Is the $40 Billion Laundry Industry Ready for Reinvention? This Startup Is Betting on It
The guys behind Rinse think they've perfected the art of doing your laundry. Their competitors say exactly the same thing.
The delivery man in the bright-blue fleece rings the intercom at a home in the Richmond district of San Francisco. "It's James from Rinse," he says when the homeowner's voice crackles through the speaker. With that, the entryway light goes on, the door opens, and the occupant arrives to retrieve the bag of laundry that Rinse had picked up, in a considerably dirtier state, a couple of days earlier. James scans the QR code on the bag with his phone, and hoofs it back toward his Prius to head to the next stop.
The customer couldn't have known that he had just been handed a sack of cleaned-to-order laundry by one of the nation's most exquisitely educated delivery guys. James Joun has degrees from Dartmouth and Harvard Business School. He also doesn't do this much anymore, since he's the co-founder and COO of Rinse, a rapidly growing laundry and dry-cleaning startup that is trying to become the first nationally scaled company in what has always been a very local business. This Joun knows intimately: His Korean immigrant parents have run a dry-cleaning shop in South San Francisco for more than 25 years.
There, he was schooled in operations, such as running contraptions like the topper, which presses pant tops, and in the finer points of separating dirt and stains from all manner of fabrics. This means, in certain respects, Joun competes against the people who brought him into the business--who also happen to be his parents. So do a half-dozen other startups that see in your soiled laundry a potential IPO.
"I was exploring startup ideas around bringing technology to old-school industries and removing friction from customer experiences," says Rinse co-founder and CEO Ajay Prakash, who befriended Joun at Dartmouth. "I hadn't found the one that got me really excited." Until, that is, he and Joun identified the laundry and dry-cleaning sector--fragmented, undercapitalized, perhaps $40 billion big.
What excites Prakash and Joun is freeing us from drudgery--so long as you're in a big American city or possibly Paris, where one of their backers lives--while providing cleaner clothes. From 8 to 10 p.m., seven nights a week, Rinse will gather your dirty laundry and dry cleaning, and then, 24 to 72 hours later, deliver it in that same window.
Having raised more than $23 million, Rinse has gone beyond its San Francisco home base to Los Angeles, Washington, D.C., Chicago, and Boston; soon it will be in New York City. "Rinse can be a multibillion-dollar business operating just in the U.S.," says Paige Craig, the head of Arena Ventures, which funded Rinse's A round. He calls Prakash and Joun "execution heroes" who have thought through everything from fine-tuning driving routes to cleaning processes. (Perchloroethylene, or perc, a less-than-green dry-cleaning chemical, never had a chance with these guys.)
"You already outsource housecleaning and lawn care. Why not outsource laundry?" asks a co-founder of a Rinse competitor.
Once customers establish a Rinse account, they request a pickup via text, phone app, or website, and choose scented or unscented detergents, dryer temperatures, and the handling they want--wash and fold, or wash and hang dry. Rinse then farms out the actual cleaning, sometimes to a local shop, but more often to a commercial operation that meets its stringent specs. The cleaned clothes are then returned to Rinse and sorted for delivery.
Its prices are competitive with local shops: Wash and fold is $1.75 a pound (with a 15-pound minimum); a dress shirt costs $2.50 to launder; dry cleaning a suit costs $16. Standard delivery is $3.99. (Prices do not vary by city yet.)
And you don't have to be home when Rinse delivers: Valets can drop the bag by your door, or garage, or in your apartment hallway, and then take a picture of the dropped bag to confirm delivery. Somebody else does your dirty work, to your specifications, for a good price. Who wouldn't want that? "Laundry is hated," says Dan D'Aquisto, co-founder of one of Rinse's competitors, the Charlotte, North Carolina-based 2ULaundry. "You're already outsourcing housecleaning and lawn care. Why not outsource laundry?"
When Rinse gets to New York, Tom Harari will be waiting. In Brooklyn's rejuvenated Bushwick neighborhood, Harari and his co-founders have been building out their own service, called Cleanly, which has been blessed by Y Combinator and armed with $11 million of funding.
Harari, who's 33, is happy to tell you how Rinse is wrong: Joun and Prakash, he says, are expanding far too rapidly. Cleanly stayed home and tightened its operations until it could deliver within 24 hours--with one-hour pickup windows--morning and night.
Harari began by essentially taking on the more than 3,500 local storefronts and dry cleaners that launder Gotham's shirts and skirts, mostly on a walk-in basis. Then he moved on to challenge Rinse on its home turf out west last October. "If I could take you to our San Francisco warehouse, you'd see a bunch of their bags"--from former Rinse customers--"lined up on our racks," Harari boasts. "We offer a superior product." The spin cycle has clearly started.
Harari's business found him when he wasn't looking. Five years ago, he was an overworked digital marketer with the ad giant Omnicom Media Group who lacked the time to get his wash done. "What do I know about this? I've never done this. I don't have a cleaning background. I haven't started a company before," he says, outlining reasonable reasons for avoiding entrepreneurship. But an idea had captured him. "I would walk by local laundries, and I would just see the machines spinning. I was like, 'You know what? Someone's gonna do this. Maybe it should be me.'"
Alex Smereczniak, on the other hand, more or less majored in laundry at Wake Forest University, where he bought the student-owned and operated Wake Wash in his sophomore year. Later, he quit a corporate job to start a laundry and dry-cleaning service for grownups--he and his boyhood friend D'Aquisto co-founded 2ULaundry, which perfected its service in Charlotte before expanding to Atlanta.
The two 26-year-olds say they compete with what the tech crowd might call the "installed base"--washers and dryers in most every middle-class abode--and that they're selling an increasingly precious commodity. "Time is delicate" is one of 2ULaundry's slogans.
Laundry doesn't ask for much: It just wants to be cleaned. It piles up in a hamper or basement until, once a week or so, it demands attention. That's not the only reason Rinse, Cleanly, 2ULaundry, and others sense something big. "There's no market leader," says Harari. "The top 4 percent of revenue is driven by three companies"--among them Martin Franchises, which brought Martinizing to the world--"but the rest is mom-and-pops. There's no national brand."
It seems inevitable that a service that almost everyone might want would attract entrepreneurs. But inevitable has not translated to successful. Scaling something as personal as laundry--and delivering it on schedule--has proved difficult. There's already a laundry list (sorry) of failures: The biggest washout was Washio, which raised nearly $17 million from the likes of Ashton Kutcher and Nas before circling the drain. (Rinse absorbed Washio's customer list.)
To Prakash, Washio's demise demonstrated that the laundry game couldn't be played as a purely on-demand service, and that it needed a more finely-honed approach. "Everybody was saying, 'Be Uber for X,' " says Prakash. "We knew right away, when we started talking to our customers, it wasn't about just taking the Uber playbook and applying it to this business."
Prakash, who's 37, and Joun, 36, both envisioned starting businesses, although not necessarily with each other. After scoring MBAs, each went on to predictable pursuits in New York. Joun worked for Essex Woodlands Healthcare Partners, a private equity firm. Prakash took a more winding route that included stints at Bain & Company, the NBA, Berkshire Partners, Bonobos, and a subscription deodorant startup.
Both had moved back to San Francisco intent on launching something. All they lacked was an idea. Then, one morning in 2013, Joun stopped at his parents' shop. "These machines that I'm used to hearing whir in the background as I walk in," he says, "just weren't running." His parents had excess capacity. By extension, so did all the dry cleaners in the country that, like his parents', are running 7 a.m. to 7 p.m., six days a week.
Joun and Prakash quickly figured that their combined experience addressed both ends of the business: Joun knew cleaning operations, thanks to all those summers and weekends at his parents' store; Prakash could lean on his background to manage customer service. And in San Francisco, they could easily find someone to build the technology platform to link the two. Their premise: The laundry process is a series of minor annoyances that they could make invisible. "There were all these little friction points," says Prakash. "For example, you don't know who's a good dry cleaner."
They started with three ZIP codes in San Francisco in 2013, using friends and their extended networks as beta testers. Joun served as the valet, collecting laundry bags and delivering them to his parents' shop, where he supervised the cleaning. "I was the only driver," he says. "I personally met our first 300 or so customers."
They initially limited service to Wednesdays and Sundays between 8 and 10 p.m. Now it's seven days a week. "Forcing that constraint allows you to build density much quicker," Prakash explains. Density--the number of customers in a defined delivery route--is vital to Rinse. The more customers in a given neighborhood, the more that can be handled by one valet. You basically want a valet driving in a tight circle.
Rinse has about 105 valets in San Francisco, who assemble at the company's distribution center on Brannan Street at 7 p.m. Each bag is logged in to their smartphones; the exact order of delivery is determined by a mapping algorithm that Rinse developed. In a departure from the gig economy, the valets are employees who are paid $18 to $21 an hour plus mileage. Joun and Prakash believe that having W-2 workers is critical to the service (as do the founders of Cleanly and 2ULaundry). It allows the company to invest more in training, and to expect more of the valets, says Joun.
Once they had ironed out the kinks, in late 2013 the founders began adding ZIP codes and valets, and raising money from friends, family, and angel investors. "The barriers to entry into this space--to get up and running and start serving a handful of customers--are pretty low," says Prakash. "It's the barriers to scale that are incredibly high."
That part--the operational complexity--has kneecapped earlier laundry startups. There is plenty of extra capacity in the dry-cleaning industry, but it's scattered, quality varies greatly, and it isn't always available at the right time. Joun focused on finding retail and commercial vendors who could meet Rinse's capacity requirements and quality standards.
"We knew right away," says Prakash, "that it wasn't about just taking the Uber playbook and applying it to this business."
One is Douglas Waters, owner of Laundry Express, who arrives around midnight every night to pick up 3,000 to 4,000 pounds of laundry. He hauls those clothes to his commercial facility in Richmond, California, which is stacked with high-speed, high-capacity Electrolux washers and dryers. There, a crew sets aside high-risk garments and then loads the machines. (All processes are recorded by cameras.)
Waters was a general contractor before putting his hammer down and entering the laundry business. ("The attraction," he says drolly, "was that it is not general contracting.") But he quickly found that the retail laundry he built was underutilized--that problem again. He made a pitch to Rinse for business and won it. When Rinse expanded to Los Angeles, so did he, in the way that key suppliers often accompany automakers when they build new plants.
Rinse, Cleanly, and 2ULaundry, having broken out of their home turfs, are studying the map for their next opportunities. Rinse is eyeing Houston and Dallas. 2ULaundry aims to spread through the Southeast, perhaps to Miami. At presstime, Cleanly, now in San Francisco and D.C., was nearing a $15 million to $20 million funding round to underwrite a significant expansion.
There's a bit of a trojan horse strategy developing too. If you are a Rinse or Cleanly or 2ULaundry customer, you have given these companies permission to enter your home. What else can they offer? Rinse and Cleanly are collecting tons of data about what their customers buy and wear--both photograph all dry-cleaned items. Craig, Rinse's VC and adviser, suggests the company could "have the largest collection of data in consumer wardrobes"--so "we could help brands and retailers sell into your closet."
That's either very creepy or very helpful to you and the companies that want shelf space in your closet. This closet play is predicated on Rinse's having a national footprint. Craig says Joun and Prakash have the operational chops to pull that off, which is why he's betting on them.
"When we started, we had ambitions to be the first and largest national brand," says Prakash. "If we can create the best customer experience, and also remove the friction for the vendors, we have the opportunity to really be that dominant brand."
So are mom-and-pop dry cleaners--and, for that matter, Joun's mom and pop--doomed? Not necessarily, he says: The best will be partners to the new national brands. Assuming, of course, Rinse and its rivals have the right formula to win business from the rest of us--the great unwashed.
Rinse and Repeat
To you, it's sweaty shirts. To Rinse, it's more complex. The company handles tens of thousands of pounds of laundry daily--which means solving a multidimensional logistics puzzle.
1. Collection Customers separate their wash into bags, which valets retrieve every night between 8 and 10 p.m. Route maps are planned by a proprietary algorithm for maximum efficiency. Valets return to a warehouse, where Rinse distributes the clothes to dozens of cleaning partners on the basis of their location and capacity. Ideally, customers have the same cleaning partner every time.
2. Cleaning At Oakland's Express Laundry, workers arrive around 2 a.m. Overhead cameras record them sorting darks and lights and flagging high-risk garments to avoid washing dry-clean-only items. Each customer's clothes are washed separately--no mixing with your neighbors'--in machines that spin more than three times as fast as household models and compress the wash-and-dry cycle to 45 minutes.
3. Delivery Cleaned clothing is delivered by Rinse's partners to its operations center, where it's logged and sorted. Valets then deliver those clothes according to the Rinse algorithm's route, in the same two-hour evening window as the pickup, and log each delivery in their smartphones. Valets can also leave the bags on doorsteps, in garages, or elsewhere, and take a photo of the dropped bag before departing.
Courtesy : www.inc.com