The US continues to be our biggest and fastest growing market although we are seeing strong growth in the UK as well. The US rental market is potentially five times bigger than the UK and we continue to capitalise on the structural changes in that market, as customers adapt to renting equipment rather than owning it. We also have a small presence in Canada which we will seek to develop over time, as and when the opportunities for growth present themselves. The US market is very strong, the UK market is also performing well and we continue to increase our market share in both markets. Our aim is to continue to grow the business wherever we are in the economic cycle. A strong market in the US and a good one in the UK mean we are performing particularly well at the moment.
The breadth of our markets
Our markets continue to broaden, in terms of geography, range of equipment rented and the applications for which our equipment is used. The graphic below shows the growing diversity of end markets that are using our equipment more and more. For any one of these markets, there is also a very wide range of equipment used. For example, on large festival sites such as Lollapalooza in Chicago or Glastonbury in the UK, we may have 400-500 pieces of equipment of all different types and sizes. Equipment that previously would not have been rented is now part of the rental mix. This is particularly the case with the ongoing structural change most noticeable in the US and Canada.
MARKETS WE SERVE:
- Highways and bridges
- Office buildings
- Data centres
- Schools and universities
- Shopping centres
Entertainment and special events
- National events
- Sporting events
- Movies/TV production
- Theme parks
- Farmers' markets
- Local 5K runs
Facilities maintenance and municipalities
- Office complexes
- Parks and recreation departments
- Schools and universities
- Shopping centres
- Apartment blocks
- Pavement/kerb repairs
- Golf Course maintenance
- Winter storms
- Residential emergencies
Our core US markets remain very strong. Construction markets continue to be strong and, with growing employment, the benefits of lower energy prices and increased disposable income, people are generally spending more money which is positive for our broader, non-construction markets like event work and residential remodelling. Oil and gas, which remains only a very small part of our business, but which struggled in the past, continues to rebound. Tax reform has added to this trend and we expect economic growth to continue in the US.
Market share in the US
We continue to grow our market share in the US and even though we are the second largest equipment rental company, there remains plenty of room to grow. Our major large competitors are United Rentals and Herc Rentals with 12% and 3% respectively. Home Depot, Ahern and BlueLine have shares of 2% or less. Most of the remainder of the market is made up of small local independent tool shops.
Much of our market share gain comes from these small independents when we set up new stores or acquire them. Ours is a capital-intensive industry where size matters. Scale brings cost benefits and sophistication in areas like IT and other services, and this leads ultimately to further consolidation. The proportion of the market enjoyed by the larger players continues to increase and we have clearly been a major beneficiary of this trend. Whilst there will always be a place for strong local players, the market enjoyed by the larger players is likely to grow by a further 30 to 40% in the medium term.
This market share analysis is based on the traditional definition of the rental market focused on construction. A significant market for us is that of property maintenance, repair and operation. In the US there is 87bn square feet under roof and we believe this represents a potential rental market of $7-10bn, with minimal rental penetration at the moment. It is not a new market for Sunbelt but one with increasing opportunity as we demonstrate the benefits of rental through availability, reliability and ease. One consequence of this is that we believe the size of the rental market is understated and hence our, and everyone else’s, market share is overstated. This only serves to increase the opportunities for growth.
We are confident that as the market grows, our share will also increase. We have a good track record of success having doubled our market share since 2010. We continue to set ambitious targets for continuing to double our market share and market demand allows for this. The speed with which we increase our market share is a function of how quickly we can get new locations up and running and generating profit. As noted above, our market share growth also comes from continuing to broaden both our end markets and the range of equipment we have available to rent in each location.
The combination of our business model, the strong economy and the long-term trend to rental, provides the perfect environment for us to achieve our goals. In addition, our market share gains accelerate as we make the most of our scale advantages. In the longer term, we believe that US market share in the order of 20% is an attainable goal.
As we increase our market share and grow our specialty businesses, they become a greater proportion of the mix across the cycle. The acquisitions we make are often to expand into a new specialty area or to develop an existing one and then we supplement them with greenfield openings.
The trend to rental
Rental penetration continues to be a positive trend for the industry in the US as our customers have become accustomed to the flexibility of an outsourced model. Between 2010 and 2018, increased rental penetration effectively grew our end market by 20 to 25%. We see this trend continuing, which will provide similar levels of market growth over the coming years. Rental still only makes up 50 to 55% of the US market compared to around 75% in the UK. However, this is a broad average with penetration levels ranging from single to low double-digit percentages for, say, floor scrubbers to 90%+ for large aerial equipment. We like specialty products because they are at the low end of this range, which provides greater scope for growth. We see the potential market penetration for rental equipment to be well over 60% in the US. The short-term drivers of this evolution are the significant cost inflation in recent years associated with the replacement of equipment, technical changes to equipment requirements that make rental more attractive, and health, safety and environmental issues which make rental more economical and just easier. In addition, our customers are ever more used to renting equipment rather than owning it themselves.
A fast growing market
Canada is a relatively new and fast-growing market for us. The existing rental market is just over a tenth of the size of the US. But in the same way that the US has experienced structural growth as more and more types of equipment are rented for different applications, we expect similar trends in Canada in the longer term. Our share of the Canadian rental market is less than 3% and there is plenty of scope to develop this in the same way as in the US and we are growing rapidly. IHS Markit predicts Canadian rental revenue to grow between 4-5% annually through 2021. We anticipate growing more rapidly as we take market share and broaden our offering.
We focused first on the southwest corner of Canada where we acquired a small business in 2014, GWG Rentals, with a strong management team, and we then opened a series of greenfields and made a number of small bolt-on acquisitions to expand the business. We now also have a significant presence in Ontario through the acquisition of CRS in 2017 and are expanding in Edmonton, Calgary and Winnipeg. Growth rates in Western Canada and in Ontario were 20% and 25% respectively this year and in three years we have gone from six stores to 54. The rental market has, to date, been construction focused, but we are already developing new markets such as the film industry in Vancouver. Customers who traditionally rented mainly aerial work platforms are now renting smaller equipment also. As we expand in other provinces we expect to generate more business from Canada’s resources industry.
Customers are increasingly seeing the benefits of working with us to fulfil the full range of their rental needs. Our initial goal is to achieve market share of 5% and for Canada to make up between 15-20% of the North American business.
The UK market is good but not great and, although we expect it to continue to grow, this will be at a more moderate pace, for the foreseeable future. A contributory factor is the uncertainty around Brexit. Structural growth opportunities are more difficult to come by because of an already high level of rental penetration. Nonetheless, A-Plant continues to grow, making bolt-on acquisitions and also taking market share. Given the good overall construction market, we will continue to invest responsibly in the UK market as we seek to increase market share and enhance returns.
We continue to be the largest equipment rental company in the UK. There are a greater number of major players in the UK market and, as the largest, we only have an 8% market share. We believe we continue to be well-positioned in the market with our strong customer service, young relative fleet age and strong balance sheet. We continue to broaden our customer base and have focused our investment on specialty sectors within the market. This has proven very successful in growing both our market share and returns.