Cleaning up Australia
Wednesday, February 20, 2008/
Cleaning services in Australia – tied to both the trend to outsourcing and the state of disposable income – is looking ahead to moderate growth. By JASON BAKER of IBISWorld.
By Jason Baker
Cleaning services in Australia has been tied to both the commercial trend to outsourcing and the state of domestic disposable income. The $3.9 million industry is looking at moderate growth in the near future.
Recent industry performance
The $3.9 million cleaning services industry grew at an average annual rate of 3.5% for the past five years to 2007-08.
In fiscal 2004 the industry enjoyed significant revenue growth after three years of relatively poor trading conditions, thanks in particular to business services outsourcing.
Revenue then fell in fiscal 2005 as higher interest rates affected household disposable income and the demand for domestic cleaning services. Similar conditions continued into fiscal 2006 with low economic growth having an adverse affect on industry revenue. Revenue increased during fiscal 2007 due to stronger economic conditions and growth in non-residential construction and household disposable income.
With similar conditions forecast in 2008 as in the previous year, real industry revenue is expected by IBISWorld to again increase.
The domestic cleaning market, which only represents 3% of the wider market, has grown, with the expansion of many franchised and professional operators providing either specialist services (such as window cleaning) or a broad range of domestic cleaning services.
For all operators there are likely to be greater opportunities in the government sector and in hospitals. Hospitals, which along with medical centres represent 3% of the market, will provide niche markets for specialist services, such as cleaning operating theatres where top quality service will need to be provided, but rates will be commensurate with general maintenance cleaning in hospitals.
IBISWorld forecasts that this industry will grow at an average annual rate of 3.1% during the five years to 2012-13.
For fiscal 2009, forecast good economic growth should increase real revenue growth. Associated growth in household disposable income, non-residential construction and outsourcing will all assist.
Some industry consolidation is expected, along with the possibility that major domestic players will expand internationally, in search of higher revenue and profit growth.
In 2009-10 the industry is expected to encounter far lower growth, due to forecasts of far lower economic growth. This will lead to a higher rate of contract cancellations and far greater price-based competition in the industry.
From 2010-11 onwards, the industry is again expected by IBISWorld to experience further strong growth as construction and investment in new facilities and buildings increases again, and from the outsourcing of cleaning and other related services.
There has, however, recently been some criticism of the quality of cleaning under some public tender contracts, particularly in the hospitals area. Some of these contracts were combined ones, offering both cleaning and food services to hospitals and patients.
The key sensitivities affecting the performance of the cleaning services industry include:
Business outsourcing – public sector. There has been a switch from government employed cleaners to private sector employed cleaners under the privatisation and outsourcing of non-core activities of businesses.
Expenditure by household income distribution group – high income. Higher income households are heavier users of outside domestic cleaning services.
Labour force – participation rate. The busier work and home lives of some households as well as two income households (income rich/time poor) has led to increased demand for cleaning services.
Number of businesses. The number of businesses, and growth in numbers, has a direct effect on the demand for cleaning services.
Real GDP growth. The overall rate of economic growth affects real growth in industry revenue, from review and cancellation of contracts, increased price-based competition etc.
Key success factors for operators in the industry:
- Ability to compete on tender. Ability to professionally cost and prepare quotes, tenders and contracts for clients for provision of cleaning services. Required service standards to match contact payment is vital.
- Ability to effectively change community behaviour. It is a necessity, like all service industries, to be able to communicate well with both customers and employees.
- Use of production techniques that add value to base product(s). It is imperative to be able to provide clients with a choice of value-added services at higher prices, at certain times. For example, a once a year full spring clean of a home. Or to have connections with other providers in allied service areas.
- Business expertise of operators. Self-employed cleaners should have some entrepreneurial skills, particularly in operating a small business.
- Having contacts within key markets. The ability to develop links with property managers, developers and real estate agents, as major client industries for cleaners.