For almost a decade facilities managers looking to contract out their organisation’s catering have had an obvious list of companies to invite to tender; there have been three key players in the field: Granada, Compass Group and Sodexho, formerly known as Gardner Merchant.
But in July the contract catering industry changed dramatically when Granada and Compass became one. So now, apart from numerous small outfits, there are just two giants in the UK contract catering arena – Granada:Compass Foodservice, with an annual turnover of about £2.6 billion, and Sodexho, with turnover of a just over £1 billion.
Unsurprisingly, Granada:Compass is claiming the change is good news for everyone – staff, shareholders and, most importantly, the buyers of their services. ‘What we have here are two tremendously strong organisations merging to become one even stronger one,’ says Frank Whittaker, sales and marketing director for Granada:Compass. ‘We are going to take the best from both organisations and put that together. For example, we’ll look at training and apply the best schemes from both companies across the board. Or with IT, we’ll use the best systems across the board. And in each sector in which we operate – healthcare, defence, business and so on – we’re going to take the best skilled people from each company and put them together in one new team. The end result of this will be a company offering the best foodservice concepts, IT, training and management in the industry.’
Whittaker hints that Granada:Compass Foodservice clients may also enjoy lower prices as a result of the merger.
‘Both organisations have big purchasing volumes and by merging those we expect to find benefits,’ he says. And he also promises better customer service, with the merged company about to invest in on-going customer research, to ensure any problems at individual contracts will be discovered and dealt with quickly.
Over the coming months as the merger is put into effect, Whittaker also asserts that there will be no disruption to existing contracts. ‘Our prime objective is to keep our customers happy, so they won’t feel any sudden changes. It’s business as usual at unit level – that is absolutely critical.’
Success on the menu?
Despite their initial scepticism, many in the City are beginning to believe that what Whittaker is promising may actually come true. One catering analyst said he now believed the merger made good business sense and that the new company would be almost unbeatable in terms of price and levels of service. ‘This merger has a lot going for it – the economies of scale will turn out to be tremendous in areas such as food purchasing and marketing.’ Furthermore, the fact that both companies were franchisees for Burger King and had their own strong restaurant brands, such as Upper Crust, Ritazza and Little Chef, would make them irresistible to many companies looking to bring in a contract caterer, said the analyst.
But not everyone is convinced. Unsurprisingly, Pierre Bellon, founder and chief executive of competitor Sodexho, says he cannot see the logic of lumping foodservice and hotels together in one company. ‘In our business, why put together catering and hotel management? I don’t see the synergy between the businesses,’ he says. ‘Sodexho is a pure player in catering and support services and doesn’t see any reason to diversify.’
Sodexho sales and marketing director Phil Hooper reckons many facilities managers may be worried by the enormity of the new organisation. ‘There is likely to be a question mark over how accessible the senior management of Granada:Compass will be to their clients.’
Another competitor, Tim West, chief executive of Elior UK – the new third player in contract catering with a £130 million turnover – says the merger means his company is more likely to be asked to bid. ‘We’ve only got two big competitors now instead of three and that means there’s one less seat taken at the table during the bidding process. We can only benefit from that.’ However, West adds that some of the UK’s 60 or so smaller contract catering firms could go bust following the merger, meaning less choice for buyers. The small players will be hard pushed to offer the price levels of the ‘big boys’, he says. ‘And it becomes less easy for small companies to remain competitive because of the funding that’s required to keep up to date in areas such technology and training.’
More crucial for Granada:Compass will be the views of existing and potential customers. Some are already upbeat. Glaxo Wellcome facilities manager Liz Martin certainly believes ‘big is beautiful’. Her company has several sites contracted out to Granada and one to Compass and she is delighted the two have come together: ‘We’ve worked particularly hard with Granada to take our catering forward. They’ve used their retail know-how from their motorway service areas to innovate the product and service for us. And their purchasing power has saved us considerable sums of money too,’ she explains. ‘With Compass now on board, we believe our catering will improve further. The breadth of experience these companies can draw on is fantastic.’
Another is concerned: ‘Rather than cutting prices, I think Granada:Compass could hike them – they dominate so much of the market now, they have an almost captive audience,’ says the manager, who wishes to remain anonymous. ‘I also fear this is a situation where small companies will be driven out and we’ll end up with one company having a stranglehold. Ultimately, that will lead to poorer quality service too.
The proof of the pudding, as those in the catering business know, will be in the eating.
Granada:Compass – how the deal was done
It was in mid-May that television, hotel and catering giant Granada and foodservice specialist Compass announced their intention to merge. Once completed, they said, the longer-term plan was then to split the business into two separate entities – Granada Media, a television company, and Compass Hospitality, a catering and hotel business. Initially City analysts and shareholders greeted the news with enormous scepticism and both companies saw their share prices tumble. The general feeling outside the companies was that the deal was too complex to work. There was also concern that Compass, which had gained a reputation for being strongly focused on foodservice, would lose its direction. Compass executive chairman Francis Mackay, Granada chairman Gerry Robinson and Granada chief executive Charles Allen, had all worked together on the buyout of Compass from Grand Metropolitan in 1987 – and here they were cooking up another plan together. Over the next few weeks the management of the companies got to work explaining why the deal made sense. By merging the catering businesses they could save more than £70 million through bigger bulk purchasing discounts, and administration would be folded together under one umbrella. What’s more, the 81-strong Posthouse chain of hotels was going to be put up for sale after the merger to inject some cash. The tide turned. On 29 June European Commission gave its approval to the merger and shareholders voted in favour on 5 July. Shares in the new company, Granada:Compass, began trading on 27 July. Granada:Compass has set itself a target of demerging into Granada Media and Compass Hospitality by August next year. Compass Hospitality will have a turnover of around £7.5 billion a year, of which UK foodservice will account for some £2.6 billion.Source
The Facilities Business
