Cover Story – Cleaning up

Posted on May 1, 2013 :: Cover Story
Sean P. Johnson
Posted by , Insight on Business Staff Writer

Photo by Shane Van Boxtel/Image Studios

Alliance Laundry applies a simple philosophy for success.

“We build for life,” says Mike Schoeb, president and CEO of the world’s largest manufacturer of laundry equipment. “We know we have a great product, so the challenge is to always provide greater value. When we make it better, it makes our company better.”

Schoeb and the management team at Alliance Laundry Systems, based in Ripon, say they’ve improved efficiency, refined computerized controls and focused on superior construction. What sets the company apart, however, may be a company-wide passion for product reliability.

They want their machines to work, every time, well past the point end-users have recovered their investment. Then they want to make them last even longer.

“The dirty laundry never stops coming,” says Bob Baudhuin, vice president of engineering at Alliance Laundry. “Our clients can’t afford to have machines that don’t work.”

And perhaps no one understands that better than Ron Feinstein, owner of the largest privately-owned laundry company in the United States. Feinstein has learned a couple of hard and fast truths about the laundry business in his day. One is that people will always need clean clothes, a truth that has helped insulate the industry from economic downturns and makes it a great investment. The other truth is that the best way to take advantage of the first rule is to use washers and dryers built by Alliance Laundry.

As the owner of All Valley Washer Service headquartered in Van Nuys, Calif., Feinstein owns nearly 35,000 machines he maintains and operates on college campuses, apartment complexes and military bases throughout southern California, Arizona and Nevada.

“We’ve used a lot of manufacturers,” Feinstein says. “But we’ve always had Speed Queen. We’ve always used them because they are reliable.”

That reliability is critical for Feinstein, who is referred to, in laundry business-lingo, as a route operator. Feinstein owns and services the equipment installed in various locations across his three-state territory. He needs machines that are reliable and can withstand thousands of loads – and some rough handling.

“If something goes wrong, we can be looking at an 11-hour drive to some of our locations,” he says. “We need to know we have machines that are going to work, and when there are problems, know we have a partner that will help us get the problem resolved.”

Feinstein has done his own tests and knows he can count on Speed Queen, one of several brands manufactured by Alliance Laundry at the company’s Ripon facilities. In the past, he has installed both Speed Queen and machines from another manufacturer in similar residential settings to determine how different brands perform.

What he found was fewer calls for service in the locations with Speed Queen equipment. When he did have a problem, the technicians and engineers at Alliance provided a solution – a service he found lacking in the competing brand.

“It was six months before (the Alliance competitor) even responded, and then they still didn’t have a solution, they were just hoping that we figured it out on our own,” Feinstein says.

 

Humble origins

It may be the leading manufacturer of commercial laundry equipment in the world, but the company’s origins are quite humble. Alliance traces its roots back to 1908, when the company introduced a hand-operated washer, and you can still see an early model of those first washers in the lobby of the company’s headquarters in Ripon. It does seem a bit out of place standing next to some of the company’s more modern offerings.

Some of the new stainless-steel giants can hold up to 200 pounds of wet laundry and have computerized control systems that can tell, for example, if the machines are using too much water, or send a text message to a college student waiting for an open machine in the college dormitory.

The Speed Queen brand appeared in 1938 with the introduction of stainless steel washtubs and by 1952, the company’s machines were fully automated. Organically and through acquisition, the company has grown substantially, and now provides equipment under six brand names with manufacturing facilities in Ripon (Fond du Lac County) and Belgium (Europe). Alliance Laundry Systems sells equipment to three primary segments of the commercial stand-alone market:

» On-premise laundry such as hotels, hospitals, nursing homes or prisons

» Laundromats, referred to in the industry as vended laundry

» Multi-unit housing such as apartment complexes, universities and military installations

While its forte is commercial laundry equipment, Alliance reentered the consumer market in 2004, having been excluded after it was sold off by Raytheon in 1997 when that company divested itself of all non-defense industries. Raytheon prohibited sales in the consumer market when it sold off another of its consumer products divisions.

The Alliance leadership team is optimistic the company can reclaim and exceed its previous share of the consumer market by offering a version of its Speed Queen line, which it says has a useful life two-and-a-half times longer than other consumer washers or dryers.

“It could very well be the last machine that someone ever buys,” Schoeb says.

To put that in perspective, the typical home laundry machine is designed to last 3,000 to 5,000 cycles. Alliance designs its machines to last at least 10,000 cycles.

Alliance’s focus on building superior machines has produced a superior balance sheet. The company’s revenues in 2012 topped $500 million, capping a two-year run in which it surpassed the sales figures it posted prior to the Great Recession, which saw the company’s revenues dip to $393 million in 2009 from a high of $460 million in 2008. The company has always posted profits.

“We are looking at our 10th straight year of record profits,” says Bruce Rounds, Alliance Laundry Systems chief financial officer.

In part, the recessionary trends that hurt sales also helped Alliance by reducing the cost of its raw materials, Rounds explains. Since 70 percent of the cost of its product comes from materials such as steel, declining commodity prices allowed the company to better weather the recession.

Additionally, many customers used the recession as an opportunity to upgrade their equipment to more efficient models that helped them control costs.

 

Ownership: Ontario Teachers Pension

Of course, there are more ways to measure success than gross sales. Alliance Laundry System’s EBITDA earnings from 2005 to 2012 consistently show a year-over-year increase along with growth of 5.6 percent during that same time.

It’s that kind of financial performance that drew the attention of Alliance’s top investor, the Ontario Teachers Pension Plan, which in 2005 acquired a majority interest in the laundry equipment manufacturer. OTPP, through Alliance Laundry Holdings, owns 83 percent of the stock, while the Alliance management team indirectly owns the remaining stock.

“We purchased Alliance Laundry, because it presented us with an ideal opportunity to invest in a global leader with established brands with a strong and experienced management team at the helm,” says Deborah Allan, a spokeswoman for the OTPP. “Alliance was, and continues to be, well positioned to continue its global growth, given its leading product offering and focus on research and development.”

For Alliance, the OTPP ownership has proven positive.

“They are a patient investor, and a long-term investor,” Rounds says. “We can take a longer view and talk about things a couple of years out rather than worry about the next quarter.”

The financial health of Alliance Laundry Systems is just one of many indicators of the company’s success the past several years. Another tangible sign is the expansion project announced in September 2012. The company will spend an estimated $23 million to add 20,000 square feet of manufacturing space to its assembly facilities.

The expansion is being fueled by demand for Alliance’s small-chassis washers and dryers, and the expanded facilities will enable Alliance to increase its capacity by 40 percent. That means additional staffing as well. Alliance plans to add 250 employees in the expansion, much of that growth starting in May.

Alliance’s workforce will top 1,500 employees when the project is complete, which is expected later this summer.

“We have a very unique product and we continue to see demand increase,” Schoeb says. “No one else really has the complete package we do.”

That complete package refers to more than just the machines.

A critical component of Alliance’s complete package is the company’s Customer One service program, which was started by Schoeb’s predecessor. The program’s mission is a simple one: “To delight the customer with each and every interaction.”

As Schoeb likes to add: “That’s easy to say, hard to do.”

But that mission drives the staff in everything they do, whether it’s the development of online training and certification programs for supplier technicians, or having its own staff in the field to troubleshoot problems and provide immediate solutions.

Schoeb spends a lot of time in the field traveling to make sure Alliance meets this goal.

“We listen,” he says. “If someone is going to take the time to tell us something, we need to make sure that we respond to that.”

The engineering staff, on the other hand, spends a lot of time trying to anticipate potential problems, and provide the solution before a new model leaves the plant. With Alliance rolling out new products at an escalating rate, the testing and troubleshooting required to anticipate those challenges has reached a frenetic pace.

 

Pride in durability, service

A trip to the company’s testing lab shows the effort Alliance puts into improving the reliability and durability of its products. This is Baudhuin’s arena, and the VP of engineering is determined to find as many ways as he can to break the washers and dryers his company builds so he and his team can improve the product and prevent such a failure from taking place when a customer takes delivery.

Inside the lab, the technicians test everything, from how long you can open and close the door before the hinges wear out to the slime test – which tests how well the machines can handle water with high levels of suspended solids – to intentionally running dryers until the lint starts a fire.

Other sections of the lab test computer controls that regulate utility use, mix detergent solutions or communicate with other machines, or provide the owner with up-to-the minute details of how a machine is operating. Many of the new machines have more than 100,000 lines of code.

In addition to providing important data on the longevity and reliability of the machines, the tests also highlight potential trouble spots for the engineering staff to work at correcting.

“One of the things we strive for is to have an answer to your questions as soon as you call,” Baudhuin says. “A customer does not have the time to wait for us to duplicate a problem. They need an answer now.”

Nick Luzecky appreciates that dedication. A former banker who bought an Alliance distributorship three years ago, Luzecky says his company has relied upon Alliance Laundry Systems’ Speed Queen washers and dryers since 1988 to provide for vended and on-premise laundry operations in Missouri, Arkansas and Oklahoma, as well as selected counties in Kansas and Illinois.

Luzecky, the owner of KeeWes Equipment Company in Springfield, Mo., describes the technical support provided by Alliance as “fantastic.” He appreciates that Alliance tests to improve the lifetime of its machines, which means he can recommend them to customers knowing the machines are both reliable and efficient.

More than that, he knows the machines will improve his customers’ bottom line.

“They are buying the most dependable and efficient machine out there,” Luzecky says. “It controls the inputs that make the machines do what they do. Not only will it be reliable and efficient, but it will be profitable.”

 

 

 

 

Alliance Laundry Systems, LLC

» Alliance can trace its roots back to the hand-cranked washers manufactured in 1908.

» Washers and tumble dryers manufactured by Alliance can handle loads from 12 to 250 pounds.

» There are more than 3 million Alliance Laundry machines installed worldwide.

» Alliance Laundry has more than 1,600 employees, six global brands and approximately 1.1 million feet of manufacturing space housed in facilities in Ripon and in Belgium (Europe).

» Ownership: The Ontario Teachers Pension Plan acquired a majority interest (82.6 percent of stock) in the laundry equipment manufacturer in 2005. Alliance management indirectly owns the balance.

» Website: www.alliancelaundry.com

 

Brands Manufactured by Alliance Laundry Systems, LLC

» Speed Queen: Sold for vended, on-premise, multi-housing and consumer markets

» Huebsch: Sold for vended, on-premise, multi-housing and consumer markets

» IPSO: A premium brand in Europe, it is sold for vended and on-premise laundry

» Cissell: Sold primarily for on-premise laundry

» Unimac: Sold primarily for on-premise laundry

» D’Hooge: Sold for heavy-duty industrial laundry operations

 

Distributor Financing: A Competitive Advantage

Alliance Laundry Systems sells more than washing machines and dryers.

Sure, they sell a lot of each, enough to make the company the world leader in commercial laundry equipment. But there is another component that contributes to its success: Alliance sells a proven business model, one it believes so much in that it even helps finance it.

The company has privately financed more than 17,000 vended Laundromats, representing nearly $2 billion in loans to help owners purchase their equipment for their operations. Losses have been quite low, says Mike Schoeb, Alliance Laundry Systems president and CEO.

“This is a cash business where the only variable is the operator. We can give confidence to investors and ourselves that the store will be successful.”

The company has not always provided financing, but Schoeb says that over the years, Alliance management determined the model could be more effective than traditional methods for financing.

“Because we have confidence in the business model, we can approve a higher percentage,” Schoeb says.

For distributors such as Nick Luzecky of KeeWes Equipment Co. in Springfield, Mo., that’s a competitive advantage that helps him sell more washers and dryers.

“A lot of deals are won or lost on financing,” Luzecky says. “They are selling a business model rather than just equipment. They make it easier for me, the distributor and the customer.”