40-Consolidation in the Waste Industry

How does an industry become attractive? In some industries, increased government regulation provides significant benefits to the industry’s largest competitors. If these industry leaders control the turnover of their largest customers and maintain pricing discipline, returns can be both stable and high. Here is an example of these rules in action.

Posted 8/7/08

The leading waste management company, Waste Management Inc., has just offered to buy the number three ranked competitor, Republic Services. This offer preempts Republic’s offer to purchase the number two competitor in the industry, Allied Waste Industries.

Before these acquisitions, the waste industry was about average in its degree of consolidation. The three largest U.S. waste companies control about two-thirds of the nation’s permitted landfill capacity. In the average large industry, the top three competitors have about 68% of total industry sales.

If Waste Management’s offer is successful, it will then control 50% of the country’s permitted landfill capacity. This 50% compares with the median industry leader among large industries with a market share of 38% of sales. This is a very strong position.

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Update 2022:

The Waste Management proposal did not succeed. Instead, Republic Services did take over Allied. Waste Management remains the largest competitor in the industry followed by Republic. The top 3 companies in the industry control about 70% of the industry’s market share.  In 2020 Waste Management had revenues of $15.2 billion, Republic Services brought in $10.2 billion and Waste Connections brought in $5.5 billion.

These three competitors, especially the top two, will dominate the Heart of the Market in their industry. The Heart of the Market includes the Primary and Secondary role relationships with the Very Large and Large customers. (See Symptom: “Large customers are getting higher discounts.”) These segments dominate the industry’s volume.

Heart of Market: Industry Examples »

Acquisitions, especially in mature industries, are an important source of potential cost reduction. In these mature industries is often cheaper to buy a competitor than to try to take the competitors’ customers from it. HERE is some refinement on that thought

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Update 10/25

The US waste management industry has evolved into an attractive industry with strong industry leaders, low market share volatility, predictable pricing, high returns on equity and clear economies of scale.

Customers, market shares and Performance Innovation focus. The period from 2015 to 2025 has seen the industry enjoy both stable growth and attractive investment returns under the pressure of regulation. Municipalities ramped up oversight over recycling quality, waste recapture and other environmental services. These regulations greatly benefited the industry’s largest competitors, who could afford significant investments. Over the last 10 years, the industry’s top three competitors have gained share slowly with highly selective acquisitions and further integration into complementary services.

The leading Standard Leaders gained share through excellent retention of their contracts with the industry’s Very Large and Large municipality customers. Volatility is relatively low in the industry. The municipal waste leaders responded promptly to the regulatory environment by improving their service quality (Reliability) and by increasing their investment in complementary services such as landfills, transfer stations and upgraded recycling (Function). When available, the leaders invested in small, tuck-in, acquisitions of minor competitors, to increase their density and reduce costs, or of specialists, such as firms in the faster growing hazardous and medical waste niches.

Pricing and cost management. The industry leaders have developed pricing discipline and now control pricing in the industry. Undoubtedly, this is partly due to the municipalities’ need to ensure environmental soundness in their municipal waste programs and the consequent closer relationships they had to maintain with their incumbent waste management firms (Reliability). The relative ease of pricing has enabled the industry to concentrate its cost management work on improving the efficiency and effectiveness of their systems. Much of their capital investment programs went to cost reducing productivity improvements. These include AI routing of their fleets, automatic sorting systems, automated materials recovery facilities, landfill-to-renewable natural gas programs and other service digitization investments. The industry has created significant economies of scale with these investments. All of 2025’s leaders have attractive returns on equity. However, returns on equity for the industry Standard Leaders is directly related to the size of each competitor.

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