A profitable sector
Compass Group
Staff:More than 170,000, who feed about 275,000 workers
Sales turnover: £4.3b annually
Compass Group has headquarters in the UK, Denmark, USA and France and a network of local offices in 49 countries. It owns vending giant Canteen Vending Services in the USA, but the business and industry market still accounts for 50% of the group sales.
The UK division is responsible for a quarter of 1998's profits and produced the highest profit margins of 7.3% against European and North American margins of 4.8% and 4.4%, respectively. The largest earner is the North American division, which grew by 42% to £61.6m, with the rest of the world, including Europe, growing by 12% to £102.1m.
History
1941 Jack Bateman founds Factory Canteens
1966 Acquired by Grand Metropolitan
1970 Midland and Bateman Catering acquired by Grand Metropolitan
1984 Merged to become Compass Services
1987 Management buyout
1988 Floated on UK stock market
1992 Launch of new-identity Compass Group
1993 Acquired Travellers' Fare and Letheby & Christopher
1994 Acquired Canteen Corporation
1995 Acquired Eurest International
1996 Acquired Eurest France, Service America and PFM
1996 Consolidation of business and industry identities under Eurest name
1997 Acquired Daka International, National Leisure, SHRM, a stake in Selects and in KKS
1998 Became a FTSE 100 company. Signed the first global food service contract. Acquired Restaurant Associates
Compass Group has bucked the trend and turned in year-end profits in December of £159m - a 16% increase on 1997 - with UK division profits rising by 14% to £54.3m. It's a good start for John Greenwood, who took over as the group's UK managing director in May 1998 but, as he points out, the results are the fruit of a long-term strategy.
Five years ago Compass Group UK decided to organise its business by sector, including: business and industry; education; healthcare; fine dining; and event catering. Since then, it has pioneered branding in the UK contracting business, more than doubled its turnover to £668m, and has signed the first global contract, with Philips, worth £80m in sales. It has notched up business worth £10m in the first two months of this financial year.
"We've been extraordinarily successful with this strategy," says Greenwood. "Although our competitors were dismissive in the early days, others are now following us. We've moved the market but it's taken time and investment to learn."
The question is, with lean years predicted for contract caterers, and a recession mooted: can Greenwood sustain this growth now he's in the hot seat? He certainly aims to, and wants to ensure the company "shifts up a gear and accelerates away from our competitors".
To achieve this, he is re-engineering the group by expanding the main board into four new directorships: business development, marketing, human resources and operations.
This will help to homogenise the business because, although sectoring has served Compass well, it has also created what Greenwood calls the "silo effect" - each sector growing in a self-contained tower with little interaction. Over the next five years, he plans to set up regional offices shared by the specialist companies to establish a central strategy.
"I want to make a few holes in the towers to show each sector that they share the same skills and problems in areas such as administration and human resources," says Greenwood. "In no way am I dismantling the sectored approach, but in some functions we can operate more efficiently and effectively as one company rather than five. It's a matter of taking the best of what we've got and getting rid of the not-so-successful areas. It will be exciting to see how to drive this home over the next couple of years."
Greenwood does not expect there will be redundancies. "It's more a question of reorganising existing resources to work better and holding them steady while the business continues to grow."
By providing operational companies with stronger leadership at board level, his aim is to encourage cross-fertilisation using the five tenets of Compass management philosophy: providing customer satisfaction; being a preferred employer; showing market leadership; exhibiting operational excellence; and proving it with financial performance.
A non-caterer with an accountancy background, Greenwood does not have a cut-throat attitude towards profits. His targets are achieved through the subtle approach of pleasing client, customer and employee. His aim is long-term organic growth, which he attributes to the "inspiration and vision" of group chief executive Francis Mackay.
It was Mackay who recruited Greenwood in 1986 as commercial director for the healthcare company owned by Grand Metropolitan. Following a management buyout the following year, he became managing director of Compass Healthcare and, in 1992, when Compass Group was launched and the division was renamed Bateman Catering, he became its chief executive. Greenwood introduced branding, ditched traditional management hierarchy and, within a few years, Bateman had become one of the top three industrial caterers in the healthcare market.
Bateman, together with Chartwells and Letheby & Christopher, started Compass Group's move into sectorisation and, in 1993, Specialist Catering Services was set up with Greenwood as managing director. Within a year he became managing director of Compass Services in the UK; restructured management to link operators with sellers as a single team; and took Compass into the regions to provide a local service.
As well as keeping up the pressure on sector markets such as healthcare, Greenwood hopes to sustain the group's growth through niche markets in less traditional areas, including sites with fewer than 250 people, and universities and colleges, and through the ability to drive nil-subsidy contracts.
"Although nil-subsidy will play a more important part in the future, it will never become the norm, as cost-plus was 10 years ago," he says. "Industry will develop a wide range of contracts for each sector, with nil-subsidy at one end and caterers paying to operate on client premises - as we do with BAA at Heathrow - at the other. A measure of subsidy will remain, especially where employers view catering as a key benefit in attracting staff."
Alongside his commitment to sectoring, Greenwood is passionate about meeting customers' needs. This means a "substantial" investment by Compass in monthly surveys, which cover more than 60,000 customers a year, but it has contributed significantly to the group's 98.2% retention rate since 1996.
"It's about understanding the buying impulses," says Greenwood. "I am constantly looking at the share of the market we haven't got, like the people on site who are not using our restaurants. We need to concentrate on why, and try to attract them. It's a matter of trying to find the right products for the right people at the right time.
"It's better to increase sales by finding out what the customer wants to eat and using branding to attract them, rather than reducing subsidies by cutting costs." n
