26 August 2015 | Herpreet Grewal
One of the major issues facing the contract cleaning industry is bearing the costs of the recently announced national living wage, according to market research into the industry.
Chancellor George Osborne announced the wage in this summer's Budget. The introduction of the new living wage will mean that over-25s will receive an hourly wage rate of £7.20 an hour from April 2016, rising to over £9 an hour by 2020.
The report by AMA Research Ltd. states that while some of these costs would be absorbed, "the rise is substantial and will have a major impact on the contract cleaning industry where average pay rates are low and labour costs represent a high proportion of contract prices".
As a result, this would "inevitably drive the market upwards and is also likely to drive growth in the equipment sector as larger employers look to increase productivity levels to offset higher labour costs".
Otherwise, the contract cleaning is "a mature and highly fragmented market" and "one of the most competitive of all the contracted-out sectors", it adds.
Despite the difficult economic climate over the past five years, and continued cuts across budgets in both the private and public sectors, the market has performed "reasonably well compared to the wider FM and construction industry".
Although the market was affected by the UK economic downturn, it has benefited by increased standards in cleanliness demanded by key areas like health and food hygiene. Many contract cleaning companies have reported relatively healthy levels of profitability and the market has seen steady growth with further modest growth forecast until 2019 reflecting ongoing recovery in the economy and rising costs.
The report adds that it seems likely that demand for bundled services contracts will continue to be a strong driving force in the market over the next few years.
It has already become a key factor behind the number of acquisitions of single-service providers by FM companies, particularly into specialist sectors such as energy management.
The UK market for non-domestic cleaning products, including equipment, materials and chemicals, has been largely flat in recent years and only modest growth is forecast for the 2015-2019 period.
To read the report, click here.