The German Textile Care Market

According to the latest figures for 2000 compiled by the German Textile Cleaning Association ("DTV") using Federal Statistics Office returns, there were approximately 6,450 companies, with a total of 8,650 outlets, providing laundry and dry cleaning services in Germany. Roughly 2,700 were laundries and 3,750 dry cleaners. Total turnover was around DM 5.1 billion, of which DM 2.8 represented laundries and DM 2.3 dry cleaning. The latest figures from the Federal Statistics Office for 1998 show 6 laundries with a turnover between DM 25 and 250 million for a total of DM 411 million, or 15% of the estimated total. A further 36 laundries reportedly had turnover between DM 10 and 25 million for a total of DM 537 million (19% of the total market). These statistics dramatise the reality of the "Mittelstand".

Consolidation

A closer analysis of the figures over the past ten years shows that the laundry industry has been consolidating at an accelerating rate-much faster than borne out by the statistics. In fact the above statistics must be treated with caution, as many laundries do not report their figures accurately and the way they are presented by the Statistics Office is intended to protect anonymity. It was for this reason, as well as a desire to understand the market, that GHH carried out an intensive study of the German textile rental market in 1999. The ranking of the leading German textile rental companies and franchise and marketing groups accompanying that report has been updated with the latest published and estimated figures, which are shown in Table 1. These figures suggest that the 7 biggest companies had combined German turnover of nearly DM 1.9 billion, or some 66% of the estimated total market (this includes a relatively small amount of production and direct sales of garments). If we were to add the conservatively estimated DM 549 million in turnover of the three leading franchise and marketing groups (with 52 German members), the total would be around DM 2.55 billion or nearly 88% of the total market. If they are more reliable, these figures suggest that the official statistics are not very accurate and that the reporting by the companies is misleading.

If we leave the world of numbers and look at recent developments, then the reality of the concentration and consolidation of the market is even more dramatic. In effect, the market is maturing and consolidation has become very serious business. It does not appear that any of the leading seven companies has any desire to withdraw from the increasingly hard fought battle for market share. The strategies of the main companies are becoming more clearly defined. For example, the sale by Bardusch of its very successful American business to Elis of France in 2000, represented a clear move away from international expansion and a more focused effort in Europe, especially in Germany. Both Rentokil Initial and Berendsen are sharpening their focus on the German market. Their respective purchases of the leading company in the Profitex and Rentex franchise organisations as well as the franchise organisations themselves in 2000 threw down a gauntlet to the other major companies. All companies are under increasing pressure to develop market strategies that will offer the best opportunities for growth and profits.

Cutting Costs

One of the ways companies are trying to improve profitability is by cutting costs. This ranges from Boco's (Haniel Textile Services) centralising all processing in Germany in four mega-laundries to many companies taking advantage of new inputs such as Sterisan. This cleaning agent, introduced recently by Hychem AG, disinfects at 40 C, compared to existing products requiring 60 C or higher temperatures. As energy and water costs rise, ways must be found to contain operating expenses. Specialisation is another strategy to reduce expenses and increase profits. In addition to focusing on only one or a few products, as Mewa, Boco and the DBL partners are doing, many companies have also seen the advantages of concentrating the different product businesses in separate laundries. This strategy is now well developed by important medium size groups such as Joeckel, Hofmeier, and Greif. The days of a mixed laundry are numbered.

Succession

However, rationalisation can not solve the one big problem for many German laundry companies: the problem of succession. Unless there is a son, daughter or other family member interested and qualified to take over from the owners, many laundries will have to find a buyer for their business before it is too late. This was the underlying reason why the most successful garment rental company, Boco, was sold to Haniel in 1998. Unfortunately for many German family companies, the challenge of selling the business, if there is no clear or acceptable succession, is often too emotive to be dealt with before it becomes a problem. Many companies need advice and assistance in dealing with this most important decision, but often are not willing to deal with it.

Dry Cleaning

The other half of the textile-care market, dry cleaning, presents a much different picture of the German "Mittelstand". As we know, dry cleaning has remained an individual, mainly family, business in virtually all countries. Except for the Johnson, Sketchley and Brooks Groups in Britain, there are few important European dry cleaning groups, with the exception of franchise groups. The biggest privately owned company in Germany, Stichweh in Hanover, sold out to a Dutch investment group a few years ago. Stichweh continues as one of the leading brands, but with only 55 shops of its own, less than half of its total a few years ago. Stichweh have franchised a further 55 shops and are now focusing on this route for future growth. According to a report in "Reiniger & Wscher", there are six important franchising groups in Germany. They have a combined total of more than 300 franchisees with more than 350 shops. Alongside the individual shop owners, franchised shops are the main driving force in the market. Although the dry cleaning market has been in decline for many years, measured by turnover and numbers of businesses, new services and concepts continue to be introduced and dry cleaning appears to be offering better results for the more industrious and imaginative suppliers. Shirt services appear to be growing and prospering and drive-in facilities, although at an early stage of development, are showing promise. However, given the costs of dealing with the environmental requirements, the inevitable price competition of a highly fragmented market, and the declining need to dry clean many fabrics, the dry cleaning industry faces a declining, or at best, a static future. Therefore, the aim of the bigger players in the market must be to secure the best locations, to find the best combinations of products and services, and to use franchising to its optimum to produce the returns necessary to support a long-term continuation in the business.

Outlook for the German Market

The German Statistics Office and DTV industry figures for the past five years suggest that the textile rental market has not grown at all during this time. In fact, the total market in 1996 and 1997 was said to be slightly bigger than in 2000. When compared to the growth of the economy, the growth of the major companies using textile services, and the growth of the textile rental companies, the market statistics appear very misleading. I estimate that the textile rental market has been growing between 3 and 5 percent p.a. over the past five years (some sectors such as mats have enjoyed a much higher growth rate). This will include all areas of the market, with the exception of industrial wipers, which will have remained relatively static. Uniforms, workwear, hotel linen and mats have been the main drivers of the market, with many new customers beginning to use textile rental services. Although the healthcare sector has not grown much in absolute numbers, the types and quality of services have improved in terms of turnover and margins. Companies like Boco, Mewa, Bardusch and the DBL and Rentex partners have seen improving results during the past five years. Competition continues to be tough for many companies, but those with good products, good management and a good strategy are doing reasonably well in an overcrowded market. The consolidation and specialisation that are accelerating the rationalisation of the market will continue to favour the good companies and hasten the departure of the weaker and less efficient companies.

The European League

Four German companies belong to the club of the ten biggest international textile rental companies operating in Europe. Haniel Textile Services (through its two subsidiaries, Boco and CWS) together with Mewa, Bardusch and, Alsco (the subsidiary of Steiner Corp., one of the biggest and most international companies) are among the major companies with the greatest number of European operations. Table 2 shows the textile services' turnover, the total group turnover and the countries in which the ten companies are operating. There can be little doubt that the Germans (including Steiner) are the most international of the textile rental companies. This must bode well for the future of the German industry as Europe continues to grow closer and textile rental customers become more European. Bardusch and Mewa already dominate Switzerland and Austria and are beginning to become an important factor in a number of the Eastern European countries. It may seem curious that none of the major American companies has ventured into Europe, with the exception of Steiner Corp., which is a leader in the Italian market as well as owning Alsco in Germany. It has been rumoured for some time that the biggest textile rental company in the world, Cintas of Cincinnati, Ohio, with sales in excess of $2 billion, might be considering investing in Europe. So far the rumours seem unfounded. Apparently, Cintas considers its growth opportunities in the U.S. market too good to be taking unnecessary risks by investing in Europe at this time. For the moment at least, the ten major European companies have Europe to themselves.

The Future

All indications point to continuing and steady growth in the German and European textile rental markets. Consolidation and rationalisation of the German market will continue and many of the small as well as the less efficient medium size companies will be taken over or go out of business. Specialisation and emphasis on increased efficiency will drive the market, especially since continued pressure on prices will force companies to be more aware of their returns on investment. German companies have good opportunities for growth not only in Germany but also in many of the European markets, which must now be seen as their domestic market. Relatively new but already vibrant textile services markets in countries like Spain and Poland should keep the major companies busy for a few years.