The rise of the multi-service provider

Contract catering companies are surviving well in this recession because they are taking an increasingly commercial approach to the provision of catering and facilities management. We interviewed Phil Hooper, Chairman of the British Hospitality Association’s Food and Service Management Forum, to find out more.

Contract catering companies are surviving well in this recession because they are taking an increasingly commercial approach to the provision of catering and facilities management. We interviewed Phil Hooper, Chairman of the British Hospitality Association’s Food and Service Management Forum, to find out more.

In 2008, Britain’s food and service management sector grew by 3.9 per cent with contractors serving 1.62bn meals – more than ever before.  For the first time, turnover breached £4bn.

Food and service management expert Phil Hooper describes this is an encouraging picture but, he adds, "the clouds hanging over the industry are ominous.”

One of those clouds, of course, is the fact that some business and industry clients are either going out of business (last year's closure of Lehman Brothers’ office in London was a spectacular example) or, more likely, they are sloughing off staff so demand and meal numbers are reduced, thus reducing revenue.  

Another cloud is the tightening of the public purse strings as the country begins to climb out of recession – whenever that might be.   School meals, healthcare and local authority catering will all come under severe cost pressures as the government (of whatever hue) pulls back on expenditure.   

Nevertheless, Hooper and his colleagues have confidence in the future.

“Some of the larger Food and Service Management companies are forecasting quite healthy growth for 2009,” he says.  “Indeed, the present recession is likely to be a source of new business for contractors.  FSM companies with skill and know-how have the ability to adapt to changing circumstances.  They can bring particular strengths to the marketplace that are difficult – sometimes impossible – for the in-house caterer to provide.”

New solutions

In their efforts to cut costs, business and industry client companies will be encouraged to outsource services that have traditionally been provided in-house, perhaps at greater cost, he says.

“In times of recession, establishments which are historically self-operated will consider outsourcing as a way of driving efficiency or raising capital revenue for investment in facilities.  In this environment, those offering an FM or a bundled service solution will be able to provide greater value for client organisations.”

These include the many services that companies have to provide but which take a great deal of management time and effort to organise. Putting them all in the hands of one provider makes sense.

“This year’s industry survey shows that catering companies continue to provide a huge range of services, other than catering.   Indeed, in our own experience, Sodexo has developed into a fully fledged facilities management company.  Over 40 per cent of our turnover now comes from managing and providing services like cleaning, housekeeping, grounds management.  

“For many clients, particularly in the public sector, and particularly in the Ministry of Defence, providing this total package is the key to gaining the contract.”

In 2008, of the £4.1bn total turnover recorded, over £700m – 16 per cent - was revenue derived from services other than catering.  Hooper believes that this will rise as contractors adapt to meet client demands, but he warns that a key inhibitor to achieving growth will be if organisations make decisions solely on cost and do not also consider qualitative measures.

“All too often – particularly in the public sector – price is the key factor in awarding a contract.  All too often, other factors are ignored – and they turn out to be critical,“  Hooper notes.

Changing marketplace

The change of emphasis from the provision of catering services to full facilities management began to take shape five or six years ago when catering contractors tried to throw off their somewhat traditional image.

“The reason we changed the name of the Forum," Hooper explains, "was because food and service management companies really do provide far more than just food.  And they are far more commercially biased.  They are not just contract caterers now – certainly not in the traditional sense of the word.  Three-quarters of the contracts listed in the survey involve some element of risk. That was certainly not the case 20 years ago, when we launched these surveys.”

The growth in the number of risk contracts is reflected in the decline of the traditional cost-plus/management fee contract, where the client picks up all the costs of the operation and pays a fee.  These are reducing year-by-year and in 2008 represented under 23 per cent of the total number of contracts - vastly down on the figure of 20 years ago.  

In the same way, cleaning and domestic services, the operation of shops and tuck shops, housekeeping and laundry services have emerged as key areas of growth and now make up over half of the 3,000-plus total of other services provided; the remainder is spread across such more esoteric activities as sterile services, waste management and travel services.

This shows that companies traditionally regarded as catering-based have been able to expand outside the immediate provision of food and beverages, which is generally regarded by most clients as the one that requires the most skill.

Investment in client premises has also increased.  This year, it’s running at about £16m a year - not counting PFI projects, mainly in healthcare and education which are estimated to be worth over £100m.  In the last five years, total investment in client premises has been on the order of £150m – a figure which would have astounded operators twenty years ago when the BHA’s surveys began.   

Industry response

An interesting aspect of these latest figures is that although the majority of risk-taking contracts have been taken on by the larger groups, smaller companies also recognise that the old certainties of the cost-plus contract are being eroded in an environment that has become more cost-pressured and more commercial.  

Overall, this is an industry that has swung from a being product-based service to providing what could be called a service-led product.

This has been influenced by catering companies adapting to changing lifestyles and the eating-out trends of the High Street, which has led to the huge growth of snacking and in the uptake of ‘grab and go’ meals.  More and more people are eating on the hoof.   Significantly – and allied to this development - the surveys have shown a rise in branded FSM outlets, some of them well known High Street brands.   In the last five years, compared to full meals, the numbers have swung from 60:40 in favour of meals to 35:75 in favour of snacks.  

This trend favours catering companies in economic terms. Snack items can be bought in and made up almost at point of sale; they don’t require such skilled chefs, who are increasingly difficult to recruit and retain, and they don’t demand as much space.  And being popular, higher profit items, their revenue yield is proportionately greater.

The question of space is particularly important.  Casual eating is encouraging clients to look more closely at the space required for their staff catering facilities.  FSM companies are familiar with the request by clients to provide less space for their catering operation.  

In one example, the catering provision took up two floors of a building.  The restaurant was closed and a number of strategically sited snack bars and food kiosks were introduced. Catering staff numbers were reduced by eight, yet turnover was maintained and customer satisfaction levels were improved.   Hooper cites this example as an approach that will continue to drive expansion.

“Client and consumer pressures have forced caterers to adopt a far more commercial approach to the marketing and presentation of food," he says. "The introduction of brands reflects this approach.  They are effective.  Branded outlets are now commonplace and have driven much of the industry’s growth in recent years.”  

And the industry is confident of the future.  Admittedly, because of company year-ends, this year’s annual report might not reflect the full impact of current trading conditions, but overall there is a belief that growth in 2009 is not only possible, but likely.  

www.bha.org.uk
 

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