Margin erosion in the UK contract security industry was a topic for a recent roundtable.
Are low margins, the event asked, harming the safety of clients’ buildings and the viability of the security industry at large. The Incentive FM Group roundtable also addressed what could be done to address a commodity pricing approach and whether the industry is selling itself short by broking labour, as opposed to defeating risks. Is there a way of setting a new standard and options for a better way of working?
Attenders included: Jeremy Waud of Incentive FM Group, pictured, in the chair and Craig Pickard, of Incentive-Lynx Security; Simon Chapman, Lodge Service; Steve Hall, Ultimate Security; Chris Kenneally, Cordant Services; Paul Harvey, Emprise and Chris Wisely, Axis Security.
Jeremy Waud started by getting a consensus that the low margins that are now the norm in the sector make it extremely difficult for security companies to survive. However the Group was split over whether the prices has finally bottomed out with some seeing a slight upturn in recent months.
Chris Wisely, Managing Director at Axis Security, said: “Margins have been falling for many years and in more recent times, this has been exacerbated by the economic downturn. Whilst it remains a challenge for businesses within the sector to generate margin improvement, we now feel that it is acceptable to some of the more discerning customers to pay more where a higher quality service can be evidenced.”
Craig Pickard said: “Procurement processes that focus too heavily on price will often result in contracts that are underfunded and do not achieve best value.”
It was agreed that the margins issue was not being helped by the large TFM (total facilities management) companies who are often offering security solutions with an extremely low (or zero) margin so that they can get other elements of the operation, such as M&E (mechanical and electrical) which attract a much higher margin. “This is very predatory behavior and results in the smaller firms being knocked out of the equation,” said Jeremy Waud.
All too frequently, it was suggested, customers simply do not understand what they are buying and the industry needs to work harder to educate customers. It was felt that existing trade bodies had failed to do this and there was little confidence that they would. Steve Hall of Ultimate said: “The various trade bodies have lost their way and I’m not sure how they can turn it around. They need to show what they can do.”
Some felt that lack of differentiation between companies and what they are offering was also something that needed to be addressed and that added value niche services should be considered. Paul Harvey of Emprise, said: “The security industry is partly to blame for its troubles as they are not offering any clear differentiation and in the absence of anything else clients will buy on price. There is too much of a victim culture in the industry – we need to step up and show where we can add value.”
All were united in the belief that the industry needs to attract more good people or train the exiting ones to enable them to drive through these changes. They acknowledged that this was a difficult task against the backdrop of falling margins. However it was felt that a key account management approach would help to drive the education of customers. Simon Chapman of Lodge Service said: “The longevity of our relationships with our retail customers has to some extent helped us to maintain good margins. As we truly understand their business it is easier to deliver and demonstrate value.”
The table ended by brainstorming the idea of bringing together a number of security businesses to agree a high standard service offering that could be offered to clients and that would need marketing to raise awareness. Plans were made for the group to meet again to discuss this further, and in due course to invite key clients to critique the plans. Chris Kenneally, CEO at Cordant Services, said: “The battle ahead is margin versus value. Many customers only understand cost and we need to change that.”
