2017: The Year in Review

By Bob Nieman, CLA Member posted 11-30-2017 12:22

Industry Insiders Examine the Past 12 Months – And Share Their Thoughts on What’s Ahead for the Vended Laundry Business

It’s impossible to recap the past year in the vended laundry business without acknowledging the success of the Clean Show, which celebrated its 40th anniversary in 2017. The event not only attracted more than 12,000 attendees to the Las Vegas Convention Center this past June, but also helped usher in a new technological era for the industry.

“As we look back at 2017, now and in years ahead, I think we’ll see it as a pivotal time for technology,” said William Bittner, vice president of North American sales for Alliance Laundry Systems. “That was evident at our industry’s largest trade show – the Clean Show. Our industry is moving from a mom-and-pop business owner focus to one made up of professionals looking for greater management of their businesses. The sheer amount of new payment systems, management systems and other technology on display at Clean to meet the needs of these laundromat owners emphasized the point that wash and dry efficiency is important, but technology will drive our business moving forward. We also have to look at the success of the Clean Show itself as a highlight for our industry. Attendance and exhibit space sold was up – clear signs of the health of the vended laundry business.”

Steve Marcionetti of Card Concepts Inc. echoed those sentiments by pointing out that 2017 has been by far the busiest year in the company’s 18 years in business.

“Product demand has been overwhelming, and meeting that demand has been challenging,” Marcionetti revealed. “I’ve had conversations with other manufacturer partners, and it seems many of them are seeing similarly high demand. Considering all of the things that could be challenges, this is one I’m happy to tackle – and it makes me optimistic about 2018.”

“We’re seeing a wide range of payment systems,” concurred Karl Hinrichs of HK Laundry, based in Armonk, N.Y. “The traditional card systems are being challenged by phone apps, other payment systems and central control payment systems. It’s an interesting and innovative time for all. We will see who has the financial strength and innovative products to become established players in this competitive market.”

Personally, Hinrichs noted that his company is having its best sales year ever – tracking 25 percent above last year.

“This has been an especially strong year for retools,” he said. “Customers who have a decent store and have just negotiated new leases are retooling their 25-year-old washers for the latest and greatest. Many times, the water savings will pay for part of the new equipment note; that, along with a price increase and the extra revenue from cycle modifiers, all add to reducing the pain of a new loan. We expect this washer and dryer replacement trend to continue.”

Another highlight of 2017 was the increased activity of the Coin Laundry Association’s LaundryCares Foundation, which held a number of successful free laundry days throughout the country this year. The charitable organization’s busy schedule included events in Las Vegas (the day before Clean 2017 opened) and the Houston area (after Hurricane Harvey struck). The foundation’s mission is to lend a helping hand to those living in the underserved communities that support many of today’s vended laundries.

Multi-store owner Michael Finkelstein, headquartered in Baltimore, hosted a couple of LaundryCares’ events this year.

“I served as the test case for two LaundryCares events, aimed at small and mid-sized markets,” he explained. “I volunteered so that LaundryCares could develop a template and best practices, with regard to how to conduct free laundry events in such markets.

“They both went extremely well. One was held in conjunction with a store remodel, and the other was a laundry that I had opened only six months prior.”

Industry Challenges

Clearly, the historic damage inflicted by the 2017 hurricane season was a business challenge to all segments of the laundry industry, especially store owners and distributors in those hard-hit areas of Texas and Florida. Fortunately, all of the major manufacturers met that challenge by supporting those impacted, with quick access to crucial replacement parts and equipment, as well as financing packages to help get operators up and running as quickly as possible.

On a less dramatic (but still critical) level, the all-too-familiar impact of local bureaucracy remains an ongoing challenge for new laundry projects, according to Joel Jorgensen, vice president of sales for Continental Girbau.

“Challenging local trade inspectors, permitting delays and ‘red tape,’ as well as busy contractors and subcontractors, delayed a number of projects this past year,” Jorgensen explained.

Labor costs also continue to be challenging for all small-business owners. In fact, 19 states rang in 2017 with an increase in the minimum wage – with Massachusetts and the state of Washington implementing the highest new minimum wages in the country at $11 per hour. And mid-year increases, along with more wage boosts heading into 2018, will take those figures even higher.

“In my area, the biggest challenge has been adjusting vend prices to accommodate a $1.50 an hour increase in the minimum wage that took effect July 1,” explained California multi-store owner Ron Kelley. “There will be another $1.50 per hour increase on January 1, jumping the rate to $13.50 per hour; and, on January 1, 2019, it will increase to $15 per hour.”

In addition to the labor component, Ted Ristaino of Yankee Equipment Systems in Barrington, N.H., pointed to a few other challenges that owners faced in 2017.

“Impact fees are becoming more common,” he said. “Uncertainty over the enforcement of immigration policies is impacting some markets. As the industry continues to grow, markets tend to shrink due to competition. Also, securing a good location at a reasonable rent is a major challenge in some areas.”

Another obstacle for 2017 and beyond has been increased competition from the multi-housing sector, according to Hinrichs.

“Apartments and condos are getting more demanding with regard to requiring larger machines and more features for their laundry rooms,” he observed. “They are looking to create mini-laundromats in their buildings. As a result, laundry owners need to counter with full-service options and customer conveniences. Everything we do needs to be about providing convenience – easy in/easy out, wash-dry-fold, pickup-and-delivery services, credit card payments, lockers and so on. All of these are convenience-driven features. Having an attendant in the store is more the norm than the exception. Of course, having attendants places a financial burden on smaller stores, and as a result, many of these small, older laundries may fall away.”

Hinrichs also noted the ongoing challenge of increased water and sewer rates across the country. However, he wasn’t so quick to consider it a complete negative for the business.

“Higher rates force laundromat owners to increase their vend prices, and higher vend prices are a good thing,” he surmised.

For Iowa multi-store owner Daryl Johnson, the future of healthcare should be a major concern for the laundry industry.

“Healthcare is going to be a challenge for everybody,” he predicted. “If you’re self-employed and paying for your own health insurance, it’s going to be a big issue going forward, as to whatever happens with Obamacare and the insurance market. Many small-business owners are paying premiums that are the equivalent of what someone could earn at a well-paying, part-time job. That will be the one thing that will slow down the economy. We can’t continue to have people paying somewhere between $20,000 and $40,000 a year for insurance coverage. That’s hurting the small-business owner, who drives the U.S. economy.”

Trending in 2017

One of the major trends that really took hold in 2017 was a shift in customer expectations.

“We definitely are seeing that consumers are willing to pay more for an ‘experience,’ versus a transaction,” Bittner explained. “This is especially true among millennials. To meet this expectation, more store owners are challenging industry norms – going with fixed-cycle pricing on tumblers, new equipment layouts, and greater focus on profit-per-square-foot, versus revenue-per-square-foot. These are surprising developments that will shape laundries into the future.”

Ristaino noted that a couple of familiar industry trends really took root in 2017.

“Go big or go home in terms of equipment sizing – 45-pound stack dryers and 75-pound dryers increased in popularity this year, as did large-capacity washers,” he said. “In addition, wash-dry-fold services with state-of-the-art software platforms continue to grow and are now well established as a part of the industry landscape.”

Another long-standing trend that continued this year was the proliferation of high-speed, high-extract washers throughout the industry.

“As a late adopter of everything, I was a skeptic, until person after person I admire told me how much they love 200G,” said Todd Fener of Laundry Owners Warehouse in Ft. Lauderdale, Fla. “Everyone I know who has it says they will only do 200G from now on, including me.”

Fener also saw an increased focus on interior design among his laundry-owner customers.

“People are getting away from cookie-cutter décor,” he said. “Owners are realizing the value of hiring an interior decorator. It’s a one-time expense that pays dividends for years.”

Jorgensen has noticed an extreme interest in providing commercial laundry services and business diversification as two major trends to make their mark in 2017.

“Larger capacity machines continue to drive demand on both the self-service and full-service sides of the business,” he said. “Additionally, diversification of the traditional laundromat into a laundry enterprise, in terms of services and price points, is a growing trend. This diversification appeals to many demographics – even those who never considered themselves ‘laundromat’ customers in the past.”

From Marcionetti’s perspective, there was surprise at the number of new payment systems that emerged at Clean 2017.

“For years, it seemed like the number of players remained the same,” he said. “This is the first time I can remember seeing so many new products. It seems that our industry is finally considering alternatives to coin-only operation as a business requirement and less as an option. These new players are good for bringing awareness to payment technologies and will require all of the vendors to elevate their offerings.”

“I was surprised that two major laundry equipment manufacturers were showing cloud-based payment systems for their washers and dryers,” Hinrichs added. “I never imagined that the manufacturers would diversify from hardware to software and payment systems. Both manufacturers were showing cloud payment systems that would remotely turn on machines and process their payment through a ‘cloud account.’ This is a departure from straight manufacturing, and it was a surprise to me.

“The smartphone has become an extension of the customer’s wallet, and the smartphone will become more important in the future. This year, we saw the emergence of phone/internet payment systems to start washers and dryers. The systems also let you know when your wash is done and can even monitor the availability of washers in your store.”

Aside from the increased adoption of alternative payment options, Marcionetti also noticed a tremendous effort by new store builders to invest in high-quality materials.

“The fit and finish of the stores in 2017 are far superior to what I’ve seen in years past,” he said. “More time, money and energy are being spent making sure that the end users experience is unique, inviting and convenient. This is a trend I hope continues, as I think this will improve the industry as a whole.”

Johnson pointed to the millennial generation as the source of two trends he’s noticed in his markets – an increase in both mobile payment systems and wash-dry-fold service.

“Customer embracement of technology seems to have ramped up in the last year,” he said. “We’re seeing a higher demand for mobile payment options of some kind. Also, while self-service laundry will continue to be strong, the largest segment of the industry, which will continue to grow at probably double-digit rates, is going to be wash-dry-fold.

“This is because millennials are a much more mobile generation, and they’re willing to sacrifice the cost difference in order to have someone do their wash. They’re more likely to outsource. They’re driving the economy now, and this is how they think.”

And many of these current trends can be combined to elicit what could perhaps be considered the industry’s rallying cry of 2017 – “Retool!”

This overall store retooling movement is at least partially the responsibility of Eastern Funding’s Brian Grell, who has made the total annihilation of “ZombieMats” (which is his term for tired, worn-down and neglected laundromats) his personal calling card. Grell has crisscrossed the country, passionately extolling the virtues and benefits of a rehabbing and re-equipping older stores.

“A constant goal for us at Eastern Funding is reaching laundromat owners with the message of retooling and upgrading ZombieMats,” Grell explained. “The challenge is convincing them that retooling, on a large scale, works. The good news is that retools are becoming more of a hot topic, and the industry is finally focusing on it. We know from experience that store owners will not only increase profitability but also substantially increase the resale value of the laundry after a retool. In most cases, a laundry’s resale value increases more than the cost to retool – and usually by a wide margin. As I travel the country giving my ZombieMat presentations, I’m finding that more owners are finally seeing the light and considering retooling their stores.”

Thanks to the manufacturer’s innovations in machinery, along with a variety of new alternate payment technologies, store owners now have several options to help them increase profitability. According to Grell, here are the hottest trends:

• Go big. Larger capacity washers and dryers attract new customers looking for large-load capacity.

• Go fast. Today’s 200 G-force (and higher) washers reduce dry time and increase throughput, which is especially needed during peak times.

• Variable pricing on new washers enables owners to offer a variety of upcharges not previously available.

• The move toward alternate payment systems provides an array of payment methods, while adding valuable loyalty options.

Other renovation trends spreading across the country include new signage with unique branding, LED lighting, modern interior design enhancements and restroom overhauls.

“What’s truly exciting about these latest trends is that, when embraced, they create a win-win scenario,” Grell explained. “The manufacturers and distributors sell equipment, the store owners realize greater profitability and, most importantly, the end-users – the customers – are the recipients of a better wash experience. In the end, it is all about creating a “Wow!” experience. And the environment benefits as well, since less water and gas are consumed, thus achieving a greener industry.”

Speaking to the retooling trend, Johnson noted that, “strong operators are going to continue to be strong operators and run solid business; however, for those who are ignoring their stores, the trend is now greater than ever that they will lose market share and eventually disappear.”

Of course, at the very foundation, technology is helping to drive many of today’s laundry industry trends.

“The days of counting money and relying on anecdotal information to run your vended laundry business are gone,” Bittner noted. “Technology is firmly rooted in the vended laundry business, and it’s not going away. Not only laundromat owners, but their customers as well, will continue to demand a higher level of technology, ease of use, multiple payment options, and flexibility. Manufacturers will be pressed to be far more agile in adapting to these needs or risk being left behind.”

What Does the Future Hold?

According to our industry panel, here’s a peek at the future of the vended laundry industry:

Michael Finkelstein – I’m a glass is half-full kind of a person. If some of the proposed tax cuts we’re hearing about occur, it will fuel the economy. I think that will help retailing in general, not just the laundry business. If there’s more money in people’s pockets, that’s a good thing.

2018 will be a good year for me. I bought a new store in October, and from all indications, it’s going to be a barnburner. Also, I’m remodeling some stores, and I have an aggressive plan for 2018 and 2019. I already know what I’m doing for the next two years. Plus, I’m excited about the CLA’s Excellence in Laundry Conference next spring, as well as the continued growth of the LaundryCares Foundation.

William Bittner – Our economy is generally strong, but stock market investor sentiment is very much one of caution, perhaps skewing bearish. For that reason, I expect 2018 to be a year of growth for our industry as investors seek safer, recession-resistant options.

In addition, flexible payment systems will continue to grow, as we further transition to a cashless society. A major component of this will be harnessing the power of the smartphone. One estimate puts the national average of laundromat users who own smartphones at 70 percent. This number is going to grow. Equipment manufacturers and store owners will need to account for this fact in their offerings to customers.

Lastly, I think 2018 will see even more focus on manufacturers providing total management solutions – systems that not only give them valuable machine and operations data, but empower them to engineer marketing tactics tailored to their customers.

Joel Jorgensen – As long global markets remain on their current course, we forecast strong store development and equipment sales. There is a large inventory of underachieving stores, due to lack of progressive focus; more of these owners will look at equipment updates and the generation of new revenue streams during 2018.

Todd Fener – There will be more investment partnerships ramping up to seven-plus stores quickly. Partnerships don’t need to cash flow right away, allowing them to pay a little more per store to reach scale faster. Add to that all of the great payment and cash-monitoring systems, and you’ll be seeing more institutional investors next year.

Ron Kelley – I see the self-service laundry business remaining stable, if you’re in a lower income demographic. If your demographic is upper-lower to lower-middle, you will continue to see the evolution toward the full-service wash-dry-fold model.

Karl Hinrichs – I would expect the laundry industry to embrace the internet/phone pay systems. These are not going away, as millennials will be driving this technology. Like everything else in our industry, this will not happen overnight and it will not totally replace cash, but as more and more people start to leave their wallets at home, the smartphone will begin to replace currency.

Ted Ristaino – Barring some unforeseen incident that puts the brakes on the economy, 2018 should be another strong year. Low unemployment and low multi-housing vacancy rates provide a good opportunity for well-run stores. Wages began to rise at a faster rate recently, which means more money in circulation locally.

Many store owners don’t fear increasing vend prices, which improves margins. What’s more, natural gas is abundant. Add some wash-dry-fold and some commercial business to the mix, and 2018 can be another successful year.

Brian Grell – I see a robust market for the next several years, for both existing laundromats, as well as peak interest from investors looking to enter the laundromat space. Think back to the 1990s, when many “megastores” were built. These super-sized laundries, which reside in well-established locations, have become old, tired and inefficient, yet many are still profitable. These are the stores that enjoy substantially higher profitability and, as a result, become appealing to investors at significantly higher valuations. It will be hard to resist common sense and the proven successes of a retooling.

Steve Marcionetti – I think we will see an increase in existing store remodeling and re-equipping with more efficient machines and alternative payment systems. Society, in general, is expecting more from retailers – laundromats included. Consumers want more than just four white walls in which to get their laundry done. They want a comfortable place to spend a couple of hours a week – where their kids are safe and occupied, and where they can get a quality wash experience that they can’t get at their home or apartment.

Daryl Johnson – In three years, we want to be double the size we are now. I think the industry is very strong, and I’m putting my money where my mouth is.