Natural Disasters Are On The Rise. That's a Big Business Opportunity.
The increase of hurricanes, floods and fires worldwide has created increased demand and opportunity for brands and franchises in the restoration space.
A staircase to nowhere and some charred I beams are all that’s left of a house that once commanded million-dollar views of California’s Bell Canyon. A burned-out Mercedes sits beside them, waiting to be hauled away. Stapled to the home’s mailbox is a county demolition order that reads unsafe; the front yard is littered with debris.
The house in this affluent neighborhood has looked like this since November, when the Woolsey Fire left it -- along with 100 other homes around the bowl-shaped canyon north of Malibu -- in various states of destruction. Inside the ruins, refrigerator doors tilt open, exposing rotted food. Drawers hang ajar from slouching kitchen cabinets. A couch is visible through one broken window, a candy dish still sitting on the nearby coffee table.
The massive blaze was one of three fires that touched off on the same day and tore through Southern California for weeks, the deadliest and most devastating natural disaster in state history, and the costliest on the planet in 2018. In this tony gated subdivision, the fire was particularly cruel, thanks to the Santa Ana winds. Embers circled the ridge above the valley and picked off houses randomly, while leaving others seemingly untouched.
That was when Kyle Waters’ phone began to ring. And ring. And ring.
“All day long,” he says. “It literally would not stop.”
Waters is a franchisee with the Paul Davis company, part of a fast-expanding industry that cleans up mold and smoke damage from emergencies ranging from mundane water-heater leaks to multibillion-dollar fires, floods, and hurricanes. In Bell Canyon, where he’s checking on his crew this day in January, his team has been scrubbing out the houses that survived, some with scorched exterior walls, others with ash-filled interiors. “Every single home here smelled like smoke,” he says.
These days, natural catastrophes -- “cats,” in industry lingo -- are driving growth in this business. In the United States, the annual number of floods, mudslides, fires, earthquakes, tsunamis, hurricanes, tornadoes, and other disasters is up from 60 in 1980 to more than 100 in 2017, according to the Insurance Information Institute; the value of the damage inflicted by hurricanes alone has grown from $25 billion a year to $170 billion when adjusted for inflation.
With their vast networks of partners, employees, and shared resources, franchises are particularly well-positioned to respond to these fast-moving natural events. Plus, nationally known brand names give franchise players an advantage over independent contractors who swoop into a disaster area; local franchisees have already earned the trust of their communities. And when the worst happens, customers want someone they trust.
“We’re not hurting for work,” Waters says wryly. Standing on a windswept hill outside a client’s house as it begins to rain, he is careful with his words. There’s money to be made in this industry, but no one loves the idea of profiting from other people’s hardship. He’s also pragmatic about how and when he can help, and knows his services will always be needed: “We’re not going to stop the fires and the hurricanes from coming.”
Waters, who spent 10 years as an insurance adjuster, first considered breaking into the franchise world at the recommendation of his uncle, a franchise consultant. As he dug into his research, the opportunity in the cleanup space was undeniable.
Along with the rise in “cats,” related insurance claims ballooned to $102 billion in 2017. That’s three times as much as a decade ago, even after being adjusted for inflation. And thanks to climate change -- the U.S. Geological Survey acknowledges that warming temperatures will bring more droughts and fires and powerful storms, while rising sea levels expose ever-larger areas to flooding -- this destructive trend shows no signs of abating.
“If you’re in a private equity firm right now, you could make a case to go invest in the reconstruction sector partly based on the recent intensification of weather,” says Rich Wilson, president of Paul Davis, which has 325 franchisees across North America. He signed one prescient 40-something former Wall Street guy as a franchisee in Houston just before Hurricane Harvey turned that city into one giant, soggy market for water-damage cleanup. Says Wilson: “He did his homework, and he was right.”
That reality is attracting plenty of competition. Amazon is muscling in with its Home & Business Services division, and in 2017 HomeAdvisor spent $500 million on Angie’s List to increase its reach. “Everybody’s nibbling at the edges of this industry,” says Sheldon Yellen, CEO of Belfor Property Restoration, which owns Ductz, Hoodz, and 1-800 Water Damage.
In response, franchises have gone on a consolidation spree, bulking up into one-stop shops big enough to fight back when nature comes calling: Belfor bought Bamcor, which rebuilds and repairs factories after floods or fires; Home Franchise Concepts bought the mold-removal, duct-cleaning, and water-damage company AdvantaClean in January; and Paul Davis is now a subsidiary of FirstService Brands, which also includes CertaPro Painters.
Those consolidation efforts have helped franchises maintain a big chunk of the disaster-cleanup business. A strong brand name gives credibility in a vocation infamous for fly-by-night storm chasers who take advantage of vulnerable home and business owners. “When we roll into a city, people recognize our name,” says Russell Benes, a Florida-based franchisee with restoration brand PuroClean. “It gives people peace of mind to know that a national company is coming in.” Plus, in the eyes of insurers -- who cover most of the high cost of cleanup from catastrophes -- franchises are easier to deal with.
As a result, franchisors are fielding increased interest from prospective franchisees. Some, like Waters, come from the insurance side. Others are military veterans or former first responders, like Benes, who spent 25 years as a firefighter before becoming one of PuroClean’s 270 franchisees. “Those are the people who love working with us,” says Wilson. “People who want to help.”
They’re also people who see value in joining a system that can navigate red tape, licenses, and permits that can vary state by state, not to mention offer structured training programs. AdvantaClean even has a continuing-education center with a cleanup-simulation lab on a five-acre campus in Huntersville, N.C.
The franchise model “hockey-sticks your growth,” says Jonathan Porter, a New Orleans–based franchisee with AdvantaClean, which has grown from 83 territories in 2011 to more than 230. “It’s a great balance between the larger corporate players and an independent operator. It gives you a base of knowledge, and it helps you look professional. The likelihood of our getting into [this business] at all without franchising was almost nil.”
And though the bulk of this industry’s work is based on smaller, more frequent jobs like mopping up after broken pipes, franchisees are still coming in droves -- and when disaster does strike, there’s more than enough work to go around.
Waters, the Paul Davis franchisee doing wildfire cleanup in California, estimates that he was able to handle only a quarter of the requests that poured in after the fires hit. “We had to turn away almost everybody, to be honest,” he says, adding that he was unwilling to hire temporary employees who were unskilled in the space. “The important thing is not to overpromise.”
Therein lies another massive advantage franchisees have when a catastrophe strikes a community: a network of other franchisees and a corporate office that can help them all spring to action -- together.
Typically, a franchisee gets one new business lead every day or so. “But when a storm hits, you get 100 or 200 calls every two hours,” says Jeff Stone, a Dallas-based Servpro franchisee who doubles as the company’s state director in Texas and Louisiana. When Hurricane Harvey pounded Houston in 2017, the area’s 17 franchise owners got 17,000 new referrals in the first week and a half. “The local franchise gets inundated,” Stone says. “They don’t know which way is up.”
So when a hurricane is forecast -- or a spell of Arctic cold threatens to freeze pipes, or when wildfires spread toward subdivisions -- Servpro activates one of four regional “storm sites,” located in Alabama, New Hampshire, Pennsylvania, and Texas.
“We’ve really started to dial this thing in,” says Brian Petraitis, disaster recovery manager in Servpro’s commercial large loss division. “When we see a major event [coming], we’re able to activate a site and get crews mobilized. Our franchisees have a finite capacity; we’re here to augment that and provide as many resources as we have.”
At AdvantaClean, when call volume spikes, a central office helps to triage referrals and bring in other franchisees, says Matt Phillips, the company’s president. “Unlike companies that may be based out of one city, we already have a presence in multiple communities,” he says. “So we’re helping that local owner with forward operating support from headquarters, and other franchisees are coming into town to support them with equipment and labor.”
The work is taxing, dirty, and at times, dangerous. After Hurricane Katrina, Stone says he was pulling insulation from the ceiling of a flooded house when a live snake “at least 10 feet long” fell on top of him. He laughs about it now, but he admits that the work is not for the faint of heart. “It takes a lot of wear and tear on people,” Stone says. “They’re working 14-hour days, seven days a week, living in hotels, washing their clothes in the sink at night.”
And the physical toll is nothing compared with the emotional weight of this work. “People are calling us on one of the worst days of their lives,” Phillips says. “They’re standing in a couple feet of water in their kitchen and they’ve lost everything, or they’ve even lost a loved one. We’re a shoulder to cry on.”
Stone remembers sitting in his company pickup truck in a Taco Bell parking lot while responding to flooding in Boulder, Colo., in 2013, trying to catch up on messages from potential customers. “I look out the window, and I must have had 20 people lined up outside my truck [waiting to talk to me],” he says. “They were saying, ‘I haven’t been in my house for days’ or ‘My mother-in-law is dying of cancer, and we can’t get back into our home.’ You get an idea of how this affects people.”
Most franchisees told me they take a few days off to reset following a cleanup job. “There can be a lot of burnout,” Petraitis says. When the next storm hits, they’re ready to mobilize once again, both out of responsibility to their clients and community and because each disaster can translate to months of job security: AdvantaClean experienced an increase of more than $3.5 million in work in the first two weeks after Hurricane Harvey -- and those jobs are still ongoing. “We’re in a highly recession-resistant business,” Phillips says.
Back in Bell Canyon, Waters’ crew has finished with the still-intact house beside the scorched Mercedes. It took six days for six workers to clean the inside of this 2,200-square-foot home. They used high-efficiency particulate air filter vacuums throughout the entire place. Alkaline solution was used to counteract the acid in the ash. Air purifiers with carbon filters ran for days. “If you leave one square inch [untouched], it’s still going to smell,” says Waters. They’ll come back to power wash the exterior walls when the weather improves. Waters has another crew doing the same thing for a client on the other side of Malibu.
Laura Deneri, whose nearby house was damaged but ultimately spared by the fire, wanders outside into the drizzle to pick up the mail for a neighbor. After the fire, she hired another cleanup company to scour her house in time for her to host Thanksgiving dinner. “We had soot inside, ash, the smell,” she says. “A week in, we found out our roof had been on fire and needed to be patched.”
Deneri looks around her at the piles of rubble on one side of the street and the intact houses on the other. “The hardest part is seeing your house still there,” she says. “It’s survivors’ guilt. Especially when you see your dear, sweet neighbors’ houses.”
She goes inside, and Waters climbs into his pickup truck and drives past a number of other cleanup companies’ vans, still parked along the quiet streets. He’s done here for now, leaving as the rain intensifies and voices from the radio warn of mud-slides in the blackened hills. As if on cue, Waters’ phone rings. An insurance company is calling. “Before you know it,” Waters says, “there’s another disaster coming.”