This article was contributed to Brandalyzer by Austine D’Souza. Austine is a co-founder of a Lonavala based laundry startup and has successfully run the business for 4 years. He works at IIT Bombay currently, and blogs on machine learning at http://www.zerosnones.net.
Convenience is the new currency of our living times and it has taken over our lives without us realizing it. Today in India, we wish that our clothes get cleaned, dried, pressed, and kept in the cupboard without moving an inch. We would like to get all our laundry done with one touch on our phones but unlike cabs, groceries, food, clothing, and electronics, laundry has still not become an integral part of our e-commerce era in India where customers are willing to spend the extra buck to get the most convenient laundry services.
However, if we consciously look around we will find that there are laundry shops everywhere around us. The moment we need one we don’t have to go beyond a 2 km radius. Laundry services are easily available everywhere today; thanks to the large population of India and increasingly growing disposable income in cities. Laundry market in India is close to about $35-40 Billion, however, only a minuscule (less than 5%) part of it operates in an organized manner.
Laundry industry is primarily divided primarily into two segments:
- Corporate or B2B
- Individual or B2C
In the business to the business segment, a laundry primarily serves hotels, hospitals, pharmaceutical companies and large B2C aggregators. The advantage of a B2B segment is the volume of linen which comes for processing every day. The volume though not fixed can be easily predicted depending on the day, month, season and occasion. For example, if one has a laundry set up in a hill station with hotels as the primary customers, then it is guaranteed that the volume will have a spike during weekends and the volume will be dull during the weekdays. Depending on these parameters, a laundry tries to have the remaining share of business from other customers to ensure full workload during the weekdays too and to keep the machines running throughout the week. Since the volume in the B2B segment is high, the cost in this segment is on a lower side, and in turn, the business will have to generate more volume in order to cover the operational expenses and full capacity of the machines.
Pricing is highly competitive and the industry works on low margins
Most of the customers are looking for affordable pricing and are less interested in the quality owing to which it becomes very difficult to deliver on the quality of the wash and to maintain a good bottom line. If a laundry wants to deliver quality it not only has to take a hit on its profit margin but also has to compete with small players who use inferior quality raw materials to bring down the overall cost. Since the cost of setting up a small facility is low and a small facility can be easily operated by minimum manpower (it can be as low as one labor for washing and one labor for pressing depending on the volume of the business), it becomes a lucrative business for self-employed families who operate in an unorganized manner. In India, most of the laundry providers are self-employed families running individual brands rather than a branded chain of laundry service providers, primarily because of the high competition caused by the local dhobi culture India had historically.
Laundry requirements of five-star hotels vs. others
Five-star resorts, hotels, and big hospitals nowadays have strict requirements with respect to the machinery available, raw materials used and the location before selecting a new laundry service provider. The low cost though very appealing at the start reduces the life of linen in the near long term thereby increasing the purchase cost of linen for customers. Also, with small players, there are dependability issues because they lack the modern infrastructure to deliver linen with the same consistency on a regular basis. Five-star hotels have a specific requirement to have chemicals or detergents from Diversey, a leader in detergents and chemical all over the world. However, inferior players would use local detergents which cost less than half the price of Diversey. Sometimes, just to attract the customer these service providers keep Diversey on the front side of the store and hide the inferior chemicals behind during a customer visit.
Importance of the location of the laundry service
The location also becomes very important because most customers want the linen to be returned on the next day and during peak seasons they would even want to have the deliveries twice a day. If the facility is very far it becomes an additional cost for the hotel to stock more linen during times of urgency, which they try to avoid to keep their costs low.
Payment terms and cash flow issues
The big customers give a large business volume enough to run multiple laundries on their own. It also comes with its unpredictability in maintaining one laundry service provider for a long period of time and the long credit cycle they maintain. Though the agreed terms would be paid within 30 days from the date of invoice, payment is normally done between 60 to 90 days putting a pressure on the cash needed to run the business. Also, since the volumes are huge, even a small change in the pricing will lead to a huge cost saving for the customers. It is a common trend for customers to keep on switching their laundry providers in order to keep their costs in check and to take advantage of business hungry service providers.
Labor Management in the laundry business
When it comes to labor, most laundries are labor intensive. To keep the cost of labor in check, it becomes important to have a large pool of unskilled labor which comes at a lower cost. Layoffs are a common feature to keep the salaries in check. Skilled labors are primarily used for washing and pressing of expensive clothes. Otherwise, unskilled labor takes care of all the usual mechanical work.
While B2B laundry is a rewarding segment, it has its own disadvantages such as the challenge to build scale from scratch where older players have already established their presence, the presence of low-cost service providers and high price competition, the long credit cycle and cash flow issues, the problem with unskilled labor and so on. On the other hand, the B2C laundry in India has seen a rush of startups and countrywide chains such as Pressto, UrbanDhobi, HouseJoy, and Click2Wash. If a laundry can sustain in its initial few years and establish itself to provide good quality to its customers, then it positions itself in a very demanding and profitable position for the long term.