When it comes to the topic of cleaning, John Garfinkel knows what he’s talking about. As Executive Director of ISSA, the US-based worldwide trade association for the cleaning industry, Garfinkel and his team represent all channels in the industry, from manufacturers to distributors and resellers to building contract service providers and in-house decision-makers.
OP players from all channels have shown an ever increasing interest in getting a slice of the commercial jan/san cake – the US portion of the industry alone is estimated to be in the region of $25 billion – over the past couple of years in particular.That’s why ISSA and its members are keen on creating greater awareness of the value cleaning brings to the facilities sector. If this cross-fertilisation results in more collaboration between the two sectors, all the better…
OPI: John, let’s start with a fairly generic question: how would you describe the global cleaning industry today?
John Garfinkel: Well, firstly I think it’s important to point out that most people don’t think about cleaning a great deal, certainly in a commercial environment. They take it for granted that something is clean unless they notice otherwise, so the cleaning industry’s most important mission is to create awareness of the impact that cleaning has on human health and on the environment.
So ordinarily, many businesses look at cleaning as a cost to be cut, like they do with any maintenance, repair and operations goods. Then all of a sudden a pandemic comes along – swine flu, bird flu, MRSA, currently everybody’s talking about Ebola – and whenever that happens people are suddenly worried about the spread of these diseases, they buy more hand cleaners and sales tend to surge [see also ‘Clean bill of health’, page 42].
But to really answer your question, the first thing to note is that the number of dedicated jan/san distributors has declined considerably over the last 15 years, in all developed nations, but in the US specifically by a magnitude of approximately 75%. So it’s gone down from about 20,000 at the turn of the century to what I think now is something like 5,000.
Something not totally dissimilar happened in the OP industry, of course, but the repercussions of consolidation, challenging economic times and simply a lack of succession planning have manifested themselves quite differently.
Whereas the remaining jan/san distributors have become real specialists, many OP dealers have evolved somewhat differently and have broadened out their product line beyond office supplies. The same thing is happening with other sectors like food service, plumbing or safety – they’ve all expanded and are now also selling cleaning products.
So the core of the cleaning sector has shrunk substantially, but the wider industry has grown hugely. In terms of distribution and the amount of warehouses servicing customers from a jan/san perspective in the United States, I would say exposure is bigger than ever.
OPI: But with so many players wanting a piece of the pie, is that not a considerable threat to the traditional jan/san distributors?
JG: My experience is that what threatens some people, others see as an opportunity. For real entrepreneurs, the biggest threat is usually the best opportunity. Industries age and people get used to doing things in a certain way; they see everything as a threat rather than looking at it as an opportunity. Many companies – in my sector as well as others – go out of business because they are too slow in adapting.
In the cleaning sector, certainly, the supply chain has been changing quite a bit.
OPI: How so?
JG: It’s essentially following what’s already occurred in other industries years ago – office products included – the overall idea being to take as much cost out of the system as possible.
In the US, for example, historically the majority of relationships were between manufacturers and dealers/distributors. This is now changing, with considerably more product being sold through wholesalers or redistributors these days.
There are a handful here that dominate the field: Bunzl, a huge and well-known player in the sector; Lagasse [United Stationers’ jan/san division]; RDA Advantage, a $500 million buying group made up of independently-owned redistributors of food service disposables and jan/san products; and of course increasingly so the two major OP wholesalers United Stationers and SP Richards.
That transformation is affecting independent dealers. On top of that, there’s a bigger trend going on, globally I believe, and I alluded to that earlier. All the industry lines are blurring: the MRO sector has come together under one umbrella, then we have industrial products, the food service industry, OP… and they all want to sell cleaning products.
OPI: What does that mean for traditional distributors in the cleaning industry?
JG: Well, I think that the traditional distributors that are surviving in this industry are doing very well.
OPI: Is the sector growing?
JG: Yes, it is and the cleaning products industry, definitely in mature markets, tends to grow a little faster than the economy as a whole, so if the general GDP of a country is growing at 2%, you can expect cleaning products to be growing a bit faster than that, even without these health scares when they tend to spike considerably more.
In emerging markets such as countries in Africa or even in parts of eastern Europe, the growth rate for cleaning products could be triple or even quadruple that of GDP.
In the poorer countries, knowledge about proper cleaning techniques is far less sophisticated; also, these countries simply cannot afford the products. But as their economies develop, the cleaning industry becomes a real beneficiary.
OPI: So does the industry pretty much work in tandem with the global economies, at least in the developed world?
JG: To an extent. You have to separate it out a bit. Cleaning as a whole is not as cyclical to the economy as many other industries are. It does have an impact because, as unemployment increases, you certainly have swings in the amount of product needed for cleaning. But generally, if you own or occupy a commercial facility, you still need to keep it clean.
There are basically two different product categories. One is the capital goods, such as the machinery for cleaning carpets and polishing hard floors, or something as simple as a vacuum cleaner. The other is the disposables side.
You won’t see much in the way of cyclical swings on the disposables side – it varies by 3-5% in terms of product sales. It’s just something you need to have.
For capital goods, it’s very different. In a bad economy, your service requirements go up in terms of the services that you need to provide to maintain machines. But your sales of new equipment would decline much more severely – by 20% or even more during slower economies.
OPI: How important is product expertise in this sector?
JG: Again, it really varies. Where product knowledge is really important is on the chemicals and on the machinery side. To really know about the products and how to use them in these areas requires extensive training and professionalism.
If companies such as OP dealers, for example, or even the wholesalers, are looking at jan/san as a commodity line – and things like toilet paper or bin liners obviously are – expertise is usually not an issue and it’s all about the lowest price and the fastest delivery.
But when you run into a health scare like bird or swine flu, it’s a very different situation. Then customers want expertise and knowledge, and here often lies the problem for OP companies that have originally gone for the low-hanging fruit in the category – they’re out of their depth.
There are other service-related questions like ‘How do I get that stain out of my carpet?’ or ‘How do I use this machine?’ that wouldn’t pose a problem for the traditional operator in this field, but it definitely would for the OP newcomer.
As end users start to look for the experts in the field, my belief is that they continue to favour the traditional jan/san distributors or indeed directly the manufacturers that have the expertise.
OPI: So that’s the jan/san distributors’ core USP and also the main obstacle for OP [and other] players venturing into the sector?
JG: Yes. If OP dealers want to keep the higher margins that come with some products, rather than being a low-cost, low-margin supplier, they have no choice but to become experts at what they’re selling. And I would speak in favour of acquisition to get that expertise. Another way would be to recruit specialists into their internal sales and marketing organisations. ISSA also offers resources and education to help develop that knowledge.
OPI: You mentioned fast delivery earlier. How does the cleaning industry compare to the OP sector in terms of its logistics capabilities?
JG: Certainly historically, I don’t think next-day delivery was commonplace. Maybe if you were located in New York City, San Francisco or Chicago, you might have gotten that level of service from your local distributor, but generally the supply chain in cleaning products in the US was nowhere near as sophisticated even five years ago. Today it’s almost expected as you compete with the likes of Amazon and Staples, but it’s still catching up in terms of delivery expectations.
OPI: What ultimate impact do you think the increasing move of OP resellers into the cleaning category will have on the industry as a whole?
JG: I don’t think there will be an impact in terms of buying, because the buying is driven by the end market. But one growth factor will come from the higher value proposition as the ultimate end user of the product – and the one who approves the final budget for cleaning – becomes increasingly aware of the value of cleaning. That growing awareness is also key to what we’re trying to do at ISSA and with our members.
That said, I do believe that OP dealers venturing into the jan/san category is a good thing because the more distribution is able to service the industry – with the appropriate service and training and all that it entails – the better for the marketplace.
Of course, some people won’t like it because it creates a new competitive threat, but the overall impact on the marketplace will be one of more efficiency as a result of that competition.
There’s a great opportunity here for OP dealers. I have met with the management of TriMega and their leadership and I am very excited about their interest in the category. As you know, we’re also running a special day at ISSA/INTERCLEAN in Orlando in November to try and help OP dealers understand the cleaning business.