The removal services industry in Europe is a highly competitive market, with hundreds of companies offering their services to customers. However, despite the high demand for these services, many companies struggle to achieve profitability. In fact, the average net profit for removal services companies in Europe is alarmingly low, with many companies barely breaking even or even operating at a loss.
According to IBIS World, a market research company, the average net profit is about 5%. In some national markets, the average net profit is barely above 2%. This is very risky, as any adverse market conditions such as covid outbreak, strong inflation or rise of raw materials such as fuel or cardboard boxes will have potentially a devastating impact. It’s worth noting that the profit margins can vary greatly depending on the size and location of the company, with larger companies typically having higher profit margins than smaller companies. Additionally, companies operating in urban areas with high demand for removal services may have higher profit margins than those operating in rural areas.
A rule of thumb, companies operating in any industry aim for at least 10% of net profit to be in a “comfortable” position. In industries with low average net profit, it can be very hard for a group of companies to raise capital and benefit from further Mergers & Acquisitions. Crucial providers of cash such as Private Equity (PE) firms will hesitate in investing in industries in the 5% to 10% range of net profit, as other deals will be more appealing. The Return On Capital Employed (ROCE) is directly impacted by this low profitability and the good use of cash for higher returns is really what matters for PE firms.
Therefore, market consolidation – and corresponding economies of scale – are harder in the removal industries. PE firms are helping consolidations, but investing in this industry can be challenging for them. They have an “opportunity cost” to consider : why invest in the removal industry when other industries have better returns? It is often assumed that the removal industry is not very risky, as it is quite stable : people always need to move, in good or bad economic conditions. But this low structural risk (positive) is offset by the structural low profitability (negative). That’s a pity : the removal industry would benefit a lot from Private Equity investments which brings not only cash but usually also better management processes and practices. The industry needs some level of consolidation, with leaders acting as an example for better services and higher margins. Their higher price setting usually benefits the whole industry and enable low-cost providers to exist as well.
One of the main reasons for this low profitability is the high cost of operating a removal services business. The cost of fuel, labour, and equipment is continually increasing, making it difficult for companies to keep their prices competitive while still turning a profit. Additionally, many companies are forced to offer discounts and promotions in order to win customers, further reducing their profits.
Another major factor that contributes to low profitability in the removal services industry is the intense competition. With so many companies vying for customers, it can be difficult for any one company to stand out. This often results in companies cutting their prices in order to attract customers, which can lead to a race to the bottom in terms of profitability.
The low profitability in the removal services industry also has a negative impact on the industry as a whole. Companies that are struggling to make a profit may cut corners on safety and quality, putting customers at risk and damaging the reputation of the entire industry. Additionally, companies that are not profitable may not have the resources to invest in new technology and equipment, which can limit the overall growth and development of the industry.
One strategy is to focus on niche markets, such as long-distance or international moves, which can command higher prices and more profit. Additionally, companies can invest in technology and equipment that can help them to operate more efficiently and reduce costs.
Despite the challenges facing the removal services industry, there are steps that companies can take to improve their net profit by a few percentage points.