by Brianna Crandall — February 4, 2015—The U.K. security guarding services market is approaching £5 billion in size, having grown in recent years despite the hesitant economy, according to the latest report from independent provider of consulting services and research Apex Insight. Retail, airports and government security contracts are the main growth segments in the market.
The development and rate of growth of the industry is being affected by a series of important trends. The report analyzes the impact of these trends on the key segments of the security market. The trends include:
- The growth of integrated facilities management (FM) contracts;
- The application of new technology and consequent reengineering of services;
- Government spending cuts and outsourcing of services with the aim of achieving savings;
- The increase in levels of security in airports and other sensitive locations; and
- The growth of Internet retailing.
Key segments
Retail locations have seen the deployment of security guards increase. The types of store more likely to have guards — larger outlets of national chains and shopping center locations — have gained share relative to smaller, independent stores and high-street locations, less likely to have guards. While this has been partly offset by the rise of Internet shopping, the overall trend has been positive, with retail spending on security having grown by over 5% per year since 2008.
Airport security has continued to increase in the post-9/11 world with more spending on both technology and the labor required to operate it. The security requirement is driven in part by the number of passengers passing through U.K. airports, as well as a significant increase in the intensity of airport security in response to higher perceived risks of attacks on planes, with more people required to operate x-ray body scanners and carry out increased passenger and baggage checks. With pressure to reduce waiting times, security areas have been expanded and equipped with new passport scanners, metal detectors and conveyer-belt-like baggage control areas. These developments have increased security spend per passenger and the need for more security staff, leading to growth of almost 8% per year.
Prisons is also a key segment given the long-term growth that has occurred in prison populations combined with government desire to use outsourcing to achieve cost savings. The trend towards outsourcing has faltered in the last couple of years, largely as a consequence of the service failures and overcharging scandals associated with G4S and Serco. Nevertheless, growth has been at a similar rate to that of the Airports segment, at almost 8% per year. And the segment recently received fresh impetus from a wave of 21 probation service contracts worth a total of around £450-£500 million per year, outsourced to Sodexo, Interserve and GEOAmey and other smaller suppliers in consortia, and due to start in April 2015.
While crime rates have fallen, public perception and fear of crime have not. As a result, demands for tougher sentences are widespread and prison populations have increased, with the U.K. locking up a higher proportion of its population than in most other European countries, but only one-fifth of the level seen in the USA.
Across the market, technology, such as CCTV and remote monitoring, continues to be deployed extensively, both as a complement to, and in some cases, a substitute for, human guards.
In most other segments, such as offices, public buildings, factories and warehouses, Apex Insight believes it is likely that this trend has led to a reduction in overall market revenues — although the margin impact may well be positive given the lower costs associated with newer technologies.
Other factors
The industry has made moves toward consolidating, and the convergence between security and FM is continuing. Several of the leading players, such as G4S, MITIE, Vision/Compass, Serco and Sodexo provide security as part of a broader range of services, with some having made acquisitions to enter the segment. However, some leading providers, such as Securitas and Corps, continue to emphasize the benefits of providing security as a standalone specialist service.
Industry margins have increased slightly, with the average of the group of leading players having risen above 5% in the last couple of years. Price increases have been achieved despite the relatively weak economy, and wage inflation has been modest. While most companies have seen margins increase, the highest profits have been in the larger operators with exposure to government contracts and the retail segment.
Forecasts
Apex forecasts are for growth to be faster than historical rates. The main reasons for this are the recent resumption of prison and probation services outsourcing, and the positive impact of a recovering economy on retail and airports, with increased prosperity likely to feed through to both high-street retail sales levels and numbers of air passengers.
According to the report, the most obvious risk to the market is the potential for a change in government policy towards the outsourcing of prison and probation services. In the retail sector, if changes in store formats, such as the decline of the large supermarkets, were to occur more quickly than expected, the overall requirement for security could be lower. However, if the outsourcing of a range of policing activities, which now appears to be on hold, were to return to the agenda, it could increase market revenues by up to 30%.
Outsourced Security Guarding Services: UK market profile and forecast 2015 is available for purchase from the Apex Insights Web site.
