Apex Insight research finds pest control market growth continuing despite pub and retail closures

New research on the pest control market from Apex Insight finds that the market is now approaching £400m, having grown despite the economic downturn. Growth has come from both increases in volume of pest control visits – driven by growth in the number of relevant premises, increased uptake of pest control contracts and trends towards higher service levels – and price increases. The combination of heavy rain earlier in the year and a warm summer has made 2014 an exceptional year for pests.

For consumers, pest control remains a reactive purchase to deal with an event, but for businesses, which represent most of the market, prevention is the key requirement accounting for the overwhelming majority of pest control activity: pest control is insurance rather than fire-fighting and the market has been stimulated and encouraged by regulation.  It now primarily involves the provision of customers with the set of processes to ensure pests are controlled and the evidence that such procedures are in place. From the point of view of the industry, this means pest control are seen, not as a grudge purchase to deal with a problem, but as relatively inexpensive insurance against the potentially very high costs of failure to comply with the regulations. The costs of failing to comply can be very large, including fines but also closure of premises, reputational damage and breach of contracts with customers.

The approach to pest control adopted by the food industry, where control of pests is of high importance and subject to the strictest regulation, has increasingly come to be seen as representing best practice. This has led to this approach being advocated by pest control providers and trade associations and, gradually, its adoption across other sectors of the economy.

The introduction of the Biocide Product Regulations provided a further stimulus to the market by outlawing some of the older, more toxic, pest control substances. This led to both the replacement of these chemicals with alternatives which were generally more expensive and also the encouragement of an approach that, based more on processes than poisons, is likely to be more labour-intensive.

Key value drivers for pest control businesses include sales capability, customer retention, success in selling on higher service levels technician productivity and optimising business mix. Leading companies have launched initiatives in all of these areas.

Entry barriers to local pest control are relatively low with a history of new operators being set up by workers who have learned their trade while either working for a local authority or one of the large companies. However, accreditation is necessary, with a national register of pest control technicians having been created, and scale of operation is necessary to service national accounts.

The retail segment is a particular area of concern given the speed of the shift from the high street to online shopping. Recent predictions are that over 20% of current retail outlets will close over the next five years and that the leading grocery chains may be about to embark on a programme of store closures.

Rentokil remains the market leader, and is the best known brand amongst consumers, with a handful of other operators having the scale to provide a national service and many smaller providers, some of whom operate as part of franchise networks.  Other leading operators include Ecolab, MITIE and Canon – part of the OCS facilities management group.  There is some evidence of bundling of pest control contracts with other FM services by the multi-service groups.

Local councils have historically been significant providers of pest control services. However, many are reviewing their provision to meet government spending reduction targets with some having already taken the decision to either contract out provision of their services or withdraw them entirely. Numbers of local authority pest control officers are significantly lower than a decade ago.

We expect the pest control market to continue to grow in the future. While it is not a particularly cyclical industry, an improving macroeconomic outlook is welcome especially to the extent that it supports increased construction activity, and hence demand for pest control services, in key customer segments.  However, optimism is somewhat tempered by trends such as closure of pubs and the shift of shopping from the high street to the internet, both of which reduce the number of premises requiring pest control.

About Apex Insight

Apex Insight is an independent provider of research and consulting services covering business and financial services markets in the UK and Europe. It publishes insightful market reports and carries out commercial due diligence and other bespoke consulting exercises to support managers, investors and advisers in making better business decisions.