shares, is the option to use fewer or even a single vendor across their entire network. This naturally brings standardization in terms of billing and service. This also streamlines the supply chain and allows for one centralized avenue for managing their linen programs system-wide.
This comes down to culture and integration of acquisitions. Key relationships will evolve at the highest levels because of consolidation, however maintaining the right relationships at all levels of the organization requires a strong cultural foundation, instilled in everyone.
In summary, the trend of industry consolidation will make it difficult for some independent businesses to survive and thrive in an ever more competitive market, shares Gaffney.
Some mix or all of these factors that have been mentioned are driving the consolidation of independent commercial healthcare laundry operators to merge into the large and growing platforms of the regional operators in the industry.
To read Part 1 about some of the factors driving laundries into larger operations, click HERE.
Q&A: Industry Consolidation Impact (Part 2), July 25, 2019
Q&A: Industry Consolidation Impact (Conclusion), July 30, 2019
Have a question or comment? E-mail our editor Matt Poe at [email protected].