Trending: From Small, Independent Laundries to Regional/National Entities (Part 1)

Factors driving growth into larger operations

Matt Poe

June 27, 2023

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.

RISE OF ORGANIZATIONS WITH LARGER FOOTPRINTS

Bryan Bartsch, president of Ecotex, a provider of healthcare laundry services across Canada and the United States, says the trend toward larger regional or national companies in the industrial laundry industry can be attributed to several factors, including:

Economies of scale. As companies grow larger, they can take advantage of economies of scale, which means they can produce goods or services more efficiently and at a lower cost. For example, larger companies can purchase equipment and supplies in bulk, negotiate better prices with vendors and streamline their operations to reduce overhead costs.
Access to capital. Larger companies may have easier access to capital than smaller, local businesses, which can enable them to invest in new technologies, equipment and infrastructure.
Standardization. Industrial laundry companies that operate across multiple locations can implement standardized processes, procedures and quality control measures, which can improve the overall consistency and quality of their services.
Brand recognition. National or regional companies often have better brand recognition than smaller, local competitors. This can be a competitive advantage, as customers may be more likely to choose a well-known brand over an unknown or less established one.
Regulatory compliance. Compliance with regulatory requirements can be a significant burden for smaller companies, especially those operating in multiple jurisdictions. Larger companies may have more resources and expertise to navigate complex regulatory environments and ensure compliance with relevant laws and regulations.

“As a result of these factors, we are seeing a consolidation trend in the industrial laundry industry with larger companies acquiring smaller ones or driving them out of business,” Bartsch adds.

Ed Kwasnick, director of business development for national construction company ARCO/Murray, says that from its perspective, the company sees a lot more activity from the national and regional companies than it does from local independents.

“And that makes sense when you think about it,” he says. “The larger companies have greater resources to build new facilities, renovate existing plants, upgrade equipment, etc. They also have more locations, and at any given time, one of those locations probably needs some attention from a capital investment perspective.

“Local independent companies typically have one or two locations, and major capital investments are a big hit to the bottom line. Therefore, they tend to delay plant renovations, expansions or new facility construction due to the expense and impact to the operation.

Kwasnick says one exception to this is if an independent is in major growth mode. If it is growing quickly and needs additional capacity to fuel that growth, it will make a large capital investment because the return on investment (ROI) works out.

“However, if they aren’t growing, the ROI is lengthy, and it becomes financially (and emotionally) difficult to make the investment,” he adds. “Based on my observations, growth is key.

“Companies that continue to expand their business through organic growth and acquisition, whether they are a national company with multiple locations or an independent with a single plant, have the financial means (e.g., internal capital reserves, access to external capital, shorter ROI, etc.) to make major capital investments in their laundry operations.”

Kwasnick says companies that are not growing are less willing to make large capital investments, which then leads to a series of challenges including older laundry technology, lower plant efficiency, higher operating costs, higher maintenance costs and other financial impacts that make it even more difficult to invest in large capital projects.

“And if the combination of lack of growth and lack of capital investment continues long enough, that company will likely reach a point where selling the business to a larger competitor provides a better ROI than reinvesting in the company,” he adds. “It’s a very interesting cycle.”

Healthcare Linen Services Group (HLSG) operates 20 laundry processing facilities in 19 states across six brands (Superior Health Linens, Textile Care Services, Logan’s Healthcare Linens, Logan’s Uniform Rental & Services, Reino Linen Service and The Linen King).

“Technically speaking, the word ‘national’ is somewhat of a misnomer,” says Joe LaPorta, CEO of HLSG. “At best, there are several larger regional players who have been acquisitive.”

He says that several factors are driving this, but the top reasons are:

Private equity ownership has increased, and growth is a major part of their thesis playbook.
Smaller laundries are struggling to stay competitive because of the ongoing investments in equipment, wages, and technology.
Margin pressure continues to be intense and by being a part of a larger laundry company you leverage economies through scale in turn drive costs out of the system hence allowing operators to stay competitive.
Customers want a provider partner that can service larger areas and grow with them.
Back up plant redundancy in case a plant has issues.

LaPorta says that the increase in more plants becoming part of national operations affects the laundry and linen services industry by lowering costs to the plants through better costing from vendors, providing more resources to assist plants in planning and investment and projects and increasing quality as there is additional oversight and focus on quality.

He says the benefits of laundries being part of a national organization include:

Capital resources for updates and equipment.
Expertise resources for assistance with planning, strategy and sourcing.
Sharing of plant resources, supplies and people.
Back up plant redundancy.
Lower costs basis because of volume buying.

The challenges to being national, according to LaPorta, are:

Driving standardization among operators.
Different cultures and markets.
Oversight and accountability over a larger geographically.

“Customers can benefit from the benefits listed above as well as deal with one team who often can offer more competitive pricing,” says LaPorta.

He adds that national operations maintain the connection with customers in a twofold manner.

“Typically, we have local team as well as a corporate presence,” he says. “Our company has call mechanisms to ensure that we stay connected.”

While a laundry may be associated with a national organization, local management helps ensure quality goods for customers from plant, sales and route reps.

“The business is still managed by a local GM and then another level above via a corporate team,” LaPorta shares. “Both levels have quality standards that must be maintained.”

He points out that for acute laundry services, there are no true national companies. The larger players are regional.

“I think both models could work, but with our customer base also consolidating, the needs are changing positioning in the favor of a larger laundry processor,” concludes LaPorta.

Check back Thursday for a deeper look into the regional focus of acute healthcare laundries.