The average price of security guard services has been increasing at an estimated annualized rate of 1.7% from 2014 to 2017, primarily due to increased demand. Among demand drivers, government consumption and the number of businesses have both been growing with the broader economy during the past three years. However, demand growth has been mitigated by falling nonresidential construction activity and crime rate. Despite these drivers falling, demand overall has been rising. Higher aggregate demand has, in turn, enabled suppliers to raise prices for security guard services.
Large providers of security guard services have been raising their prices at a faster rate than the market average and have thus benefited the most from growing demand for services. These vendors’ diversified service offerings give them more room to implement price increases without risking a significant loss of business because their larger customers can still source multiple services from them and still save money. In addition, their customers are inherently less sensitive to price changes because top buyers have diversified revenue streams and tend to operate with large security budgets. Small operators have, however, also been able to raise prices in response to demand increases, thus limiting buyer negotiation power across the board.
Fortunately, price volatility has been low in the three years to 2017, making it easy for buyers to forecast prices and budget for security guard services. Steady increases in demand and stable input costs have prevented any drastic price fluctuations from occurring. Although buyers procure services on a case-by-case basis and cannot always anticipate how many security guards are needed, buyers that anticipate a need for the services in the next three years should consider entering long-term contracts to lock in prices before they rise further.
During the three years to 2020, demand for security guard services will increase as economic growth continues. Growing demand, in conjunction with increasing market share concentration, is expected to result in prices growing at a rate of 0.9% per year on average through 2020.
The rising value of nonresidential construction will be the primary driver of market demand and price growth during the period. As construction activity rebounds, more buyers will demand security guards to patrol their new facilities. Such buyers are typically willing to pay more for services because the construction of buildings requires a significant investment and owners have a substantial interest in protecting their property. Additionally, the anticipated growth in government spending will contribute to rising security guard service demand and prices. Buyers that benefit from government investment and previously delayed procuring services are expected to increase their demand for these services as government funding rises. The number of businesses is also forecast to rise in the three years to 2020, thereby driving up demand for security services. These factors will counteract a decline in the crime rate, allowing for an increase in aggregate demand for security guard services. Rising demand will permit suppliers to raise prices during this period.
Increasing market share concentration, triggered by mergers and acquisitions, will help increase the rate of price growth during this period. In August 2016, two of the largest vendors in the market, AlliedBarton Security Services LLC and Universal Services of America Inc., finalized their merger agreement to become a single entity. This merger greatly increases market share concentration and will reduce price-based competition in the three years to 2020. With less competition, large firms will be able to charge buyers higher prices. As such, prices will continue to increase in the three years to 2020, which decreases buyer power.
Fortunately for buyers, market prices are projected to remain stable in the next three years, and flat inputs costs will prevent drastic price swings. Low price volatility will allow buyers to budget for security guard services with more certainty.