Episode 13 – Hospitality Market: Trends and Opportunities

Welcome to the TRSA podcast. Providing interviews and insights from the linen, uniform, and facility services industry. Most Americans might not realize it, but they benefit at least once per week from the cleanliness and safety of laundered, reusable linens, uniforms, towels, mats, and other products provided by various businesses and organizations. TRSA represents the companies that supply, launder, and maintain linens and uniforms. And in this podcast, we will bring the thought leaders of the industry to you.

 

Welcome back to another episode of the Linen Uniform and Facility Services podcast by TRSA, sponsored by 6 Disciplines Consulting Services. I’m your host, Jason Risley, the senior editor of digital and new media at TRSA. Last week, TRSA hosted its inaugural hospitality conference at Walt Disney World’s Coronado Springs Resort in Orlando, Florida. The 2 day conference was attended by nearly 150 Linen Uniform and Facility Services industry executives and featured education, networking events, and plant tours specifically tailored to hospitality operators and supplier company executives. The first day of the conference featured a keynote speech by television personality Anthony Melchiori as well as sessions on topics such as hospitality textiles, convincing hoteliers to close on premise laundry operations, hotel market trends, and more.

 

The 2nd day featured planned tours of the Walt Disney World Textile Services 4th Laundry Operation and Hotelier Linen Services. To gain a greater understanding of the hospitality market, including trends and opportunities, on today’s episode, we’re going to listen to a presentation by Greg Eubanks of Standard Textile and Chris Kane of the PureStar Group recorded at the recent Hospitality Conference. Good morning, everybody, and welcome back to the, big hall here. My name is Bill Clark, vice president of sales of Kennedy’s Etech. Pleased to introduce our next session, hospitality market research, presented by Greg Eubanks and Chris Kane.

 

Greg Eubanks is group vice president of hospitality sales and marketing at Standard Textile Inc, headquartered in Cincinnati, Ohio. Greg’s been there since 1990. He’s led growth initiatives in healthcare, industrial apparel, and hospitality groups throughout his tenure at Standard Textile. Since 2002, he’s been responsible for the development and execution of Standard Textile’s hospitality strategic plan throughout North America. Chris Kane is executive vice president, corporate development for PureStar Group, where he is responsible for PureStar’s mergers and acquisitions activities, as well as other corporate growth initiatives.

 

Prior to joining PureStar, Chris was an investment banker, serving most recently as senior vice president at Moelis and Company, where he advised middle market clients across a broad range of industries. Began his career as a CPA with PricewaterhouseCoopers. Please join me in welcoming Greg and Chris. Thank you for the introduction. So before we begin, just on behalf of PureStar, I’d certainly like to extend our gratitude and thanks to TRSA, really appreciate, what Joe and Tom and their teams have, been able to accomplish by pulling this conference together.

 

It’s great as an industry to come together as a group, and so continuing on in that spirit of camaraderie, Greg and I have both prepared some information and some research that we thought, you as participants and attendees would find interesting, informative, and appealing. So I’m first gonna cover the hotel laundry market, and Greg will follow on with some research on the broader laundry trends within the hospitality market. So in addressing the hotel laundry space, and that industry and the market in its totality, Before we begin, I’d just like to pose a question to the audience. Anyone out there, can certainly put a guess in. How large do you think the hotel laundry market is in the United States?

 

And that is, what is the revenue opportunity for operators like us within the hotel market in the US? Anyone wanna place a guess? 3,000,000,000? It’s a good guess. It’s a little bit larger than that, but that’s that’s a good starting point.

 

30? 30,000,000,000? A little bit too high. Somewhere in between. The the 3,000,000,000, those are those are nice, end posts.

 

But we’re somewhere in between that 3,000,000,030,000,000,000. And I’ll walk through exactly how we get there, why the industry is as large as it is, why the industry is growing, and what are some other opportunities, maybe adjacent to the hotel space that are very similar, but also growing and present a lot of opportunity for our industry. So beginning with the top down approach, looking at the total number of rooms within the United States that sit within hotels, there’s 5,200,000 rooms. These rooms, on average, maintain 65% occupancy. And if you apply that occupancy over a full year, you get to 1,200,000,000 room nights.

 

And this metric is really the driver. It’s room nights. It’s it’s heads in beds. The occupancy and the total available rooms, those are important metrics, but they are really just part of the equation. And if you look at total room night demand in the US over the past 20 or 30 years, it’s been incredibly stable.

 

And the reason for that is obviously operators can adjust their ADR, so their average daily rate, to bring in more demand when they’ve got supply. They can adjust that rate. We are indifferent to that ADR metric in that flexing up and down, typically. We’re getting paid on pounds. We don’t necessarily care whether that hotel operator is getting $200 a room, or $150 a room.

 

It still generates a certain amount of volume of laundry for us to service. So just looking at the the addressable market, of that 5,200,000 rooms that sit within the United States, we think there’s about 1,300,000 of those rooms that are in hotels, that are in properties that have 75 rooms or less. There there is certainly an opportunity within this marketplace, but when we look at the total addressable market, we really look at the 3,900,000 rooms that sit within properties that are greater than 75 rooms. This is just we’re we’re built for scale. The 1.3 requires really a differentiated approach.

 

There’s a lot of ability baked into that market or that segment, but it’s just you’ve gotta change your business model a little bit to attack it. So stepping down and getting to our total addressable market, the guess of 3,000,000,000 was pretty close. We ultimately get to 4,100,000,000, and we’ve included in here, the inputs and the assumptions that get us to that level. It’s important to note that this market, we’re applying 37¢ per pound. This is purely a COG blended rate for room linen.

 

If you were to apply a rental rate, add in some more specialty, you could obviously flex the 37¢ up. So, we think these numbers are certainly valid, and and in some cases, probably a little bit conservative. The nice thing about the 4,100,000,000 is that it’s steady and continues to grow. As we see on the slide, we’ve we’ve maintained pretty solid historical growth. The expectation is that growth will continue into the foreseeable future and that growth is really driven by 2 very simple things, continued room night demand and pricing.

 

So, each year as we step into our price increases and and we process more volume, we get to 4% annual growth. So that’s the market rate of growth. Beyond that, we think there are some significant opportunities for the industry to generate outsized growth. If we look at the 4,100,000,000 of revenue that’s generated in that segment of the marketplace, the vast majority of that is serviced in house. So that’s volume that is serviced on premise through on premise laundries.

 

We just think about converting 1% of the market, every 1% is $41,000,000 of revenue for this industry, for for the people that are sitting in this room here by taking 1% conversion rate. And I know there’ll be a session and there’ll be a lot of talk about OPLs and how we go after that market, so I won’t delve into strategies on that, but that singularly represents the largest opportunity for our industry. In addition, we talked to I spoke briefly about the 75 room category. It’s a market that’s significantly under penetrated by outsourced providers. If you establish rental programs, if you work with with depots to attack that market where it may be geographically dispersed, there are ways you can service that market very profitably.

 

And that market alone is $1,400,000,000 of revenue. Outside the hotel space, I’m sure we’re all aware of, the emergence of HomeAway and Airbnb. These, avenues, these verticals continue to take share from the overall hotel, traditional hotel lodging space. The hotel lodging space continues to grow in spite of that, but these are certainly growing faster, and they generate close to, or they’re approaching a $1,000,000,000 market opportunity for the industry. This also requires a very differentiated approach.

 

You need to aggregate volumes. You can’t just do kind of one off Airbnb, but if you can aggregate those volumes, figure out a way to service that at scale, this is a huge market and it’s growing certainly faster than the traditional hotel space. Another vertical that sits right adjacent to the hotel space, I’m sure we all think about it, but it’s it’s the timeshare market. This is a huge market. It generates a $120,000,000 room a 120,000,000 room night equivalents.

 

Slightly different model, it requires being able to service at significantly higher volumes per room, but these generate significantly higher occupancy than traditional hotel rooms. So these are just some of the areas that sit outside the hotel space that as we think about as an industry, certainly want to be thinking about peering around corners because these generate and represent significant revenue opportunities for us all. Turn it over to Greg for, trends in the hotel hospitality Sounds good. Now for a brief message, What areas are the biggest challenges for facilities seeking hygienically clean certification? With 6 disciplines, I’ve had the chance to work with several laundry organizations and spend time in their plants.

 

Prior to working in the laundry industry, I worked in QA and project management for a large company in the energy sector. So I know that the challenges of getting and maintaining certifications are real. One challenge I’ve seen for the laundry industry is that many facilities haven’t had to document their procedures and keep records on such a wide range of topics before. The idea of having a comprehensive QA manual is new to them. Finding the time and internal resources to pull it all together can be an obstacle, but our service directly overcomes this obstacle.

 

In some cases, changes to the actual plan and service operations will need to be made. This requires planning, implementation, and training everyone involved. The plant and service managers have to work together and make sure those changes stick. Another challenge, specifically in the food service and food safety programs, is developing a HACCP plan. HACCP stands for hazard analysis and critical control points.

 

It mirrors the type of risk based analysis that the FDA requires for food producers and services. Developing a HACCP plan is one area that tends to be somewhat confusing for the laundry operators. But, really, there are great upsides too. Just the process of preparing for HCE certification will help make the organization better. Ideally, the management team can use preparing for certification as a way to do a thorough look at how they run the plant and make sure they’re up to date with the best management practices.

 

Not to mention the obvious benefit of becoming HC certified, which more and more textile customers are requiring. So, yes, there are challenges to getting ready for certification, and this is exactly why TRSA partnered with 6 disciplines to provide a third party service to help and guide its member organizations along the way. What is a good approach to certifying multiple facilities? First of all, each facility needs to have their own QA manual. You can’t get around that because each facility is different.

 

But certifying multiple facilities gives you a great opportunity as a company. What I mean is that you can use the hygienically clean best management practices to help standardize your operation across different locations. Where there are differences between buildings and operations, you’ll have to account for those, of course. These are things like airflow direction from clean to soil, which depends on the building layout. But at the level of a policy and many procedures, you get the benefit of being consistent across all your operations.

 

This is the approach I would take as your consultant and coach based on my QA experience and background. I’d work with a corporate management and starting from the agency standard, create company wide policies. These don’t have to be complicated, just a statement of your expectations for all sites. That ensures your consistency. Then I’d work with each of your sites.

 

Starting from the policies, we’d write straightforward procedures that state how they’ll implement the policies. In many cases, the sites will have common procedures, but there can be exceptions. If it meets your business and customer needs, I wouldn’t hesitate to certify multiple sites. How do you recommend preparing for multiple certifications at the same location? There’s quite a bit of overlap between all of the standards, so it’s certainly doable.

 

I’d recommend contacting TRSA for information about multi certification discounts that might apply to you. As your HC consultant, I would approach it this way. I would consolidate all the standards into one QA manual as much as possible. I’d make sure each section in the manual cross references the certification standards that apply. That way, you can be sure your procedures are complying to all the best management practices for the certifications you need, and you won’t be duplicating your efforts.

 

As you move through this process, it’s good to think ahead even if you wanna get one certification now and another in the future. Good planning will pay off for your next certification. An important focus will be to make it as easy as possible for the HC inspector. The more clear and organized the QA manual is, the better you can demonstrate to the inspector that you comply with all the requirements of all the standards. There is one exception in that the health care certification requires its own manual, but the process of preparing for a health care certification and another certification should take the same shared approach.

 

Six disciplines consulting and coaching will take all of this into account when helping you plan your certification journey. Just to wrap things up, how can our listeners reach you for more information? The best way to reach me is actually through TRSA. If you would reach out to Angela Freeman at TRSA, she refers people requesting help and certification through to me. Great.

 

Thanks for coming on the show today. Thanks so much, Jason. Now back to the episode. Chris, thank you for that, and you really hit some excellent points. So, you know when we look at the hotel industry from the textile side of things, you know, there’s there’s several trends that we focus on.

 

And, you know, hoteliers tend to rate themselves as 1, 2, 3, 4, or 5 star, or 5 diamond, whatever it might be. Really starts to be complex. And so, as Chris said, you know, what we really kind of look at is a market segment in 3 segments. We look at it, from an economy standpoint, a mid market standpoint, and a luxury standpoint. And, from a textile provider standpoint, you have to have different solutions for each of them.

 

But, where the opportunities like, as Chris mentioned, and I’ll certainly, validate that, is in the mid market to luxury opportunities. The economy properties, as you can see by this slide, or as you can’t see, in this slide, is that, 84% of the properties have their own on premise laundry in that economy business, with no flatware kind of nerves. That is the least expensive portion of the market with the least amount of margin. So, that those typically tend to be very basic textile items, and they also tend to be the lowest margin, opportunities. So if you focus on the mid market and upscale market, the mid scale markets in general, about 44% of those hotels have their own in house laundry, but with no flower counter.

 

So, there’s opportunities there. Then on the luxury side, 38% only have, on-site laundries without flowerworks. The ones that typically are luxury properties are typically have their own flatwork ironers. So lots of opportunities to get those to outsourced. And as as Chris said, if 1% of that market moves, it’s a significant revenue opportunity for this group.

 

But, you know, the brands are having a significant impact, on this market. It used to be you could go to a luxury property and say this is my my rental line, and this is what you get. Today, the brands are having significant influence over specifications and the products that go into the hotels. So it used to be that hotels would get an exemption if they had a rental service. Today, they still have to comply with the same brand specifications, in in order to not get dinged by their QA teams.

 

So, from our perspective, you know, there’s a huge difference between a laundry that’s focused on Best Western, versus Fairmont Hotels. So, there’s there’s really opportunities, to to get inside, those hotels with a specialized offering. And as you know, companies like PureStar, they do a significant amount of business that’s COG because of that reason. But the hotels are looking for really a consistent brand experience. And, it used to be that, amenities, for example, you went into a hotel and they were kind of generic.

 

The amenities, then became hotel oriented. You remember all the Holiday Inn bottles that you would see with shampoo and conditioner and those types of things. Well, those those largely don’t exist anymore because they’ve become branded either with, in this case, Paul Mitchell or whatever it might be. And and they’re also going very sustainable. We think, linen is ultimately gonna go that route as well.

 

So, we’re looking at things to, specialty brand linen, where before it used to be a very commodity oriented product. The hotels are gonna be looking to differentiate themselves. So, those laundries that embrace that and look at opportunities to either do COG or rental lines very specialized. I think we’ll have some opportunities, to convert hotels in the future. That consistent brand experience, that used to be what the hotels look like.

 

Obviously, they don’t look like that anymore. I can’t remember the last hotel I stayed in that actually had an old bedspread in it. But, those used to cover up know, the sins of their own in house laundry. Today, they’re looking to outsource because those those laundries that could run-in house and do okay, have wrinkled sheets underneath them, today, those are the top covers that they’re producing. They have a white triple sheeted bed.

 

So, those general managers and those owners that look at their property and say, gosh, you know, I used to be able to cover this up with a bedspread, now they can’t. So, that’s a real opportunity to talk about a quality differentiator, in a hotel laundry versus an in house one. You know, we, we think really focusing on consistent, whiteness offers a consistent brand experience, but also if you don’t specialize the individual textiles, what you can do is meet or exceed those brand specifications. So even if you don’t have individual products for every Best Western or every Hilton, as long as you meet or exceed those expectations, typically you’ll be okay, from a QA standpoint at the hotel. Really, when converting a hotel laundry to a, a rental program or an out or an outsource program, you obviously, we wanna focus on the cost savings, but meeting those brand standards would be important.

 

Obviously, saving the headaches and saving the FTE issues will also be really important. Because what we’re we’re seeing in housekeeping, the average housekeeper is spending 29 to 34 minutes cleaning their actual, the the rooms that they’re working on. And this is the area, like what we deal with, the area with the most significant turnover. You know, those those hotel laundries that can offer products that sort, by by queen and full and king and and have individual sorting that works for the hotel best, though they will be in a better position to convert those, hotel wanderings. Because what they’re dealing with with housekeeper turnover is also the aging, the aging of housekeepers.

 

Used to be that, 10 years ago, the average age of the housekeeper was 39. Today, it’s 40, 44 years. And so, the number one issue, that hoteliers are dealing with from a labor standpoint are back issues. Back workman’s comp back issues. That’s the number one claim that they’re having.

 

And so the things we can do to manage help them manage turnover in their own laundry, but certainly taking that and outsourcing it is a better alternative. But with that number one reported work claim, you know, we could offer products that are generally different and lighter than what, they had previously and we’ve all talked, you know, we want heavier weight products, from a revenue standpoint. But if you can strategically think I’m gonna offer a lighter weight product that will help them redo help the hotel reduce housekeeping injuries, that and convert to maybe a peace charge, that really is something that, you might wanna look at. Also, having the correct size for the products, you know, the if you look at the average hotel mattress, it used to be that hotel mattresses were indeed, 6 inches deep. Today, they’re 10, sometimes 16 inches deep.

 

So, those 44 year old housekeepers are having to lift those to tuck products in. So from a production standpoint, we all wanna run flat sheets, right? It makes more sense from a, from a production standpoint. But those hotelier or those laundries that go to hoteliers and say, we found a solution so you can offer fitted sheets to the actual hotel. Kind of the unspoken term we don’t want to talk about in this industry, fitted sheets.

 

But those who find a way to do it properly, will have an advantage in the future because those housekeepers just can’t lift those 12 16 inch mattresses to tuck under. And if you can’t offer fitted sheets, then certainly offering solutions for them like those tuckers that you can help bring that solution to them so they can tuck the actual, sheets. Also, getting the right sizes on the beds is critical, because you don’t want to have too much extra that really takes 8 or 10 inches to tuck in. That that is asking for a back injury. And from a bedside standpoint, focusing on king and queen is really what you need to do.

 

If you focus on kings and queens in your system, you’re going to hit, generally, 83 to 90% of all the hotel beds. You know, the fulls can be managed with queen flat sheets and then, fitted sheets would work well. And finally, what do the hoteliers look for when selecting a supplier? You know, one of the things that we really, you know, focus on is that the consistent quality. As a hotel laundry, it’s so important to go to the hotel and ask and and really tell them, hey, we’ve got we’ve got consistent quality in our products.

 

You know, my queen sheets don’t come in 98 98 inches one day, 90 inches the other. So having consistent supply is going to be important. We think that’s something that, we really see as the biggest complaint, is the lack of consistency from the laundries, and that’s why people are have angst about switching over to an off-site laundry. So if you can manage that consistency, manage the whiteness, I think you’ve got a real leg up. So that’s kind of it, an overview from Chris and I.

 

Thanks for your time. We appreciate it. Thanks for TRSA for setting this up. Hopefully, you gained some insight into the hospitality market that will help your company grow its market share in 2019. Opportunities are available for savvy operators to close down hotels’ in house laundry operations and earn extra business in the process.

 

To aid your business in convincing hotel operators to close their on premise laundries, TRSA has a hospitality OPL calculator available online at www.trsa.org/oplcalculator. Once again, that’s www.trsa.org/oplcalculator. Thanks again to our sponsor, 6 Disciplines Consulting Services. And as always, make sure you subscribe, rate, and review our show on iTunes, Google Play, and Stitcher.