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Small hire on the up

Tool hire is doing well, if a recent market report is correct. Steve Coulter takes a look at the prospects for the small end of the hire industry

ALTHOUGH construction might still be in the doldrums, the UK tool hire industry is doing surprisingly well, according to a report from Cheltenham- based consultants AMA Research. Conditions at the heavy end of the equipment hire industry are still tough, as most plant hirers will testify. But the report argues that the recovery in the tool hire market has easily outperformed that of the construction industry at large.

AMA calculates that strong growth over the past two years has raised the value of the UK tool hire market by 100 million to 634 million at 1995 hire prices. And, while market conditions have been relatively difficult in late 1995 and early 1996, the overall forecast is for growth of around 6 per cent in 1996, with even stronger increases anticipated in 1997.

The report argues that the tool hire sector has been able to dodge the worst effects of the construction recession, perhaps even turning it to its advantage, because of its success in expanding its customer base:

The customer base for tool hire companies has expanded considerably in recent years. While builders, plumbers and general maintenance contractors have been the traditional customer base, the DIY market, local government and utilities have grown rapidly in recent years, says the report.

It continues: Privatisation, pressures on capital expenditure and the introduction of more specialised tools and equipment have increased the attraction of hire as an alternative to outright purchase, and this is likely to continue in the future.

The upbeat tone is borne out by some although by no means all in the industry. A regional manager for one leading national tool hire group says the tool hire market in his area has risen steadily over the past eight months, after a tricky period in late 1994 when it seemed to have bottomed out.

A key factor in the upturn, he argues, has been continuing uncertainty in the housing market, prompting people to try to add value to the homes, boosting the DIY sector.

Peter McRee, director of tool hire trade body, the Hire Association Europe, agrees the reports findings are fairly consistent with the experiences of our members, although he warns that fortunes differ widely from region to region.

But not everybody agrees that the DIY sector has expanded its share of the overall market by enough to influence the performance of the industry as a whole.

Ian Wilkie, managing director of P&I Hire Centre, points out that DIY for all its growing popularity still accounts for only 15 per cent of the total hire market, with construction companies taking an overwhelming 60 per cent of the market and local authorities mopping up the rest.

Mr McRee agrees that DIYs market share is still fairly small overall, but says it is nevertheless still striking how construction is no longer the dominant factor it once was.

Tool hire is no longer completely dependent on what is happening in construction, says Mr McRee.

Mr Wilkie takes issue with the idea that the tool hire market could be as out of kilter with general plant hire as the report suggests: Tool hire cant be that buoyant at the moment because the construction industry is subdued. The facts simply dont square with this assessment, and our experience is that the overall demand for tools is fairly static.

Mr Wilkie says the AMAs upbeat assessment may have been prompted by the influx of new money into the industry taking place at the moment.

He says: There is definitely some rationalisation going on the industry at the moment. The big companies are mopping up a lot of the small operators, and they are prepared to pay good prices.

And he adds: Competition from heavy plant hire operations, builders merchants and, possibly, DIY outlets, all with established branch networks, is likely to intensify, as market conditions in the hire sector offer greater potential than their own markets.

However, the actual market hasnt really expanded at all, he argues. All that has changed is that there are some larger and meaner operators around.

'Even so, efficient, local operators will still be in with a chance, 'says Mr Wilkie, 'because economies of scale in this market are not all they are cracked up to be, and local knowledge remains an important advantage for the tool hire specialist.'

But, Mr McRee warns, small companies that have been unable to update their equipment may find themselves in trouble; while there is plenty of choice for the customer, those companies which can offer the best equipment and service will have a significant advantage.