Confidence is growing in Brazil’s textile care sector

Brazil has come under the spotlight of late as millions of protesters take to the streets. The country's economy has felt the impact of two years of low growth amidst signs that the consumption-led credit boom is coming to an end.
According to the IBGE, the Brazilian statistics agency, the country's GDP for the first quarter of this year grew by 0.6% compared to the fourth quarter of 2012 and by 1.9% compared to the same quarter in 2012. The cost of living for middle class Brazilians is rising rapidly - in the 12 months to mid-June, the inflation rate reported by IGBE reached 6.67%, up from the 6.46% reported in May. In addition, the Brazilian Real currencyfell to its lowest value since 2009. In response, the government decided to implement a strategy of monetary tightening designed to stem inflation and the Central Bank decided to lift SELIC, the benchmark interest rate, by 0.50% to 8%.
"This makes products more expensive for Brazilian customers to purchase," says Rick Kelly, vice president of administration at Milnor. "The markets are driven by exchange rate and tariffs and their impacts on final cost to customers. The general trend is not moving in a favourable direction at this time."
However, Kelly remains optimistic about opportunities in the country.
He explains that the reason for inflation is that economic growth in Brazil is good, projected to reach 3.2% in 2014 and he thinks that internal growth may create enough demand to offset exchange rate pressures.
The textile care industry in Brazil is still in the early stages of development.
The majority of laundries are independents. While there are a number of groups with large commercial laundries that have developed strategies for growth in the country, Kelly says the immediate trend is for independent laundries to open, especially in the Rio de Janeiro region in anticipation of important events such as the World Cup, Olympics and World Youth Day.
The move to commercial laundries is mainly concentrated in the large cities such as São Paolo as transport is a problem in more remote areas. "Therefore there is room for on-premise laundries in all business sectors and for more customised industry solutions," say Frank Schmidt, Electrolux's Brazil country manager. Juan Prado-Lopez, the company's global segment manager for commercial laundry, remarks that there is a growing need to modernise equipment.
Othon Barcellos, director of Rhino Máquinas and a member of the Associação Nacional das Empresas de Lavanderia (ANEL), the Brazilian laundry trade association, says that industrial laundries Alsco and Bardusch have more than 15 plants, which are mainly in the south and southeast of the country but they still have less than 5% of the total market.
"The number of drycleaners and industrial laundries is growing, mainly in medium-sized towns with a population of between 100,000 - 200,000.
"Brazil has 15 cities with more than one million people. "The best opportunities are in hospital laundries and hotel laundries."
Koen Vancampenhoudt, Jensen's head of marketing in Brazil, agrees that there are opportunities in the country.
"Many laundries are still in the middle of automation projects and others are planning for growth in the near future," he says.
He says that Brazilians are optimistic about their economic prospects and about their economy's resilience in the face of the difficulties in Europe and the USA.
However, he says the biggest problem that laundries face is a lack of qualified labour. "Laundries in pretty well all regions of the country have a hard time finding and keeping workers." He adds that staff turnover rates are typically high and therefore, automation is a high priority for laundries that are growing past 15tons per day capacity."
Fernando Cunha, Brazil country manager for Alliance Laundry Systems, agrees: "It is nearly impossible to find a candidate with experience in this business. The majority of laundry owners provide their staff with extensive training, which is a big investment." However with other industrial sectors also growing, labourers find it very easy to change jobs.
Cunha says this has caused new laundry owners to focus on self-service laundromats which require fewer workers. "When owners work with a quality distributor and manufacturer, their laundries can turn a profit. Currently, a properly managed laundromat can present a net margin of around 30 - 40%."
He too has noticed a growth in on-premise laundries.
"With the new construction of condominiums and apartment buildings, on-site laundry has become a huge amenity," Cunha says.
A similar trend is occurring in healthcare, hospitality and other sectors where, traditionally, most of the laundry responsibilities were outsourced.
However, in an effort to reduce expenses and maximise their bottom line, these businesses have started to handle laundry services in-house.
In addition, Cunha says, for sanitary and security reasons wetcleaning systems are increasingly replacing drycleaning.
"Currently Brazil has a huge installed base of machines that are obsolete and outdated machines in terms of energy efficiency, water consumption and performance," he says. "Due to this, owners and operators will be replacing old machines with those that offer state-of-the-art technology, increased efficiency and throughput plus network capabilities. This is likely to continue for the next decade."
He says laundry owners and operators need to be educated about the factors that differentiate each brand.
"Regulations differ from one country to the next, so it's important for them to choose a manufacturer like Alliance that specifically engineers the equipment to meet Brazilian safety and sanitation guidelines," he adds.
For Schmidt and Prado-Lopez at Electrolux, the core trend is increasing productivity and profitability with a reduced environmental footprint. "Efficiency means using less water and energy for wash and dry cycles. With the new Electrolux Line 5000, laundry operators will be able to reach the highest degree of efficiency in terms of productivity and profitability with an eye on the environment," they suggest.
Rick Kelly agrees that the market is increasingly looking at equipment and techniques to increase productivity, reduce labour requirements and decrease the use of utilities (water, electricity and fuel).
Brazil has a comprehensive set of environmental regulations although they are not always strictly enforced. However, Kelly says the country has a recent history of trying to be
self-sufficient regarding energy, a move that has led in part to encouragement of the use of renewable energy sources - such as boilers fuelled by wood-chips.
"From our perspective, customers are interested in tunnel washers and automated laundry equipment to address these issues," Kelly adds.
Koen Vancampenhoudt agrees and says that tunnel washing technology is not only totally accepted but is also seen as essential to the successful growth of industrial laundries.
Vancampenhoudt says it is relatively easy to get financing in Brazil, with very attractive interest rates although he qualifies this by saying that the special programmes typically only apply to Brazilian-made equipment. "High import duties and complicated custom procedures remain serious challenges for importers," he adds.

Penalised by bureaucracy
Marco Niccolini from Renzacci agrees , saying drycleaning machines and washer-extractors produced outside of the country are penalised by bureaucracy and customs duties, which in turn increase their cost to drycleaners. The country is known for the measures it has taken to protect local industry.
Inmetro is the national product certification body whose role is to classify and inspect the quality, security and, in some cases, efficiency of the goods commercialised in the Brazilian market. The body was set up in December 1973 and certifies products to ensure that they comply with the country's technical and environmental standards.
However, despite the tariffs and other regulations, Niccolini is very positive about the opportunities that Brazil and its expanding middle class offer to companies such as Renzacci.
More shopping centres are opening to cater for those with money to spend. Retailers such as Carrefour, which has seen sales rise in Brazil and is planning to expand in the country, draw customers who are disposed to pay to have their clothes cleaned and want better quality service.
Within the larger cities, many drycleaning shops form part of international franchising chains, Niccolini says, and they are looking to provide high quality, both through the equipment they use and the range of services they offer.
The chains include 5àsec, which has over 350 franchises and shops in the country; Bonna Seco, Lavasecco and Dryclean USA.
According to the Associação Brasiliera de Franchising (ABF), the number of franchising chains in Brazil's cleaning and conservation segment rose from 58 to 72 between 2011 and 2012, and revenues increased from R$730bn to R$1,055bn in the same period.
The figures also include self-service laundry chain Prima Clean Lavanderia Express; Minha Lavanaderia, which offers self-service, wetcleaning and other laundry services; laundry franchise Quality Lavanderia; and Restaura Jeans, which offers laundry, clothes dyeing and leather renewal and cleaning services.
Nelcino Nascimento, 5àsec's Latin America director-general, recently told Brasil Económico, "the market segment has much to explore. Only 3% of the Brazilian population use laundry services, compared to 85% in the United States and 46% in Argentina. ... The price of these services is still a deterrent but the greater the demand, the more accessible these services will be."
Nascimento suggested that Brazilians with newly acquired purchasing power would first look to purchase durable or semi-durable goods such as homes, cars and washing machines. Once those priorities were achieved, they would turn their attention to services, which explains the growth in demand for cleaning franchises and conservation.
Although franchises are mainly concentrated in the big cities, Niccolini believes that the smaller towns are beginning to want to replicate the advances in services and quality of the bigger cities.
He also sees a decline in the use of perc, although it is still the main solvent for existing machines and some cleaners will replace one perc machine with another when refurbishing the shop. However those opening new shops are interested in alternatives and Renzacci's Nebula and Excellence ranges are gaining popularity over its Progress perc machines.
Despite the current decline in the economy and high inflation rates, Brazil's middle class continues to grow and increase its purchasing power.
Events such as the 2014 FIFA World Cup and the 2016 Olympics are bringing a rise in hotel construction. In addition Brazil's energy, mining and other natural resources will ensure a growing economy for some time.
An improving economy will also open up more opportunities for the textile care markets.