Guam’s biggest hospitality industry player will open support businesses to serve its group.
Ken Corp. wants to launch its own wholesale company and to buy or partner with a linen service according to Journal sources. It is already in negotiation with a commercial laundry service.
Naoyuki "Nike" Inoue representing Nanbo-Tamagawa; confirmed that Nanbo-Tamagawa was approached by Ken Corp.
"We are currently in negotiation. Nothing is concrete yet. The stockholders are still going over their best options " Inoue told the Journal.
One industry leader said the development will mean a battle for laundry market share in a challenging business field.
Simon A. Sanchez II manager of Guam Dry Cleaners; told the Journal "Even very capable companies can end up losing their shirt in this industry."
The Japanese real estate investment trust owns the Hyatt Regency Guam Pacific Islands Club Guam the Sheraton Laguna Beach and Country Club of the Pacific. It is due to finalize purchase of the Hilton Guam Resort & Spa in June for a reported $72 million. The group also owns the Aqua Resort Club in Saipan.
The Hilton is one of few hotels with its own laundry. The hospitality industry’s linen needs are served by Nanbo-Tamagawa & Associates Inc. which does business as Pacific Laundry & Textile Rental Service; Marianas Linen Supply of the Del Carmen group; and Guam Dry Cleaners a member of the Casa de Flores group of companies.
A fourth facility "" Global Laundry was purchased from Japan Airlines by Watakyu in 1995 which sold it to Nanbo-Tamagawa in 2005. Watakyu also purchased International Linen Supply "" a hotel laundry service "" from Guam Dry Cleaners in 1995. "Since then we’ve recaptured the F&B textile business. Within a decade most of our customers had come back to us " Sanchez said.
"Global Laundry is now on its third owner since it started " he said. In 1995 he said "Global invested over $10 million to become Global Laundry. The reality is it didn’t pan out." The company sold for less than a million in 2005 he said. "We were in there bidding on it. It’s pretty clear they had invested sizeable amounts and lost a lot. It’s a good picture of what happened in the laundry industry. It’s a very challenging business."
Pacific Laundry reported revenues of $4.24 million for 2004 and revenues of $7.58 million for 2005 in the Deloitte & Touche ASC Trust Corp. Guam Business survey of the top companies in Micronesia in the 2006 Fourth Quarter issue of Guam Business.
The majority shareholder in the laundry company is Nanbo Guam Ltd. followed by Tamagawa Onsen Co. Ltd. Tamagawa Sen-I Industry Co. Akira Inoue Pedro P. Ada and the J.C. Tenorio Trust.
Inoue said there was an atmosphere of goodwill in the negotiations with Ken Corp. "We want to come to a mutually beneficial conclusion."
He praised Ken Corp.’s aims. "They do want to improve the hospitality industry; there’s nothing wrong with that. But it is also important when making an acquisition in an industry to understand it."
The laundry industry faced some challenges he said. "There is the water quality; labor is not as skilled as it could be; fuel costs have gone up; the minimum wage increase [expected through upcoming federal legislation] will definitely affect the industry."
Nanbo-Tamagawa has 127 employees "" 120 in the plant and seven in administration. The company began business in 1989. It opened to serve the needs of Nanbo Insurance clients in the hospitality industry Inoue said.
"At one point Nanbo used to insure most of the Japanese-owned hotels on-island. That changed when ownerships changed " he said. "On the commercial linen side we had about a 68% market share. That became about 80% two years ago when we took over Global."
Clients include Pacific Islands Club Guam and the Sheraton Laguna Resort.
Nelson L. Del Carmen vice president of Inland Builders and owner of Marianas Linen; told the Journal "We built the laundry out of necessity during the time we were building the Holiday Inn [in 1996. The hotel opened as the Parc Hotel and is now the Holiday Resort Guam.]. He said of the laundry business "Nobody wants to work in the industry. It’s hot hard and fast-paced. Margins are fair but dwindling and there are high fuel and labor costs. If you have a very good vendor why spend millions in investment?"
Marianas Linen Supply has about 30 employees "" including engineering staff and revenues of more than $100 000 per month according to Rogel Paran general manager.
Marianas Linen’s major clients are the Westin Guam Hotel the Hyatt Regency Guam the Marriott Resort Guam and the five Mandara spas. The company services bachelor enlisted quarters for Naval Forces Marianas at Naval Station. Paran estimated Marianas Linen has between 5% and 10% of the commercial laundry market.
Guam Dry Cleaners services primarily food and beverage departments and has retail outlets at Navy Base Guam and at Andersen Air Force Base. Simon A. Sanchez II manager of Guam Dry Cleaners; said "The bulk of our work is commercial "" a mix of civilian and military business." With 50 employees Sanchez said "We do the F&B for every major restaurant "" Sam Choy’s Outback Lone Star "" we have 99% of that market." In business since the 70s the company was purchased by Casa de Flores in 1988.
"It’s been a very difficult last ten years with the downturn in tourism. There are rising costs it’s labor-intensive and technology-intensive." Sanchez said there was low availability of management and labor. "We’re fortunate to have people who’ve been with us for 20 years " he said. The industry still needs some work done by hand such as pressing he said.
"The challenge for Ken Corp. and for all of us is that Ken Corp. is buying existing properties. The entrance of a fourth laundry won’t make the market easier. There will be a battle for market share."
Journal sources said Ken Corp. likewise intends to move into the wholesale industry.
According to an industry expert the wholesale industry operates on low margins. But the expert said with its own hotels and a golf course as customers Ken Corp. could find it financially attractive to operate a food service or serve as its own institutional wholesaler.
Quality Distributors the expert said was the largest wholesaler to the military. Quality was awarded the U.S. military’s prime vendor contract for Guam "" a $30 million fixed price contract for two years with two options of two years and one option of a year. Quality also wholesales to the hospitality and retail produce industries which George Lai president of Quality; told the Journal was an important part of the company’s business at the time of the prime vendor award.
The expert identified Ambros as the biggest beverage wholesaler on island and Dickerson & Quinn as the biggest non-beverage wholesaler. Many wholesalers are wine and spirits wholesalers. "A lot of them are small and specialized " the expert said.
Michael T. Benito general manager of Payless Markets Inc.; is aware of Ken Corp.’s intention to open a wholesale company. "I guess since they own so many hotel properties they felt it best to source their product directly and supply their F&B departments. We have some really strong wholesalers on Guam. I hope that they at least talked with each of them to see if they could meet their needs at a price that is workable for both groups."
The wholesale industry has about 24 member companies according to Frank S.N. Shimizu president and chief executive officer of Ambros Inc. Shimizu is co-chairman of the Wholesale Committee of the Guam Chamber of Commerce. John T. Calvo general manager of Mid-Pacific Distributors Inc.; is the other co-chairman.
"We generally live with a lower margin than retailers because we depend on volume " he said. "One of the things that helped the wholesale industry prosper and grow is that the late senator Frank Santos waived the local GRT taxes at the wholesale level about 12 years ago. During the budget discussions [on Bill 74 signed into law on May 18] there was talk of imposing the GRT twice "" at the retail and wholesale level. It would basically ruin what improvements the wholesale industry has made." Previously Shimizu said there were about five or six wholesalers on Guam. "Now because we are able to compete there is more employment more corporate and income taxes and the companies contribute to the community. Offshore distributors pay zero GRT zero income taxes and employ zero residents of Guam." Shimizu said many of the products imported by wholesalers are not subject to gross receipts tax. "They are subject to much higher excise rates."
Ken Corp. declined to comment. MBJ