Eastern Europe has seen a huge turnround in its economy during the past 12 months.
In the early years of the present decade, countries that had previously been Soviet dominated but had now joined the EU rediscovered some prosperity and made impressive progress.
The Baltic republics, for example, clocked up double-digit economic growth and Romania recorded the world’s largest number of new registrations of fashionable Porsche Cayenne cars last year.
The makers of laundry and drycleaning equipment found good, if not rich, pickings until the financial collapse shook the world. The downturn hit Eastern Europe badly. Baltic countries saw their economies shrink severely. Unemployment in the Czech Republic grew to reach double figures.
Poland had been the most successful of the ex-communist states but with the recession its production immediately dropped by 5%.
Demand for exports fell off, partly because of hard times in Western Europe. Lay-offs and wage cuts followed and Western banks stopped the cash flow.
The European Union had to find funds to rescue its strapped members. As a result of the decline, both business and domestic customers cut back their spending on laundry and drycleaning while the members of the textile care industries that might have wanted to invest in equipment found banks stonewalling on financial help.
Nevertheless, at least some countries’ fortunes may now be changing slowly.
Poland has a solid small- and medium-sized business base and this is persuading the government to forecast 1.5% economic growth for the end of 2009 and the beginning of 2010.
There are signs of optimism not only in Poland but also in the Czech Republic and Slovakia. This is partly because of an improvement in the vehicle manufacturing sector. Western and Asian companies set up modern plants in these countries under the new regimes and the signs are that business will soon expand because cheaper labour will produce cheaper cars.
So Eastern Europe is seeing a second turnaround, this time a positive one, and the marketplace is now being widely talked about as one with “potential”.
While many of the countries are in a state of stalemate, as Karl Schubert, general manager of Milnor International, puts it, stalemates can be broken and the laundry equipment suppliers generally sound optimistic.
Schubert says his company has put a number of projects for investment and replacement on ice and is now waiting for customers to be able to draw loans from the banks. Fortunately, he says, Milnor has had a business base in the East since the Soviet Union was disbanded.
Other Western groups are establishing plants ready for the recovery, says Schubert. Indeed, Lindström from Finland, Berendsen, in Scandinavia and Britain’s Rentokil Initial are already operating their textile services in the Czech Republic and Christeyns, the Belgian company that produces chemicals and water and heat recovery systems, is building a factory at Ostrava that will open in a year.
Next year will bring economic improvements, predicts Bernard Jomard, managing director and export manager of Danube International.
“Prospects will be good next year,” he says. “We’ll start to pick up.”
Wim Demeyer, commercial manager of Lapauw in Belgium is also cheerful about prospects. He describes Eastern Europe as “a promising market” and says that lots of people see good prospects on the way.
Demeyer reports that several Lapauw projects in Estonia and Lithuania were put on hold when the crash came but now he expects good business from the Baltics because all three countries are driving hard for tourism.
John Balman, senior European sales director of Alliance International, is equally positive.
“We do believe there are still many opportunities in Eastern Europe and we’ll continue to invest in expanding our share,” he says.
There is one important key to most of the investment in Eastern Europe. The companies that qualify for European Union grants are the ones most likely to find favour with their banks. An injection from Brussels is often enough to encourage a bank to top up with a loan and Stig Jallor, Jensen-Group’s Eastern Europe sales director, observes: “Support from the European Union in Poland has been good.”
In addition, the Polish banks are in better shape than most because they were not so tied up with their counterparts in Western Europe and are therefore more prepared and able to lend. So the Jensen Group has recently been able to install equipment in eight laundries in Poland.
Jomard rates Poland as an Eastern European country where business is good for the laundry equipment makers – along with the Czech Republic, Croatia and Georgia.
In Jomard’s assessment business is “acceptable” in Bulgaria but slow in Romania and Hungary. Ukraine is still a poor prospect and Jomard says business there is?“on hold”.
However there is still some confusion about the exact state of play as the view of a particular country may vary from manufacturer to manufacturer.
Milnor reports it is selling in Poland, Hungary and Romania, and is hopeful of Bulgaria because a large American military base has just been established there.
The base and all the services around it are bound to inject something into the laundry business.
Lapauw’s experience is that many new laundries are being built in both Croatia and Poland.
Meanwhile, the Spanish manufacturer Girbau is doing good business in the hotels, spas and resorts in Poland, the Czech Republic, Hungary and Ukraine.
Charlie Betteridge, the managing director, central Europe for Christeyns, reports that “quite a few Ukrainian laundries” are opening this year, despite a troubled economy and a devalued currency.
The laundries of Eastern Europe are now looking for modern machinery because it can bring savings, just as it has done for those in the West. Gas-fired technology, for example, is in demand, particularly in the Czech Republic, Slovakia, Slovenia and Croatia, because it saves on energy and installation costs, says Jensen’s Jallor.
The continuous batch washer is another popular product because it economises on water and it enables water to be recycled, which is an important environmental consideration.
Businesses are now looking at automation to speed the workflow and cut costs through greater productivity, particularly in the Czech Republic, says Peter Kozlowski, Kannegiesser’s Eastern Europe sales manager.
But Balman of Alliance International says that laundries in the Balkan countries and the former Soviet republic are still slow to embrace developments in technology.
These countries are also less advanced environmentally, though Western companies operating in Eastern Europe are observing the widely accepted new standards. Milnor’s Schubert is sure that environmental regulations will soon be introduced.
However the current tight economy is still influencing market development. Joseph Capdevila, Girbau’s area manager, says that some laundries are seeking out second-hand equipment and are buying machinery that is being discarded or replaced by German companies. However, while this minimises costs, Capdevila says this “second-hand” equipment is not modern and will not improve efficiency.
Rising tourism, particularly in Poland, is encouraging investment in modern machinery. New hotels are being built and old ones refurbished so commercial laundries and textile rental companies are gaining business.
Possibly the most interesting development is cross-border trade. Schubert reports that some laundries are being built in Poland to serve the German market. Polish labour and overheads are cheaper, so it makes economic sense for German customers to send laundry into the neighbouring country.
A lot of linen from Berlin hotels is taking this route as the German capital is only an hour’s drive from Poland. Further North, Balman says that many customers in Finland are sending linen to laundries in Estonia.
As laundry practices develop in Eastern Europe, so does drycleaning. It is a young industry ripe for development, according to suppliers.
Mark Davis, export executive at the manufacturer Union, sums it up: “It is still considered a future market. They’re coming around to the Western European way of thinking and slowly catching on to our way of doing things.”
One example of this Western influence is the growth in franchising, especially in Poland and Bulgaria. It is a sign of confidence that companies are prepared to franchise their operations and that entrepreneurs are keen to buy into them.
Thomas Zeck, commercial director of the Kreussler chemicals company, is pleased to report good markets in Poland and the Czech Republic, slow improvements in Hungary and hopeful signs in Romania, though this country still has economic and organisational problems to overcome.
Drycleaning’s growing popularity may be partly attributed to economic reasons.
Zeck explains that people in these countries want to extend the life of their garments. Therefore, most bring clothes from quality brands to the drycleaner more often to make them last.”
Drycleaning is now spreading into hotels, noticeably in the Czech Republic and Romania. Davis finds drycleaning units are being opened inside hotels in the large chains in the bigger urban areas.
This growth, of course, is in a fledgling industry and is not generating huge business yet.
Roberto Grandi, sales manager at Realstar, strikes the balance. “It’s very slow at the moment,” he says. “We need a lot of improvement but I believe the potential is good. Business is a little better than a couple of months ago although I’m still not happy about it.”
The sticking point for drycleaning companies, as for laundries, is the scarcity of loan finance. Investment is also needed to update machinery to good environmental standards.
Grandi ends optimistically by saying that as economic conditions improve, drycleaners may be more interested in adopting environmentally friendly practices.
Already he sees an improvement compared with a few months ago, so he is hopeful for the future.
