In addition to these giants, the market is populated by a large number of significantly smaller contractors. According to the Chartered Institute of Purchasing and Supply a large contractor typically operates more than 3,500 contracts nationwide, whereas a medium-sized contractor operates up to 300 contracts. Most, however, operate fewer than 50 contracts each. In the last decade the major players have conducted a fairly aggressive acquisition campaign, buying up smaller companies in order to strengthen their position in an existing market or gain entry to a new one.
Trends
The British Hospitality Association's Contract Catering Survey 2001 says consolidation of the major worldwide contract caterers is offering both opportunities and challenges. For clients, the opportunities are in the economies of scale, which these giant concerns bring to their contracts. For the smaller, independent contractor, without the vast resources that a worldwide company has at its disposal, the key challenge is to provide a competitive catering service in terms of cost, standard and service, to clients and customers who are becoming more sophisticated and more demanding.
Contractors are employing a number of tactics, including branching out into new markets – for example Friendly Hotels has sub-contracted its food and beverage operation. They are also adopting a more profit-oriented approach on the basis that they now have a clearer understanding of what the customer wants – high standards at value-for-money prices. But how are contractors achieving this given price constraints in the sector and fierce competition? The BHA survey highlights one answer – the growing commercialisation of the sector. Contractors are offering the kind of short order food and beverage items which have proved so successful in the high street such as high quality coffee and baguettes, pastries, pizzas and salads.
Skilful merchandising is an essential element in this initiative. The traditional, generic staff restaurant is still evident in many locations but increasingly, branded outlets, with their bright signposting and attractive, modern presentation of food items, are either taking their place or are augmenting the food offer. The steadily rising turnover of contract catering is proof of success. Even in the last four years, since 1996, turnover has grown by £1 billion (46 per cent). Although the number of outlets has risen in this period by 6.6 per cent, the number of meals served has risen by 32 per cent. Contractors are selling more food, at higher prices.
Contract caterers are now making significant and widespread investments in their outlets when previously only the client was expected to spend money on catering facilities. Although no exact figures on the level of investment was available, it is expected to increase – a sure sign that contractors recognise that there are opportunities to be grasped. Just as important, the survey also reveals a new, more hard-headed approach by clients towards their catering facility, enabling them to reduce or eliminate the subsidy.
Outlets
The total number of outlets operated by contractors declined marginally from 17,865 in 1999 to 17,830 in 2000, according to the BHA survey. However, this decline hides some sharp rises in certain sectors, including business and industry where the number of outlets increased from 8,766 to 8,930. Since 1990, the contractors' share of this market, the primary target for food management service companies, has increased by 19 per cent.
State education continues to experience difficulties due to the reluctance, the researchers conclude, of many local authorities to replace competitive tendering with best value. The number of education outlets dropped by 7.6 per cent – the fourth successive year in which there has been a decline – and emerged at 25 per cent off the sector's 1996 peak. Another factor is that smaller schools are becoming unviable for many contractors.
Number of meals served
The total number of meals continues to grow – by just over eight per cent in 2000 to 1,471 million, according to the BHA. There were significant increases in business and industry, healthcare and Ministry of Defence but education declined by 1.8 per cent.
Catering facilities in relation to number of employees
The Bargaining Report, published by the Labour Research Department, says that the size of the employer is the biggest factor affecting the provision of workplace catering facilities. None of the 26 organisations with less than 50 staff had a canteen. But once an organisation passes the 50-employees mark, the proportion providing a canteen rises in relation to the size of the workforce.
The commercialisation of the contract catering market continues, with the majority of contracts, 66 per cent, being a form of fixed price/profit sharing agreement, says the BHA. Fixed price contracts establish a total cost within which the caterer will work. The number of cost-plus contracts (in which all the costs, plus the management fee, are passed on to the client) has dropped from 53 per cent of the market in 1984 to 33 per cent in 2000.
Investment in contracts and PFI
The level of investment in catering contracts covered a broad range and so the BHA was unable to provide a precise analysis of the figures. However, the responses revealed a large number of outlets that were dependent on some investment by the contractor. Initial calculations suggest that contractors' investment in PFI projects is in the region of £125 million.
Branding
The growth in the number of branded outlets is another reflection of the commercial influence on contracting. The number of in-house branded outlets rose dramatically during the year – from 2,461 to 4,352 – nearly 25 per cent of the total number of outlets, while high street brands enjoyed more modest growth from 280 to 299.
Turnover in contract catering represents total billings, including food purchases, wages and management fee. The BHA survey revealed that increases in wages, food and other purchases boosted turnover by 8.5 per cent from £3,010 million to £3,266 million. By comparison, in 1993, turnover stood at just £2,000 million.
Purchases
Food purchases, according to the BHA, increased by 7 per cent, largely the result of the 8 per cent rise in the number of meals and a continuing trend towards more expensive menu items.
Wages
Total wages rose by 7 per cent from £1,336 to £1,433 in spite of the almost static number of employees. This is half the increase of 1999 but is still likely to be the result of a tight labour market, and is in line with the hospitality industry as a whole. The impact of the national minimum wage and other employment legislation also continues. But, total wages as a percentage of turnover declined from 44.4 per cent to 43.8 per cent – contractors are clearly exerting a tight hold on their biggest cost element.
The cost of most standard items rose by more than the rate of inflation in the five years between the last Bargaining Report survey on canteen facilities and the latest one. Inflation between September 1995 and September 2000 was 14.6 per cent overall but 29.1 per cent for canteen meals specifically. Some prices have been even higher. The price of a cup of coffee has risen by 63 per cent, tea by 59 per cent and a main meal by 39 per cent.
Whether or not a canteen is subsidised by the employer can make a big difference to the cost of items. According to the Bargaining Report survey 64 per cent of respondents said their canteens were subsidised. Nearly a third (29 per cent) said subsidies had been withdrawn from their canteen within the last five years. The most common form of subsidy is where the employer meets the overheads of the canteen (such as staff and premises) and the cost of food and other items is recouped from canteen users. Some subsidies involve a fixed-cash subsidy from the employer.
The Bargaining Report also suggests that prices are influenced by whether the contract is run in-house or contracted-out.
International
Below is a list of the top three contractors in five countries (except Japan): France
1. Elior (with Avenance)
2. Sodhexo Alliance
3. Compass (Eurest)
Germany
1. Compass (Eurest)
2. Pedus
3. Aramark
The Netherlands
1. Van Hecke (part of Sodhexo Alliance)
2. Albron (created by merger of Service One with BRN
3. Compass (Eurest)
The USA
1. Sodhexo Alliance (with Sodhexo Marriot Services)
2. Aramark
3. Compass
Japan
1. The Uwokuni Group
Source: The BHA Contract Catering Survey 1999
The BHA Contract Catering Survey 2001
This survey, conducted by the British Hospitality Association and sponsored by the Caterplan Division of Unilever Bestfoods, was published in March 2001. It is based on a response by the major companies in the food service management industry (16 in the current year), estimated to represent between 90-95 per cent of the UK contract catering market. It is widely accepted that these figures represent the most accurate statistics available but the sample base changes every year. Not all companies are able to supply complete information and some calculations and estimates have been made. Contacts: Tel: 020 7404 7744, fax: 020 7404 7799, email: a@bha.org.uk, website: www.bha-online.org.uk Bargaining Report 2000 (The Labour Research Department)
This survey of workplace canteen facilities was based on responses from 273 workplace contacts in unionised workplaces surveyed in September 2000. The survey is conducted every five years. Contacts: Tel: 020 7928 3649, fax: 020 7928 0621, email: pay@lrd.org.uk, website: www.lrd.org.uk
The Reward Group
The Reward Group is a pay and benefits consultancy, which publishes more than 50 regional, national and specialist salary, employee benefit and cost of living surveys every year. Contacts: Tel: 01785 813566,fax: 01785 817007, email: enquiries@reward-group.co.uk, website: www.reward-group.co.uk
Chartered Institute of Purchasing & Supply
The CIPS booklet 'How to Buy...Catering Services' aims to provide practical advice on how to select a catering contractor on the basis of best value for money. Contacts: Tel: 01780 756777, fax: 01780 751610, email: info@cips.org, website: www.cips.org
Downloads
Percentage market share of contracted/self-operated outlets
Other, Size 0 kbNo. of outlets operated by contractors (by sector)
Other, Size 0 kbMeals served by contractors in 200 (million)
Other, Size 0 kbNo. and types of contract plus market share percentage - 2000 and 1994
Other, Size 0 kbTurnover and purchases (£m) - 2000 to 1993
Other, Size 0 kbSalary expectations (£00,000)
Other, Size 0 kbAverage food cost per meal (pence) - 2000 to 1993
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Source
The Facilities Business
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