CHICAGO — Drycleaners know this isn’t a good year for business. Most news stories today focus on the struggling economy and rising gasoline prices, while operators deal with lower piececounts and bigger utility bills.
For coin-operated laundry owners, the story is the same. Operators are dealing with rising utility costs in an industry that’s just as dependent on steam heat as drycleaning.
How are coin-op owners dealing with these challenges? Are they raising prices to compensate for increased expenses? Are they buying new equipment to increase revenue? Is a coin-op laundry still a viable complement to a drycleaning plant’s core business?
American Drycleaner’s sister publication, American Coin-Op, recently performed its annual State of The Industry survey to answer these questions. The results may help drycleaners decide whether an investment in a coin-op laundry is a wise move.
2007 VS. 2006
The majority (59.4%) of operators saw business increase last year compared to 2006, similar to the results of American Coin-Op’s surveys in recent years. But this year’s numbers may be a bit more positive: The average increase reported for 2007 was 12.2%, up slightly from 2006’s 8.1%.
Two out of five (40.6%) respondents saw business dip in 2007, about the same as last year. Respondents reported an average decrease of 13.2% in 2007, also similar to the prior year’s survey.
While clean clothes will always be a necessity no matter what the method used to clean them, it can be argued that the coin-op business is more recession-proof than drycleaning. As discretionary income dwindles among consumers, more may turn to washing as a thriftier way to care for clothing.
PRICING FOR PROFIT
You’d be hard-pressed to find an operator who thinks utility prices are going to come down, but how operators deal with this fact is another matter — and coin-op customers are nearly as price-sensitive as drycleaning customers.
Raising prices — particularly on the washer side — is coin-ops’ major tactic to combat rising expenses. For top-loading machines, prices ranged from $1.00 to $4.00 in the survey — meaning the days of the 75-cent wash are now officially over.
In a slow trend toward increasing prices, $1.75 became the most popular price charged last year, with 31.6% of respondents, and $2.00 moved up to third place (20.5%) behind $1.50 (29.0%).
The most common price for a small (18-lb.) front-loading machine has already reached $2.00, closely followed by $2.50, $1.75 and $2.25. The most popular price for a 25-lb. wash is $2.75.
What’s the bottom line? Prices continue to climb, albeit too slowly for some in the industry to realize a profit. Many operators still believe that it’s easier to raise wash prices than to lower drying times to boost revenue; the conventional wisdom is that it produces less complaints. Only time will tell how high prices can go.
With natural gas costs on the rise, operators are realizing that if they don’t adjust dryer pricing and times, they may be losing money. But there has been little change — no pun intended — in dryer pricing since the magazine’s last survey.
Asked whether they had already raised washer and/or dryer prices in 2008 or intend to do so by year’s end, 43.0% of readers said they have raised or intend to raise wash prices this year — one of the highest rates in recent years. For dryers, 19.6% of respondents reported lowering times or raising prices, or plan to do so by the end of 2008.
Like drycleaning, coin-ops have a number of ways to win extra money from their customers. Drop-off business — perhaps more familiar to drycleaners as wash-and-fold — continues to be their No. 1 extra profit center. But in a tougher economy, will some customers cut back on this additional level of service?
While almost two-thirds of American Coin-Op’s respondents reported an increase in drop-off volume, this extra profit center is somewhat more volatile in terms of business increases/decreases than other categories.
With a captive audience, vending is a valuable add-on to any coin-op’s bottom line. Half of American Coin-Op readers reported that vending sales increased in 2007, down somewhat from last year’s 58%.
Asked if they had purchased a washer, dryer, water heater, vending machine or changer in 2007, nearly 47% of American Coin-Op readers said “Yes” — slightly more than the previous year’s survey. The percentage who bought washers or dryers was 31.1%.
Even in challenging economic times, operators must add equipment, the survey said. Some 41% of respondents have bought or plan to buy at least one piece of the above-mentioned equipment this year; 29.2% will buy washers and/or dryers. And among potential buyers, large front-loading washers (including 50-lb. and larger models) are gaining in popularity fastest.
Operators considering a coin-op will be interested in the next section of the survey: the self-service laundry industry’s biggest headaches. Drycleaners might put these problems in a different order, but will find most of them familiar.
The top 10 industry problems reported were (1) Utilities; (2) Dealing with employees; (3) The high cost of maintenance; (4) Troublesome customers; (5) Too much competition; (6) The cost of doing business; (7) Attracting customers; (8) High rents; (9) The cost of new equipment; and (10) Excessive government regulations.
In addition, more operators this year mentioned “Vandalism” in the survey — a particular problem of self-serve locations that drycleaners rarely face. Coin-ops’ cost structure also differs slightly, with utilities the No. 1 expense, followed by rent, employees, insurance and loan payments.
PREDICTIONS FOR 2008
Asked how their businesses will do in 2008 compared to 2007, about one-third (32.0%) of respondents to American Coin-Op’s survey believe that business will improve in 2008. Some 53.0% said 2008 will be the same as 2007, and 15.0% expect business to decline.
Among those who believe that business will improve this year, the top reasons given were that they planned to spruce up their stores, they added new machines and they are advertising more.
The “pessimists” cited higher utility rates and a sluggish economy as the reasons behind projected decreases in volume. And those who foresee their business staying the same pointed to a stagnant customer base, the sluggish economy and new competition.
American Coin-Op also asked for impressions of the industry and the current business climate in which it exists. Again, some of the comments will seem familiar to drycleaners — and offer a dose of reality to anyone considering an investment in a coin-op laundry.
“We’re in a small town with another laundry — a dump,” said a reader from Kansas. “It’s still hard to make money, because we are fully attended. We run a commercial route doing mats and shop towels, which helps. This location also has a car wash and mini-storage facility — all of which it takes to make things work.”
“The biggest problem is dumb employees,” said a Louisiana operator.
“The laundry industry is one that will remain for many years,” said a reader from Tennessee. “The challenge is to stay ahead of the competition by providing the best service, at the best price, with the best equipment — doing the best job [while] using the least energy.”
“I thank every customer every time for the business,” said an operator from New Hampshire. “Many of our customers treat the place like it is theirs.”
“In our area, we have 12 laundries of good size within three miles,” said an operator from Illinois. “The competition is fierce, and someone wants to put in another 7,500-sq.-ft. store two miles from ours. The distributor is only interested in selling his equipment.”
“This industry is a giant opportunity for self-driven people,” said a Florida operator.
“This gets tougher each year,” another operator from New Hampshire said. “You can’t get your prices high enough to cover your costs.”
“I think the industry will do better in 2008, with customers coming in to use larger machines,” said an operator from Wisconsin. “People won’t cut down on washing, no matter how the economy is. You need clean clothes.”
“Utility costs are too high,” complained an operator from North Carolina. “My partners are the utility companies!”
“It’s a good industry,” said an operator from Mississippi. “Unfortunately, in our area, customers tend to abuse the equipment and the building.”
“It’s lots of work, but we love interacting with our customers,” said an operator from Pennsylvania.
“One thing that is very hard is being able to take a vacation if you do not have a family member or very trusted person to take over while you’re gone,” said an operator from Washington state.
“Many owners in the laundry business don’t analyze their costs in respect to proper pricing,” said a Wisconsin operator. “For example, top-loaders are priced less than small front-loaders, which cost less to operate.”
“The laundry business is a great business for progressive and active operators,” said an Ohio operator.
Sound familiar? Dirty clothing isn’t all the two industries have in common.