More innovative than their laundry, the Chug brothers' rentals business must overcome a laundry-list of hurdles.

By Rajeev Dubey

Death brought life to the Chug Brothers' vision. Eleven years ago, in 1987, Atul, 39, and Varun, 32, became regular visitors to the Ganga Ram Hospital in Delhi. Their father, the late J. Kumar, had been admitted there after a cardiac arrest. During their visits, the brothers couldn't help noticing that their father complained more about the dirty linen than he did about chest-pain. He died soon after, but, unwittingly, introduced his sons to a profitable business opportunity: laundry.

Two years later, in May, 1989, the Chugs set up a fully-mechanised industrial laundry unit at NOIDA (Uttar Pradesh) on the outskirts of Delhi. Probably the first of its kind in the country then, the Rs 95-lakh unit-christened Laundrettes-found its first customer (fittingly) in the 600-bed Ganga Ram Hospital, which continues to be on its 10-hospital client-list.

Over the years, Laundrettes has diversified into setting up and managing in-house laundries for 8 hotels. But the Chugs' path to success wasn't as spotless as Laundrettes' output: their initial application for a loan of Rs 48.75 lakh was rejected by the Uttar Pradesh Finance Corporation (UPFC) in 1987. The reason: the Industrial Development Bank of India (IDBI) refused to refinance the loan since the laundry business did not qualify as an industry.

This bolt from the blue hit the Chugs hard. After all, they had already pumped in Rs 26.25 lakh to part-finance the Rs 75-lakh project. Realising that there was no way they could wash their hands off the unit, the two directors of the company decided to approach the financial institution directly. Says Atul: ''We told the IDBI that we would perform all the functions expected of an industry. Hence, our proposal should be considered favourably.'' Two years later, in 1989, after another evaluation, the IDBI agreed to extend the loans through the UPFC. And allowed the brothers to diversify from their traditional family business: a publication house, Trado Publication, which is still operational.

Finances out of the way, the Chugs then had to deal with another kind of problem: convincing customers to switch over from the traditional dhobi. Says Varun: ''People are normally satisfied with their dhobis. It takes time and effort to persuade them to place orders with us.'' For instance, the Ganga Ram Hospital felt that it was more expensive to hand over its dirty linen to Laundrettes. For, the traditional dhobi charges Rs 3.60 per kg-or Rs 2.25 per sheet, each weighing nearly 625 gm-while Laundrettes' rates are a minimum of Rs 6 per kg. In fact, back in the late 1980s, the Chugs charged their customers between Rs 8 and Rs 12 per kg.

Since most hospitals have fixed, and low, budgets for laundry work, they were simply not interested at first. However, the brothers managed to wear them down. Their argument: while the dhobi delivers the clothes in 3-7 days, commercial launderettes can do the job in 24 hours. Thus, the customer would not have to maintain an inventory for 7 days and could, therefore, cut his capital expenses. Agrees I.N. Bhargava, 54, Managing Director, Novex Dry Cleaners, one of the biggest hotel launderettes in Delhi: ''Commercial laundry rates are higher, and customers are reluctant to switch. But, once they do, they don't go back to the dhobi.''

Over time, the Chugs' customers began to realise that launderettes are safe, and enhanced the life of the fabrics too. Normally, a dhobi eliminates some processes in the sequence of cleansing a fabric-which includes sorting, detergent-washing, rinsing, neutralising the effect of detergents, bleaching to remove the remaining stains, and ironing-to pare down costs. That has an adverse effect on the cloth. Agrees Rita Gupta, 45, Head (Maintenance), Ganga Ram Hospital: ''Commercial laundry is germ-free, and prolongs the life of the cloth.''

Despite the encouraging signals, a turnover of Rs 12 lakh in its first year of operations was hardly impressive for a unit-which had 3 boilers, 3 washers, 5 driers, and a calendering machine capable of ironing 600 sheets an hour-with the capacity to handle 3 tonnes of linen per day. Which meant that Laundrettes' capacity utilisation was less than 20 per cent. It was only when they crossed the break-even point of 50 per cent in 1991 that the Chugs could afford to reduce prices by 25 per cent to compete more effectively.

In 1994 came the money-spinning diversification into hotel laundry. Until then, most hotels either had their own facilities to undertake laundry work, gave the linen to dhobis, or to commercial laundries. But the Chugs decided to build, operate, and own a hotel's in-house laundry facilities, which could cost anywhere between Rs 5 lakh and Rs 25 lakh apiece. While the launderette would bear all the expenses on raw materials and labour, the fee of between Rs 20,000 and Rs 50,000 per month paid by the hotel was enough to recover the investment within 4 years, after which running the plant became profitable. And if the contract wasn't renewed, the set-up could be transferred to another hotel.

With that idea taking off, Laundrettes has had a relatively-smooth growth curve. Especially in the last two years, when its turnover has jumped by 48 per cent to Rs 95 lakh. Says Varun: ''Earlier, customers were not willing to pay for our services. Now, we see much more acceptance. The market is bound to open up.'' However, increased demand can have its own set of pitfalls. Especially frequent breakdowns-a peculiarity of the laundry business-since the plants run continuously for 10-12 hours every day.

At their NOIDA unit, the Chugs have a back-up for everything: a generator in case of an electricity failure, 2 boilers in case the main boiler stops working, a spare washer, and 2 additional driers. But there are no back-ups at the facilities in hotels. Not surprisingly, Jaishree Josh, 25, the Accommodations Manager of the Gurgaon-based resort, 32nd Milestone, where Laundrettes has set up an in-house plant, complains: ''Their equipment often breaks down. And, sometimes, their supplies of detergents and chemicals run out.''

What has remained unbroken, though, is the Chugs' conviction that the laundry business is about to take off. Now, Laundrettes is trying to rope in the Indian Railways as its client, with the Chugs planning to bid for a Rs 3-crore tender to set up laundry facilities on a build-own-operate-transfer basis, which will cater to all the trains departing from Delhi.

They have also embarked on their most ambitious project so far: textile rentals. Borrowed from abroad, the idea is simple: Laundrettes will purchase the sheets and napkins to be supplied to customers by the institution on a daily basis. And the Chugs will only charge a fixed monthly fee for the service. Explains Atul: ''Since hospitals, particularly government-owned ones, have limited resources, we expect the idea to be a success. I have been on a 1-km stretch in Texas, where launderettes do $3 billion of business every year.'' Well, if the Chugs want to replicate that, they'll have to keep up their clean act.

Issue Contents  Write to us  Subscriptions   Syndication