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Cleaning Business Nearly Recession-Proof

According to The US Commercial and Residential Cleaning Services Industry, compiled by Marketdata Enterprises, Inc. as a new 146 page report, the $49 billion dollar commercial and residential cleaning business is nearly recession proof, and cleaning franchises are becoming more popular. This report is a third edition biennial update of this large yet fragmented market, and examines historical/forecasted industry size and growth, operating ratios, end-user demand from commercial and residential accounts, and profiles 16 leading franchises and competitors, as well as a totally new analysis of the residential cleaning market and the franchises serving it.

According to Research Director John LaRosa, "The business of cleaning and maintaining America's office buildings, retail, commercial, industrial, educational, and healthcare facilities is hugean estimated $49 billion. The industry is quite recession resistant due to the fact that demand is ongoing. No one company truly dominates the industryrather, it is populated by more than 56,000 cleaning contractor firms, mostly small "mom & pop" operations. This figure includes roughly 16,800 commercial cleaning franchises and 2,100 residential cleaning franchises. In addition, the purchase of contract cleaning franchises has grown since there's now a much larger pool of downsized executives with money to spend, who seek alternative careers. These franchise fees and royalties have become more affordable as well."

LaRosa further states that, " this is a low tech business characterized by ease of entry. Competition is intense, holding down contract prices and, ultimately, profitability. However, the industry has recovered nicely from the last recession, with receipts growing 6-11% annually since 1994. Cleaning worker wages are low, contributing to high turnover and the frequent use of illegal aliens, an ongoing problem. To 2000, the outlook is good, as the business benefits from corporate America's increased outsourcing of such "mundane" tasks as cleaning and maintenance. Growth of the residential market will also be strong, as the number of dual worker households grows."

Major Report Findings:

For 1995, the total US commercial cleaning industry was valued at $49.5 billion, up 7% from 1994. 1996 growth is expected to be 6.6%, to $52.8 billion (all figures aren't in yet) in line with a good economy overall and lower office building vacancy rates. Through 2000 there is projected an average annual growth rate of 5.8% for the total market, reaching $65 billion. Corporate and government outsourcing will fuel demand.

Official government surveys report that 57,000+ commercial/residential cleaning service establishments were operating in 1992, up from 47,500 in 1987. 82% of these were janitorial services, vs. 18% disinfecting and pest control. Average yearly receipts per service are $329,600. The top 50 firms in the business capture 26.6% of sales and only 8 firms have sales of $100 million or more.

Residential "maid" services is a little-researched segment of the industry, but a fast-growing one. An estimated 9,000 firms compete, including 2,100 franchises by the top 8 companies. Merry Maids (a division of ServiceMaster) is the leader. Marketdata estimates the typical service to gross $149,000 annually, and the market to be worth $942 million in 1995. This is projected to grow 11.8% per year to 2000, roughly twice the pace of commercial accounts. Many commercial cleaning services "cross-over" into the residential market.

Franchising is touted as the way to go in this business, by no less than several dozen companies. However, systemwide sales by the top six in the commercial cleaning sector only account for 7% of industry sales (albeit up from 1994). More than 16,000 franchises now exist, vs. 10,200 in 1991. ServiceMaster and Jani-King operate the most outlets. A 12-company average total investment (franchise fee + start-up costs) in 1995 was $19,824, lower than two years previous. Average royalty rates were cut from 9.7% in 1993 to 7.9% in 1995. These lower costs, coupled with a larger pool of potential buyers in downsized executives, has made the purchase of a cleaning franchise more ttractive.

The US Commercial and Residential Cleaning Services Industry is an independently researched study, available for $1,195 (also sold by individual chapters at lower cost) and a free brochure/table of contents is available by mail or fax. A condensed Executive Overview (18 pages) is available to the general public for $75 via the Internet at www.mkt-data-ent.com

Contact: Marketdata Enterprises Inc.
2807 W. Busch Blvd., Suite 110
Tampa, FL 3618
ph: 813-931-3900 fax: 813-931-3802

 

More From Marketdata

A new report entitled, The US Carpet Cleaning Industry finds that growth prospects and profits attract large carpet mills and retailers to the fragmented carpet cleaning business. The study estimates national receipts from 1986-2003, operating expenses, ratios and characteristics of contract cleaners, factors affecting demand, emerging trends and more. Lots of untapped market potential exists, since only 20% of households actually pay a professional service to clean their carpetsthe other 80% either don't clean them at all, or do it themselves, usually by renting a machine from a local supermarket.

According to the report, the nation's 30,000+ small "mom and pop" carpet cleaning services have enjoyed strong growth in the last five years, but several major challenges are looming. Since carpet shipments are slowing, and profit margins in residential carpet cleaning are twice what they are for commercial/janitorial accounts, the major carpet producers such as Shaw Industries, Interface, Abbey Carpet and DuPont are getting into the business as well. Home Depot, the nation's largest carpet retailer, is on the verge of entry. In addition, growing popularity of competing floor coverings such as wood laminates and tile mean that today's houses are built with less carpeting.

Major Findings:

Carpet's share of spending on floor covering in the US has fallen to 58%, from 80% in the mid 1980's. Wood laminate floor sales are expected to double or triple by 2000meaning less carpeting will be installed (and later cleaned) in future households.

Marketdata estimates the carpet cleaning sector to be worth $3.5 billion a of 1997, with receipts up 7.5%. For 1998, a stronger growth is projected, fueled by strong housing starts. Receipts should jump up 8.4% to $3.8 billion. Through 2003, we expect 7% average yearly gains, tempered by the likelihood of a recession sometime in the next five years.

There are at least 30,000 carpet cleaning firms operating, probably more. It is very easy to enter and exit this business. Of these 30,000+, 5,000 establishments are related to franchises such as Stanley Steemer, ChemDry, ServiceMaster and others. Stanly Steemer has estimated sales of $59 million. Most services are small. A typical carpet cleaning service grosses about $244,000 per year after operating for several years, and has an after-tax profit margin of 5%.

A potentially big threat for small operators is vertical integration by carpet millsthat is, they'll one day produce the fiber and carpet, sell it (or lease it) to the consumer, then clean and maintain it over its life (typically 7 to 10 years for most households). This was initially seen as a major threat a year ago, as Shaw Industries, DuPont, Interface and others began opening up retail stores and buying up independents, then also purchasing truckmounted carpet cleaning units to serve customers. Another 100 or so carpet mills and fiber producers were thought to be future competitors, as well as the large carpet retailers such as CarpetMax and its 600 members. However, these large firms have some catching up regarding customer service in the retail market, and they're scrambling to find workers in a tight labor marketjust like their much smaller competitors.

The US Carpet Cleaning Industry is 85 pages in length, in 8 chapters, and costs $995, but individual chapters may be purchased at a lower cost. An Executive Overview is available via the Internet for $59. See the addresses and numbers above.

Wm R. Griffin
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