Laundry segment offering challenges and business growth equally

Is laundry business in the UAE moving towards commoditisation? Going by the key factors such as increasing competition, pressure on pricing, thin margins, etc, it seems to be taking place. Though official statistics are not available on the laundry segment as it’s highly unorganised and lacking a common trade platform.The major chunk of demand for laundries is coming from labour camps, hospitality, health sectors. The workforce in the UAE grew over six per cent to 7.6 million at the end of 2012. Expatriates account for around 88.5 per cent of the country’s total population. In the UAE, migrant workers make up a staggering 90 per cent of the labour force. According to recent estimates, the working population numbering over five million in the UAE is boosting the demand for laundry services. Perhaps, this is what attracting many new players into the laundry business. The prevailing business dynamics in the market are fuelling price competition in the sector where volume-based demand is now declining, where volume-based demand is now declining. According to Investopedia definition, when a product or service becomes indistinguishable from others and consumers prefer to buy on price alone, then it becomes a commodity.

However, major players in the segment shrug off the competition factor. Ruling out any threat of competition in this segment, Otaiba bin Saeed Al Otaiba, Chairman of Laundristic, said: “we are the largest facility in Abu Dhabi. Though there are small and mid-sized players in the market and many more are entering, we’re not bothered about the competition. We rely on our unmatched quality services and affordability. No player here can match our services. Moreover, we have a good number of customers from hospitality, construction and other sectors.”

It may be recalled that laundry was becoming commoditised in the UK and many industry analysts observed that the most of the laundries’ worst decision was to focus on price factor too early. As a result, many laundries financially collapsed as the price war made them unviable. Fifty per cent of UK laundries either gone bust or exited business during the past decade. Another major factor is over capacity. Banking on huge volumes and thin margins, many companies built up over capacities that eventually landed them into cash-flow problems. This is a classic example of commoditisation.

Generally, companies involved in commoditized products or services run on thin margins as their services are sold on the basis of price, but not on quality or brand. This situation is characterized by standardized, ever cheaper and common technology that invites more suppliers who hammer down the prices even further. Let’s hope this will not happen in the UAE. Some companies such as Advanced Laundry are focusing on building brand image.

Rayu Priolkar, General Manager, Advanced Laundry, said: “We’re in the process of building our own brand in the laundry business. This is part of our efforts to make our company number one in UAE. Our ability to grow, innovate and deliver superb laundry service. Our primary financial goals are to maximize earnings and cash flow keeping customer satisfaction in mind.”

“As part of branding exercise, we’re working on several aspects. Major chunk of our business comes from hospitality sector. We aim to capture 70 per cent of laundry business from this segment in the near future. Towards this objective, we’re planning to open retail outlets in next one year in Abu Dhabi City. Considering the local projected growth rate of 60 per cent during the next three years, our company will reach targeted revenues mark by 2016. As part of the expansion plan, we are planning to cover aviation, Military base and carpet cleaning sectors also,” adds Mohamed Yehia, Business Development Manager at Advanced Laundry.

With capacity spanning over 48 tonnes of clothes per day, Advanced Laundry has a sprawling laundry services facility of 30,000 sqft on Hameem Road, the outskirts of Abu Dhabi.

The UAE accounts for major business potential in the cleaning segment of the Middle East. The UAE government is keen on standards in the Tourism, health and hygiene segment and working with different organisations on this.

The vision of the Abu Dhabi-based Laundristic is to make the company a major player in the country and the largest in Abu Dhabi.

Al Otaiba said: “By capacity, ours is the biggest laundry in Abu Dhabi. The advantage is location. About 130,000 workers are residing in and around Al Mafraq area. Adding to this, 50,000 more workers are there within a two kilometres radius. We have more than enough business only by serving this area. We don’t have competition as there is no major player in this locality.”

Jose Maria Bagan Cruz, Plant Manager at Laundristic, is still cautious in his approach as the company is analysing the impact of small and medium sized players on the pricing front.

“Though the market around is big and full of potential, it is not easy to penetrate as there is competition emerging. Taking all the factors into consideration, we have developed a comprehensive system to face the competition in the market. Our system is different. We provide guaranteed services at competitive pricing to the customers. Ours is a different laundry all together. Laundristic LLC is an industrialised laundry with modern equipment and uses a scientific process in it,” Jose Maria said

As companies strive to become more cost effective and maintain focus on core competencies and market differentiators, the changes to organizational approach are being applied in an effort to commoditise transactional processes. Unless there’s brand image backed by core competency, it will end up as almost total lack of meaningful differentiation in the services or goods.

“One washing tunnel capacity is 1,400 kg per hour and another tunnel has a capacity is 960 kg giving us total washing capacity of roughly 2500 kg per hour. This huge capacity enables us to cater to the requirements of major customers in the city,” said Mr Jose Maria

Despite all these challenges, Abu Dhabi and Dubai have tremendous growth potential as the capital is burgeoning with hectic economic activity and tourist destinations. The laundry business has good growth prospects in Dubai as the emirate is a major tourist destination with strong presence of the hospitality sector, whereas, Abu Dhabi is booming with construction activity and many more new projects in progress. In Saudi, Mecca city has potential. Comparatively, Qatar is a major emerging tourist destination.