Not Everything Is Clean, “Business”, № 24, July 2009

“Business”, № 24, July 2009

16th of July 2009

Text: Tatyana Nikolaeva

Photos: Gennady Minchenko

Reducing of customers’ budgets makes the market operators refuse from doing the complex cleaning service.

The Market

The cleaning market, which announced itself just at the end of 1990th, have been showing the fast speed of growth during the last five years (as the market of corresponding equipment, look “Business”, №14 from 06.04.09, p.91, 92). According to different estimations, the annual increase of new customers of cleaning companies used to be 30-60%, which caused the growth of the quantity of the operators themselves. Annually their number increase on 50%. Now there’re roughly 300 cleaning companies in Ukraine, 80 of those locate in Kiev. The most of their profit (up to 60%) belong to the Kiev operators, the 35% of the profit make the biggest cities companies, and the rest of companies make just about 5%. It’s fair to notice that the cleaning market of Ukraine still is on its first stage, even though it growth fast. The absence of serious research concerned the volume of the market, its potential and satiation proves it. It’ well-known fact, that cleaning divides on domestic one (cleaning of apartments, cottages, houses, movable property), commercial one (cleaning of all kinds of commercial estate, except for industrial one), industrial one (cleaning of industrial premises). Besides, the services are classified depending on their type and periodicity.

As a matter of fact, the experts claim, that cleaning services is an integral part of care of any building and premises and their systems (for example, ventilation, sewage system etc.). However the most of cleaning measures in Ukraine are done by housekeepers or non-professionals with the mop and bucket only. The cleaning companies, which do the outsourcing services of professional cleaning, occupy just the 50% of market, sometimes – even 10%. As a result the potential capacity of the market is up to $200 millions, but the real one is just $60 millions. For comparison: the volume of professional cleaning market of Russia exceeded $1 billion in 2008, according to the Russian researches (but the number of objects is higher there, and more than 2 thousands companies work their).

Who is cleaning and where?

The other sign of unformed market is absence of obvious leaders and clear dividing of part between the players. You can talk about their dividing on groups, depending on the quantity of clients and areas, which need to be cleaned. The big companies, the number of which is no more than 20 in Ukraine (“Beta-Cleaning”, “Vremya”, “Eurocity”, “Impel Griffin”, “Cleaning-Pro”, “Shaden Group” – listed in alphabet order) work with the same big clients, that’s why their staff is about 100-150 employees. Moreover, each enterprise has the park of expensive equipment and representatives all over the country. The part of these players is more than 50% of the market. More than 100 companies can be named as medium players (they have just 35% of the market) according to the same parameters – their staff is about 30-100 employees. Each enterprise uses cleaning equipment of medium price and the professional chemistry of the economic class. The small companies, which occupy just the 15% of the market and which staff is at least 3 employees, usually use the household chemistry and limit themselves with the narrow circle of services.

According to Vladimir Fevralev, the scientific director of International Institute of Building Care, the process of specialization is more common for small and medium companies. ‘The small and medium companies have the only one way to start the cleaning business. This is specialization. I would say, the businessmen started to develop the new segment of market. They chose the set of equipment and tools for the certain type of services (for example, windows cleaning of carpet cleaning, or trimming of any complexity). The equipment and tools are not necessarily cheap. Then the companies start to create a set of orders. Each businessman may get more money than the company with the staff of 20 people’, he says.

As for the sphere of cleaning, the most of big and medium operators of market work with the commercial objects. As a rule, the 70-80% of orders is made by shopping malls, supermarkets, hypermarkets, office centers, etc. The experts say, that this category of customers prefer to work with cleaning companies rather than employ their own staff of cleaners, buy and serve the expensive equipment.

As a result of strong price competitions, which lasted for more than one year, the work of cleaners in the commercial enterprises was depreciated. The profitability of business before crisis was less than 15%. As for the other segments, so the operators say they are not let in there (the national sector is well-known to have the opaque tenders). In the other cases, the sectors are not ready to buy the cleaning service. In Austria the hospitals never employ hospital-nurses, their job is done by cleaning companies employees. The Ukrainian hotel business uses the professional cleaning service very rare, because most part of their staff can’t combine the cleaning service with a hostess work (communicating with guests, helping them to pack their things etc.). The horeca uses the cleaning companies services just in the premises with big stream of customers, first of all in the fast foods. Even though, they usually keep their own cleaning staff.

The other source of the profit could be the logistic premises and warehouses, also the industrial premises, the quantity of which was growing very rapidly before the crisis. The problem is, that the clients are not ready for this service: they didn’t see the economical profit of the cleaning service. The reason is probably the mentality, which says: the cleaning is supposed to be done when it’s dirty. At the same time Europeans do the cleaning regularly.

The Influence of Crisis

The previous year the specialists hoped to double the turnover compared to 2007, but alas… “The crises did some corrections into these forecasts. The main source of the cleaning operators’ profit is fulfillment of contract with the corporative customers. The contracts are now under the question, because they directly depend on the construction and exploitations of new real estate objects”, Denis Kish, the general manager of Shaden Group says (Shaden Group is located in Kiev, does cleaning service since 2001, has more than 100 employees). According to his words, the permanent growth of demand is seen just in the sphere of private orders, but their part of profit is small in big and medium cleaning companies. The operators of market admit that their annual plans about the widening don’t have anything in common with reality, because the construction volume decreased.

“To get a client, we usually need to work for 3-5 months, from the very beginning of the constructional works. This year we planned to include some new orders into our portfolio. However we’ll have less of orders, than we supposed, because less areas are put into operation”, Andrej Rudenko, the manager of Platan Cleaning (Odessa, cleaning business since 2002, about 40 employees) says.

Besides, the cleaning companies faced the systematic reducing of “cleaning” budgets of their customers. “The first customers, who started reducing their expenses on cleaning since spring 2008, were the foreign investors and the banks. At first they regularly stopped the widening of contract (for example, the special premise service, care of natural stone etc.). Then since august 2008 the other customers started to reduce their expenses. In average the budget of service reduced on 20-30%, even though the volume of some orders reduced on 50%. But the number of clients left the same”, Vitalij Opanasyuk, the general manager of Impel Griffin (Kiev, complex service of real estate, disinfection, cleaning, since 1999, 1.3 thousands of employees) says. The other operators of the market confirm, that the customers started reducing the list of jobs, saving the support consumables and reducing the frequency of cleaning (for example, the fa?ade washing is done not every season, but once in a half year). They also ask about reducing the number of employees working at the object. Besides, the tendency of service splitting up appeared. If earlier the company ordered the full complex of cleaning jobs, right now it is satisfied just with local cleaning (windows washing, premises cleaning, dry cleaning of upholstered furniture etc.). Naturally, the saving mode affected on the profit of cleaning companies. But in order to keep the clients until “the best times”, lots of cleaners make such concessions. The other cleaning companies aren’t satisfied with it because of the low profitability of business.

“Of course, the fewer prices are asked by a cleaning company, the better is a client’s attitude. Before the crises the prices were growing each season because of the constant rise in cost of professional and household chemicals and support consumables. The last such rise in prices (because of the drops of the rate of exchange) was at the beginning of the crisis; however we couldn’t afford ourselves the rise of service prices. Since November 2008 to march 2009 the outflow of regular customers (30-40%) was seen in our region. At first lots of them asked to reduce the prices for 20-30%, but in that case it was better for us not to work with them at all, because the new prices lead us either the zero profitability or even to the minus”, Vladimir Bikmuzinov, the manager of Donbass Cleaning Company ltd. (Donetsk, since 2003, about 500 employees) says. According to his words, the named category of clients created their own cleaning service, but the cleaning company found another clients. The experts believe that the cleaning market could have grown after the crisis. Lots of enterprises, which earlier did the cleaning just by their own, do the optimization of the staff, expenses and should have chosen the outsourcing. But it happens just when the cleaning company can reduce the expenses of the customer for 50% and do the job even more qualitatively, that the cleaning service of the client. The cleaning companies can reach that result in two ways: by reducing the expenses and learning the new technologies.

“The small companies have the fewer expenses, that’s why it’s easier for them to survive. The big and medium companies may sell the business and even get bankrupt”, Vladimir Kucherov, the director of Kiev-Berlin Service (Kiev, selling of equipment, professional chemicals, since 1994, about 50 employees) says. The other experts say about the redistribution of market between the medium and big companies in favor of those players, which actively create the newest technologies of work. “There was a time, when the nets of cleaning companies appeared and had big orders without doing the service of the proper quality. Right now these nets start to break up. I believe, the market will have five biggest players, because their orders go to other operator. Besides, there’re some companies already, which sell the equipment and finish their work. But there’re those, which grow in different regions, not only in Kiev. However everybody admits, that it’s more difficult to get the orders than a year of two ago”, Vladimir Fevralev adds. As the experts say, the 30% of players may leave the market, another forecast – none will leave the market, but most of the companies will cease their activity.

Marketing Specialist – about the Entry Threshold

Anna Kondrasheva, the marketing department director of Mir Chistoty (Kiev, cleaning services, since 1994, about 120 employees):

– The entry threshold into the cleaning market is comparatively low, and the start price is roughly equal all over Ukraine. The volume of the seed money directly depends on the segment, which the company orientates on. $5 thousands may be enough for the businessmen to the business start, the bigger companies start with $50-70 thousands. The sum may reach even up to $500 thousands. However, the few companies in Ukraine have that volume of seed money – just the European operator may afford it. There’s a basic set of professional equipment, support consumables and tools, by which the wider spectrum of cleaning may be done. The expenses on cleaning may be reduced by buying the used technique. Plus the lend of the office in any place of the city. The expenses on promoting are not high, as the selling is done by phone (to the unknown client, Editor).

The cover of expenditures term may be up to 4-5 years. The longer the cleaning company is on the market, the wider fleet of equipment it needs to buy and serve, the bigger amount of employees it needs to educate. That’s why you may say, that the cleaning company always has to cover the expenditures. As a rule, it needs the money for further development. This is a main reason, that the most of small companies don’t reach the two-year life.

The budgets for cleaning services vary depending on the demands of client. The minimal amount for the businessman may reach more than 500 grivnas annually (the cost of the single service).

The maximum amount may be ten times bigger (depending on the variety of chosen services, cleaned area etc.) and be comparable to the annual budget of the corporative client. The same situation is with the companies which use the cleaning outsourcing – their annual budgets may be from 10 thousands grivnas up to 1 million grivnas.

Source: Business