Source: Service Management
Next month ends a year of previously completely unexpected economic developments. Unprecedented inflation, a rapid rise in an interest rate still extremely low at the beginning of 2022 and an explosion in terms of energy prices. In that uncertain climate, the cleaning industry must deal with an inevitable price rise of an estimated 8 per cent.
As is customary in this period, we tried to establish what price adjustments the larger cleaning companies will make. We now know what is in store for SMEs in this sector, as the employers' association SIEV (Schoonmaken Is Een Vak) recently conducted a survey among its 200-plus members. That poll showed that 47 per cent of SMEs want an increase of between 4 and 6 per cent, while 40 per cent go for higher, namely 7 to 9 per cent. Interestingly, 7 per cent chose not to index, while the same percentage said they envisage a price increase of 1 to 3% per cent.
However, these are unprecedented economic conditions that call for more interpretation than can come from a survey. The current collective agreement in cleaning continues for another 18 months, until June 2024. The agreed wage increase for 2023 is 3 per cent, consisting of 2.75 per cent CAO wage and a year-end bonus of 0.25 per cent. Looking at the wage paragraphs within the collective agreements of the BV Nederland, it does approach the average, which currently stands at 3.19 per cent over the past 12 months. Other wage-related social charges will hardly change in the new year for the cleaning sector, apart from a 0.3 per cent increase in the Ras premium. But the devil, as usual, is in the tail.
Inflation and labour crunch
Barren economic conditions boosted inflation to unprecedented levels. Whereas in recent years it averaged 2 per cent, it reached 17.1 per cent in September (according to CBS) and 16.8 per cent in October. Despite the fact that, relative to labour costs, this is only a small proportion of costs, these percentages do represent a game changer. Assuming an 80/20 ratio - labour costs versus other costs - the nominal share of the Consumer Price Index was previously less than 0.4 per cent. But with these inflation rates, it comes to almost 3 per cent.
But the ghost of inflation is not the only thing that will drive up prices for cleaning services. The unusual labour shortage means that in several areas - see also Schiphol - more money needs to be put on the table to secure continuity among clients. Several larger cleaning companies were the first to mention costs for recruitment, simply recruiting enough performers. To fill a vacancy at one workplace, costs this year are already three to eight times higher on average (with strong regional differences) than just a few years ago. On top of this, turnover is also heftily higher as jobs are literally up for grabs. The 10 per cent increase in the minimum wage does not help either. After all, this only makes the original difference compared to a cleaner's salary smaller, making this profession lose some of its attractiveness.
All this also makes for substantial additional investment in employee retention. Apart from this, there is the cost of replacement, as average absenteeism due to corona has risen by just over 10 per cent on average. Like many performers in services, cleaning workers are also being hit hard by the current inflation rate, which is already higher here than in neighbouring countries. This requires the employer to be alert and take additional and preventive measures.
Forecast: between 7.5 and 12.5 per cent
From a purely arithmetical point of view, the wage costs lead the inflation adjustment on other cleaning service costs to an indexation of 5.54 per cent. That is made up of 80 per cent x 3.3 per cent wage-related plus 20 per cent x 14.5 per cent inflation. However, partly given the results of the SME employers' survey cited earlier, it is highly unlikely that that almost 5.5 per cent price increase will become the norm. To be clear, at the end of 2021, a much more economically stable year, prices for outsourced cleaning services increased by almost 6 per cent as of January 2022.
There is another aspect that will influence the final price for cleaning services provided in 2023: in many cases, sanitary supplies such as paper, soap and towels are also provided to the client within the existing cleaning contract. However, that specific service with laundry and transport, as well as by raw materials for cotton and paper, has an entire cost trajectory. We understand that one of the largest suppliers of sanitary products intends to confront its customers, including cleaning companies, with a 15 per cent indexation.
Enquiries within the top 20, mainly rural cleaning service providers, reveal that based on the current economic climate, the majority say they will pass on a price increase of between 7.5 and 8.5 per cent.
Given all these factors, it is actually inconceivable that certainly the larger companies in this industry will end up at an almost identical rate as in early 2022 (6 per cent) by January 2023. Enquiries within the top 20, especially the national cleaning service providers, reveal that based on the current economic climate, the majority indicate they will pass on a price increase of between 7.5 and 8.5 per cent. This is a minimum, as editors were also privy to correspondence in which one such national provider informed existing customers that the price indication as of 1 January 2023 has yet to be determined exactly, but that the client should assume that the increase will be between 7.5 and 12.5 per cent. A record, as far as we can tell, as far as outsourced cleaning services are concerned.
