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Learn moreSep 2016
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The institutional market in South Africa is diverse and includes a variety of public and private channels. During 2016 retail and wholesale recorded the highest growth in the number of establishments, which boosted demand for janitorial services, such as the cleaning of parking areas, toilets, and common areas in large shopping centres and malls. In terms of facility management, the commercial sector is the most advanced and is experiencing the highest growth as most companies are seeking to outsource facility management functions in order to focus on their core business. In terms of contract foodservice, it remains prevalent though various institutional channels, including hospitals, government and private offices, with the menus offered becoming increasingly diverse, while the retail and commercial industries continued to record the strongest demand growth for contract cleaning thanks to the opening of more retail parks as well as more commercial industries switching from in-house services to outsourced cleaning.
As profit margins continue to come under pressure and as the role of service providers changes due to the trend towards more flexible and mobile work spaces, service providers are adapting by offering a wider range of services. This means that the boundaries between various service providers, such as food service providers, facility management companies and contract cleaning companies, are becoming blurred. Large service providers in particular are moving towards a business model where they can provide a full portfolio of services to their customers, while smaller ones are fixing on servicing specific elements. Nonetheless, flexibility and ability to react to last-minute and unexpected demands are essential for all players in both winning, retaining, and extending contracts.
State-owned utility Eskom Holdings continues to implement rolling black outs as it struggles to meet demand for electricity. Energy-dependent businesses, such as small contract foodservice suppliers, are dependent on the availability of electricity to operate successfully. As such, frequent power outages make it very difficult for some players to operate in this market. Smaller operators are particularly badly affected as, unlike their large counterparts, they do not have the financial clout to purchase generators to enable them to maintain their operations.
The government will continue to pressurise institutions to comply with its Broad Based Black Economic Empowerment (BBBEE) policy, with the aim of distributing wealth across as broad a spectrum of previously disadvantaged South Africans as possible. As such, in order to win bids, companies which service institutions will endeavour to be BBBEE compliant, with institutions favouring companies that can prove their compliance. However, for many small SMEs, BBBEE compliance is becoming increasingly demanding and complex to achieve, especially since the BBBEE Act and codes were transformed on 1 May 2015, with the new framework enforcing companies to comply with requirements or face stiff penalties to rectify low compliance levels in previous iterations of this policy.
Institutional channels in South Africa will continue to employ a considerable number of people over the forecast period, especially in finance, insurance and business services, which is set to employ over 4 million people by 2021, as well as the government, manufacturing, retail and wholesale. Manufacturing is set to register a CAGR of 8% in the number of employees over the forecast period, with this established and diversified manufacturing base having been resilient in the face of global economic crisis. This will inevitably stimulate demand for other services, such as contract catering and foodservice, as well as economic empowerment of South Africans in general. Growth of facilities management is set to be driven by cost-cutting initiatives among end-users which will increasingly outsource facilities management to enable them to focus on core operations, while the construction of new infrastructure across all the major sectors will also have a positive impact. Contract cleaning is also expected to enjoy a positive outlook, boosted by technological developments and product innovation, a greater focus on environmentally-friendly equipment and cleaning products and better organisation of the sector as a whole. Moreover, as 50% of cleaning is still performed in-house, there is also considerable scope for further industry growth, with more cleaning work likely to be outsourced in the future.
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Overview:
Discover the latest market trends and uncover sources of future market growth for the Institutional Channels industry in South Africa with research from Euromonitor's team of in-country analysts.
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