With the stock markets plummeting and the overlying fear of a deepening recession, most economic news today is not encouraging. Whether due to the trickle down or domino effect – economic woes are affecting our industry as a whole.
Different segments of our industry are feeling hit in different ways. Manufacturers are concerned with costs and the ability of their customers to obtain financing. The hotel/motel industry is suffering from drop in room occupancy rates which affects laundries who handle their goods. Even uniform companies are feeling the economic pinch.
The lodging and restaurant industries are already feeling a squeeze and it doesn’t look more encouraging next year. In the Top Trends for 2009 distributed by National Restaurant Consultants, Inc., it is predicted that 2009 will be “more difficult than last year.” The National Restaurant Association announced that the U.S. restaurant business is the toughest it’s been in 17 years. Many consumers tightening their belts and paring down discretionary income are deciding to stay home and forgo another meal out.
PKF Hospitality Research, headquartered in occupancy level in 2009 for U.S. hotels. That is 4.4 percent less than the 61.0 percent mark projected for year-end 2008.
Less occupancy leads to less sheets, towels and linens to clean. Hence, less business for the laundry. It’s a vicious cycle. This also has a direct influence on manufacturers who provide machines to this industry. “It’s rough,” says one manufacturer’s rep. “We have to scratch and claw to sell machines each month but we’re keeping our heads above water,” commented one manufacturer. “Some pieces of equipment we used to take for granted that we could sell – but its gotten to the point where we take nothing for granted. It’s a task to get someone to spend money on capital equipment at this time. They are not willing to let go of a lot of money because they’re not certain about the future. Our linen customers specifically don’t know which restaurants are going to be renewing their accounts or which uniform business will renew or fold. So they are more cautions with purchasing machinery.“
Uniform companies are also feeling the economic downturn. Scott D. Farmer, President and Chief Executive Officer of Cintas stated on their Web site, “The current difficult economic conditions are certainly impacting our customers, causing them to respond with head count reductions and facility consolidations. When combined with the significant increases in our energy and other commodity costs, our results clearly have been impacted.” Farmer continues to state that the company is continuing to leverage and improve their infrastructure and gain scale in their First Aid, Safety and Fire Protection and Document Management segments, which has helped to offset some of the increases in external costs.
Recently, G&K Services Inc., which provides rented uniforms and cleaning supplies, announced that it plans to close three processing plants, two branch locations and cut an undisclosed number of jobs in the U.S. and Canada in a $2.5 million restructuring plan. The company announced specific actions taken to reduce expenses in light of the continued difficult economic environment and has established reserves for certain matters.
“On-going economic softness continues to pressure our overall performance,” said Richard Marcantonio, G&K's chairman and chief executive officer in a corporate press release. “Accordingly, we are executing against a set of very specific actions. We believe these steps will enable G&K to better address continued challenging economic conditions, deliver improved profitability moving forward and provide reserves for recent events. Our strong financial condition, combined with driving customer focus and competitive advantage, positions G&K for future revenue and earnings growth.”
What is happening at individual manufacturers of laundry machinery depends mainly on what segment of the industry they are producing for and where they sell their machinery. “Parts of our business are down but other parts are up,” said one manufacturer. “For instance, our business with the hospitality industry is down as there's less travel from consumers. But our exports have picked up benefiting from the weak dollar. We've also expanded our business through acquisitions of additional product lines.”
In a time where the industry is waning, it seems that more than one manufacturer has found a lifeline in adaptability. “We’ve been doing some restructuring, trying to streamline the company,” added another manufacturer. “Times are hard but we’re looking to the future with a cautious and optimistic but realistic approach. We’re tightening belts in the day-to-day operations but that’s just a good way to run a business. Cut unnecessary spending and keep an eye on the prize.”
Whereas some manufacturers may not be feeling the crunch now – in time, the credit crunch may take a bite from sales. With banks less willing to lend and higher qualifications for borrowers, the ability to obtain money needed for a facility to either open and/or expand will surely affect their business.
“We have about 5 proposals out right now,” said one manufacturer. “They all depend on whether the bank will lend our purchaser money. We’re talking equipment over a couple of hundred thousand dollars and it all depends on the bank.
WHAT TO DO?
“Managers that are responsible for corporations have to realize the variations involved in how the economic conditions affect their organization,” says Ken Tyler, VP government operations, Encompass. “Everyone is different, depending on who and what you are you have to adjust your pricing strategy to meet the demands of a changing economy that can be positive one day and negative the next. Basically, it stimulates the need in our industry for every organization to have a CFO who can put all these segments together. If your organization doesn’t have a CFO then you’re left guessing what the impact is or may be. Somebody needs to be watching what’s going in and out with regards to manufacturing, assembly or selling. It’s just too many pieces in the puzzle for the novice to try to compile all that data and react in a positive way to their customers.”
Tyler adds that the domino affect, affects everyone in different ways from higher fuel costs to general costs of manufacturing, steel prices and labor costs etc. In such economic uncertainty it’s difficult to properly assess costs. But he adds that those who are slow to react to changing costs and those who do not know what those costs are and how to adjust those costs in a corporate and selling environment will pay the ultimate price.
Surely there are some industries that are less affected by the recent economic downturn – government facilities, healthcare, corrections and military. But those industries are also struggling with increases in the cost of doing business even though their business has not decreased to the extent of other industry segments.
Craig Lloyd is recruitment professional for the industry. His clients are in the hospitality, uniform rental and healthcare fields and his clients are all weathering the storm in different ways. “My hospitality linen revenues are down significantly YTD as compared to last year. Also, clients serving hotel accounts note that occupancy rates for both current and 2009 forecast are significantly down. My uniform rental clients tell me they have been monitoring the rental revenues all year, keeping a close eye on the numbers.
However, he adds, “Healthcare linen rental, as we saw in the months following 9/11, have not been as adversely affected. Census numbers in some locales may be impacted by a decrease in elective surgery but not with the level of impact affecting textile rental plant lay-offs.”
SURVIVING THE ECONOMY
There are other ways to try to survive the economy. Oftentimes cultivating your existing business to sell more is possible. For companies that have extended product lines to include related products and/or services, there are new and different items to sell. And while you’re dealing with customers, don’t forget to call former customers. You never know where a phone conversation will lead.
Always be aware to new opportunities and keep in constant touch with your customers so that they are aware of all you can offer them. Bottom line, don’t let the economy immobilize your business. Less occupancy leads to less sheets, towels and Atlanta has forecasted an average 58.3 percent
Quick Rinse - News From Around The World
Gulf Coast Laundry Acquired by Swisher Hygine
CHARLOTTE, N.C. — Swisher Hygiene Inc., a provider of hygiene and sanitation products and services, announced that it acquired Gulf Coast Laundry Services of Mississippi, LLC (“Gulf Coast Laundry Services”), a Mississippibased linen services company.
Gulf Coast Laundry Services provides linen rental and laundry services throughout southern Mississippi, Louisiana and Alabama, primarily to hotel, casino and resort customers. Concurrent with the acquisition, the founder of Gulf Coast Laundry Services, David Gross, will join Swisher Hygiene and contribute to the continued growth of its linen services business.
Total consideration paid by Swisher Hygiene in connection with the acquisition includes approximately $4.8 million in cash and the issuance of a convertible promissory note which may be converted into a maximum of 350,000 shares of Swisher Hygiene common stock subject to certain restrictions, including acceptance by the Toronto Stock Exchange.