CONTRACT CATERING CONTRACT CATERING

A Report On The Sector By Six Market Analysts: A Report On The Sector By Six Market Analysts:

Geoff Carr, Leigh-Ann Jones,Geoff Carr, Leigh-Ann Jones,

Hannah Pitt, Louise Sainsbury, Timothy Wilkinson, Hannah Pitt, Louise Sainsbury, Timothy Wilkinson, & Lindsey White& Lindsey White

INTRODUCTIONINTRODUCTION

Contract CateringContract Catering

Analytical ReviewAnalytical Review

Balanced Report of the SectorBalanced Report of the Sector

Current & Future StateCurrent & Future State

Introduction

MARKET DEFINITIONMARKET DEFINITION

‘‘An individual or company who in An individual or company who in recognition of financial reward will recognition of financial reward will undertake to administer, control and direct undertake to administer, control and direct a specified catering operation within the a specified catering operation within the guidelines stipulated by the [client] guidelines stipulated by the [client] company’company’

• Cotes, 1971

Market Definition

0% 20% 40% 60% 80% 100%

1992

1994

1996

1998

2000

Business & Industry Healthcare Education

Local Authority M.O.D. Oil Rigs

Catering for the Public

MARKET SECTORSMARKET SECTORS

Market Segmentation

Source: BHA UK Contract Catering Survey 2001

DogsDogs

Oil Rigs

Welfare

Cash CowCash Cow

Business & IndustryEducation (Schools)

ProblemProblemEducation (University)

Healthcare

M.O.D.Public (Dept Stores / Other)

StarsStars

Market Share LowHIGH

Low

Growth

ProblemProblem

Healthcare

M.O.D.

StarsStarsEducation (University)

Public (Dept Stores / Other)

CONTRACT CATERING BCGCONTRACT CATERING BCG

Market Segmentation

MARKET TRENDSMARKET TRENDS

Branded outlets Branded outlets increasingly importantincreasingly important

Trends interrupted by Trends interrupted by Foot & Mouth & Sept Foot & Mouth & Sept 1111thth

Support servicesSupport services– MaintenanceMaintenance– CleaningCleaning– GardeningGardening

Number Of High Street & In House Brands

0

500

1000

1500

2000

2500

3000

95 96 97 98 99Year

Ou

tlet

s

High Street Brands

In House Brands

Market Trends

Source: Mintel 12/2000 “Market Size & Trends”

INDUSTRY SECTOR LIFE CYCLESINDUSTRY SECTOR LIFE CYCLES

Healthcare Oil Rigs

Education (Universities)

Business & Industry

Reason: Saturated Market Reason:Unsaturated, High Growth

Reason: Still growing though already established

Reason:Fall in sales & outlets Market Trends

MARKET TRENDS MARKET TRENDS (£M at 2000 prices)(£M at 2000 prices)

UK Contract Catering Market, 95 - 2000

0

500

1000

1500

2000

2500

3000

3500

95 96 97 98 99 00Year

Val

ue

(£M

at

2000

p

rice

s)

Market Trends

Source: Caterer.com 27th July 2001 Industry Reports

Contract Catering

CONSUMER TRENDSCONSUMER TRENDS Higher expectancy of qualityHigher expectancy of quality Expectancy of value for moneyExpectancy of value for money Shorter meal breaks - snackingShorter meal breaks - snacking Shift work increase - when should the canteen be Shift work increase - when should the canteen be

openopen Demand a higher range of products including:Demand a higher range of products including:

– Established brandsEstablished brands– OrganicOrganic– EthnicEthnic

Market Trends

THE MARKET PLACETHE MARKET PLACE

79%

8%

13%

Compass / Sodexho3 500 Small CompaniesAramark UK, Initial & Avanance

OligopolyOligopoly– CompassCompass– SodexhoSodexho

Three othersThree others– Initial, Aramark, AvananceInitial, Aramark, Avanance

3500 ‘Small Business’3500 ‘Small Business’

Competitive Structure

Source: Mintel 2000 “Summary of Key Report Findings”

MARKET LEADERSMARKET LEADERS

SodexhoSodexho

CompassCompass– BrandingBranding– Price SettersPrice Setters– DiversificationDiversification

Three other ‘Large Companies’Three other ‘Large Companies’

3500 Small Companies3500 Small Companies

Competitive Structure

SODEXHOSODEXHO A world leading multinational company UK Head Office Kenley, Surrey UK & Ireland Business & Industry largest market Clients include:

– Merrill Lynch– BAE Systems

Result of merger between Gardener Merchant and French company Sodexho Alliance

Sales Turnover £6.5billion (2000)

Sodexho Prestige is leading leisure company.

Competitive Structure

Source: Sodexho Vision For The Management Team

ARAMARK UKARAMARK UK1 Of The Next ‘Big 3’1 Of The Next ‘Big 3’Reading UKReading UKWorld Leader In Managed ServicesWorld Leader In Managed Services£4.47 Billion Turnover Worldwide £4.47 Billion Turnover Worldwide (2000)(2000)

Clients Include:Clients Include:– BP International BP International – ConocoConoco– BarclaycardBarclaycard

Partnership ContractsPartnership Contracts

Competitive Structure

Source: www.berkeley-scott.co.uk

HALLIDAY CATERING SERVICESHALLIDAY CATERING SERVICES

One of 3,500 Smaller Contract CaterersOne of 3,500 Smaller Contract CaterersWokingham UKWokingham UKLeading Privately Owned Contract Leading Privately Owned Contract

Catering CompanyCatering Company£16.5 Million Turnover£16.5 Million TurnoverClients Include:Clients Include:

– British AerospaceBritish Aerospace– OracleOracle

Competitive Structure

Source: www.berkeley-scott.co.uk

MARKET FORCESMARKET FORCES

CONTRACT CONTRACT CATERINGCATERING

&&IN HOUSE IN HOUSE CATERINGCATERING

CLIENTS / CUSTOMERS

GOVERNMENT & BUSINESSES

FOOD & BEVERAGE SUPPLIERS

STAFF AGENCIES

EQUIPMENT SUPPLIERS

Competitive Structure

OTHER FOOD OUTLETS

RETAIL OUTLETS

SMALL BUSINESSES

EATING FROM HOME

VENDING

OTHER COMPANIES

Create Deals

Big 2

Smaller

Companies

Acquisitions Low Barriers, CCT/BV

Contracts Granted To New Entrants

‘’Tender’’

Contract Giver CCT/BV

Clients Own Substitutes

Substitutes Can Buy From Suppliers

Ownership Consumer Free Choice

TRENDS IN CONTRACT TYPETRENDS IN CONTRACT TYPE

0

2000

4000

6000

8000

10000

Cost Plus Fixed Price PerformanceGuarantee

TRENDS IN CONTRACT TYPE (main three)

95

99

Cost PlusCost Plus Fixed Price / CostFixed Price / Cost Performance GuaranteePerformance Guarantee

Nil SubsidyNil Subsidy PartnershipPartnership ConcessionConcession

Industry Background

Source: Mintel 12/2000 “Market Size & Trends”

INDUSTRY HISTORY (80’s)INDUSTRY HISTORY (80’s)

Decline in Industrial / InstitutionalDecline in Industrial / Institutional– 1980 Education Act1980 Education Act– Demise of ManufacturingDemise of Manufacturing– Increased unemployment (Recession)Increased unemployment (Recession)

Industry Background

Adapted from: Mintel 12/2000 “Market

Background”

INDUSTRY HISTORY (90’s)INDUSTRY HISTORY (90’s)

Increase in Institutional / IndustrialIncrease in Institutional / Industrial– Overall growth in late 90’sOverall growth in late 90’s– Rise in numbers in further educationRise in numbers in further education– Higher demand in health / welfare marketsHigher demand in health / welfare markets

More RecentMore Recent– Compass / GranadaCompass / Granada– High emphasis on aggressive acquisition High emphasis on aggressive acquisition – Expansion into support servicesExpansion into support services

Industry Background

Adapted from: Mintel 12/2000 “Market

Background”

EMPLOYMENTEMPLOYMENT

Steady DeclineSteady Decline– Whole of Hospitality Whole of Hospitality

IndustryIndustry– Maintained steady Maintained steady

proportion of 12% proportion of 12% throughout 97-99throughout 97-99

Increase in full timeIncrease in full time

Restaurants41% Hotels

21%

Pubs, Clubs and Bars

26%

Contract Catering

12%

Industry Background

Source: Labour Market Review, Hospitality Training Foundation 2000

LEGISLATIONLEGISLATIONStaffStaff

– National Minimum Wage (99)National Minimum Wage (99)– Working Time Directive (98)Working Time Directive (98)– Paternity Leave (99), Part Time Workers (00)Paternity Leave (99), Part Time Workers (00)

FoodFood– Genetically Modified FoodsGenetically Modified Foods– Food Hygiene Food Hygiene

TenderingTendering– Competitive Compulsory TenderingCompetitive Compulsory Tendering– Best ValueBest Value

Industry Background

Adapted from: Mintel 12/2000 “Market Background”, “Summary of Key Report Findings” & www.gov.uk

PoliticalPolitical Introduction of CCT / Introduction of CCT /

BVBV Food Hygiene Food Hygiene

RegulationsRegulations Other Food Other Food

RegulationsRegulations Staff RegulationsStaff Regulations

P.D.IP.D.I Effect of the EuroEffect of the Euro Effect of the Effect of the

RecessionRecession Growth possibilities Growth possibilities

in right economic in right economic climateclimate

EconomicEconomic

ENVIRONMENTAL ISSUESENVIRONMENTAL ISSUES

Industry Analysis

SocialSocial Organic foodsOrganic foods BrandingBranding Value for moneyValue for money Life style changesLife style changes Concern about dietConcern about diet

Increase flexibility in Increase flexibility in Cook / freeze and Cook / freeze and Cook chill processesCook chill processes

Cashless systemsCashless systems Loyalty schemesLoyalty schemes

TechnologicalTechnological

Industry Analysis

ENVIRONMENTAL ISSUESENVIRONMENTAL ISSUES

STAKEHOLDERSSTAKEHOLDERS

CustomersCustomersClientClientKey PlayersKey PlayersShareholdersShareholdersGovernmentGovernment

OwnersOwnersStaffStaffSuppliersSuppliersCommunityCommunity

Industry Analysis

SWOT ANALYSISSWOT ANALYSISSTRENGTHSSTRENGTHS Expansion into support services.Expansion into support services.

A continually expanding industry within the UKA continually expanding industry within the UK

Recent trends towards the famous-names foods Recent trends towards the famous-names foods franchising sectorfranchising sector

Moves towards outsourcing non-core activities, Moves towards outsourcing non-core activities, to minimise cost and maximise efficiency. to minimise cost and maximise efficiency.

New consumer tastes and adventurous eating New consumer tastes and adventurous eating patterns and food tastes.patterns and food tastes.

Industry Analysis

SWOT ANALYSISSWOT ANALYSISWEAKNESSESWEAKNESSES Poor consumer research within the market.Poor consumer research within the market. Health conscious image overlooked by branded fast food Health conscious image overlooked by branded fast food

productsproducts Over crowded dining areas & long queues make uncomfortable Over crowded dining areas & long queues make uncomfortable

atmospheres.atmospheres.

Market entry is relatively hard.Market entry is relatively hard. Tightening of health and safety regulations.Tightening of health and safety regulations. Limited business marketing & development for smaller Limited business marketing & development for smaller

companies.companies. ““Grazing”Grazing”

Industry Analysis

OPPORTUNITIESOPPORTUNITIES Emphasis on fresh foodsEmphasis on fresh foods Growth of leisure facilities & number or visitorsGrowth of leisure facilities & number or visitors Expansion into prison managementExpansion into prison management New technologiesNew technologies Less than half of school children eat school mealsLess than half of school children eat school meals Ability of the sector to adapt to the preoccupation of customers.Ability of the sector to adapt to the preoccupation of customers. Broadening of consumer tastes, i.e. ethnicBroadening of consumer tastes, i.e. ethnic Diversification of methods of distribution i.e. “Drive Thru’s” and Diversification of methods of distribution i.e. “Drive Thru’s” and

mobile units.mobile units. Many sectors yet to be exploited. Many sectors yet to be exploited. Larger customer base for key players due to globalisation.Larger customer base for key players due to globalisation.

SWOT ANALYSISSWOT ANALYSIS

Industry Analysis

Industry Analysis

SWOT ANALYSISSWOT ANALYSISTHREATSTHREATS Leading companies in industry have grown by Leading companies in industry have grown by

acquisition.acquisition. Increased ready meals Increased ready meals Flexible working hoursFlexible working hours Health & Dietary Issues Health & Dietary Issues The increasing number of small food retail The increasing number of small food retail

operations i.e. sandwich shops.operations i.e. sandwich shops. Closure of Client Companies.Closure of Client Companies. Movements toward vending operations.Movements toward vending operations. Minimum wage requirementsMinimum wage requirements Move from Sterling to EuroMove from Sterling to Euro Decreasing subsidy on mealsDecreasing subsidy on meals

THE GLOBAL MARKETTHE GLOBAL MARKET Expansion – ViableExpansion – Viable

SodexhoSodexho– 1999 - 17% UK, 17% Europe1999 - 17% UK, 17% Europe– Change of nameChange of name

Mergers, Acquisitions, Strategic AlliancesMergers, Acquisitions, Strategic Alliances– Current UK companies operate in over 70 countriesCurrent UK companies operate in over 70 countries

Major Potential GrowthMajor Potential Growth– Latin America Latin America – AsiaAsia– AfricaAfrica

Global Market

ONE YEAR FORECASTONE YEAR FORECAST Compass & Sodexho to continue with aggressive Compass & Sodexho to continue with aggressive

acquisition policiesacquisition policies Less sub-contracting from main twoLess sub-contracting from main two Little growth in Business & IndustryLittle growth in Business & Industry Growth in Catering for the Public sectorGrowth in Catering for the Public sector Economic slowdown = growth slowdownEconomic slowdown = growth slowdown Branded Outlet expansion (continued trend)Branded Outlet expansion (continued trend) Interest rates lowInterest rates low Tax increases likelyTax increases likely

Future Forecasts

FIVE YEAR FORECAST FIVE YEAR FORECAST Compass & Sodexho continue to growCompass & Sodexho continue to grow Less competitionLess competition Less sub contractingLess sub contracting Main growth in public sectorMain growth in public sector Economic slowdownEconomic slowdown Continued branded expansionContinued branded expansion Tax increasesTax increases Less small companies (recession) Less small companies (recession)

Future Forecasts

SOURCES OF INFORMATIONSOURCES OF INFORMATION British Hospitality: UK Contract Catering Survey 2001, BHA,

London Caterer.com: Industry Reports – Contract Catering 27th July

2001 Cuomo G & Vignal M, 1998, Gruppo Massone – Acquisition

Venture into the UK, British Food Journal 100/2 pp.65-75 Labour Market Review, Hospitality Training Foundation 2000 Sodexho: Vision for the Management Team, Spring 2001 Wilson M et al, 2001, Contract Catering: a positional paper,

International Journal of Hospitality Management, 20/2 pp.201-218

Wilson M et al, 1997, The UK Contract Catering Sector of the Hospitality Industry, Facilities, 15/7/8 pp.177-186

Sources

SOURCES OF INFORMATIONSOURCES OF INFORMATION Mintel Report Code 12/2000:

– “Summary Of Key Report Findings”– “Market Background”– “Market Size & Trends”– “Market Segmentation”– “The Supply Structure”– “The Future”– “Forecast”

www.gov.uk www.berkeley-scott.co.uk/jobseeker_help/careers_catering.htm

Sources

THANK YOUTHANK YOU

ANY QUESTIONS?ANY QUESTIONS?