Battle for Scotland

The contract catering market in the South-east is arguably as tied-up as the M25 in the rush hour. No wonder, then, that the independents are looking further afield. One popular destination in the past year has been Scotland. It's a seemingly good choice - industry observers estimate the market is worth about £300m and less than 25% of it has been contracted out - but it's not as simple as it sounds. These small caterers are muscling in on a market dominated by multinationals such as Aramark, Sodexho and Compass. Business begets business in Scotland, and as these big players handle group contracts they tend to be first in the queue when a big tender comes up in Scotland. It's noticeable that the few local caterers that exist, such as Azure and Alba, haven't strayed too far out of niche areas such as hospitality.

Roy Miller, managing director for Scotland & Offshore at Aramark, warns the smaller English operators not to underestimate the difficulty of penetrating the Scottish market.

"The Scots are parochial and want the Scots to look after them," says Miller, who hails from St Andrews, Fife, and previously spent 12 years working for Sodexho in Scotland. "This is a problem for smaller players, because if they have to put an extra man in Scotland it adds to their cost base. As a big company we have the advantage of having the resources in place."

The independents don't dispute this. All have seen the wisdom of recruiting Scottish directors to head up their northern divisions, as Alan Aitken, managing director at BaxterSmith Scotland, concedes. "For a small independent coming to Scotland, you need to have Scottish people," he says. They argue, however, that they can more easily satisfy the "parochial" demands of the increasingly more discerning Scottish client who wants fresh, well-presented food.

"It's Hobson's choice up there," says Robyn Jones, chief executive of Charlton House. Her strategy, like all the other independents', is to trip up the giants on the fact they are systemised and unable to provide bespoke catering, or source from local suppliers. Robert Marshall, who runs her Scottish division, reckons the big players can be complacent, too. "We can offer something new to Scottish clients," he says. "They [the big companies] concentrate on the bottom line and lose touch with what's going on the plate. We're a foodie company. We won't be as cheap, but we can improve their catering."

William Baxter, executive chairman at BaxterSmith, agrees that tastes in Scotland are changing: "It's not as sophisticated a market as down south," he says. "It's been a case in the past of just providing big plates of food. But a lot of companies are now moving up and opening stylish offices. When they see the types of contract we operate they want more. The market is becoming more discerning."

So how are the smaller players getting footholds in Scotland, and what do they face when they get there?

BaxterSmith, which led the way more than a year ago, set up a joint venture and subsequently absorbed a local company. Catering Alliance entered the market with a new contract last April and now has four, while Wilson Storey Halliday pushed into Scotland through contract expansion.

Charlton House is one of the most recent arrivals. It slipped across the border in the summer by expanding its contract with life assurance company Royal London in Wilmslow, Cheshire, to its Edinburgh operation, Scottish Life. The three-year deal to manage a staff restaurant, caf‚ and hospitality for 500 staff is worth £500,000 a year and was won from Sodexho. The company also caters for 100 staff at Xansa in Edinburgh as part of a £180,000 deal with three more of the business process and IT company's UK sites. It is also in negotiation with a third potential client.

Jones explains that she waited to make the move north because she wanted to build up a solid client base first. She attributes 30% of growth at her £32.3m turnover company to the extension of business through existing clients and she recognises that it will be hard to win new business in Scotland. "The Scots are more loyal. It's a case of who you know. They're unlikely to change caterers to save £1,000 - there's got to be a good reason," she says.

The strategy is to get the company's name in the Scottish press to increase awareness, set up client lunches with executive chef David Cavalier and fly potential customers down to see the caterer's flagship contracts in London. "It's up to us to build a rapport with potential clients in advance to get into the tender process," explains Marshall.

Like most of the other independents, Charlton House is concentrating on the business and industry sector, which is growing as new HQs move into Glasgow, Edinburgh and other leading Scottish cities. Few are looking at the education sector yet, despite the opportunities, as they don't have enough contracts to redirect staff during holidays.

Despite the difficulties of breaking into a new market, Marshall is optimistic. "It's not an easy job, but we'll definitely expand in Scotland. Gone are the days of the staff canteen. People are looking for innovative food." The Scots' way of looking at restaurants and contract catering is changing, he adds.

View from a pioneer: Baxtersmith

BaxterSmith was one of the first independents to move into Scotland when it opened a branch in October 2002. William Baxter gives two reasons why he crossed the border - he loves Scotland and the market hadn't been tapped by a niche or boutique caterer.

Unlike the other independents, Baxter didn't have to wait for a client opportunity. He was put in touch with Alan Aitken, a Scotsman and former managing director of Compass Scotland and Northern Ireland. The pair, so legend has it, met on a river bank and after a two-hour discussion decided to launch a joint venture, BaxterSmith Scotland, which is registered in Scotland and has an office in Edinburgh. Last May it also absorbed a small Scottish contract caterer that was in difficulties.

The division now has 32 contracts throughout Aberdeenshire, Ayrshire and the central belt, and turns over £5m a year. Although Aitken doesn't have a sales team, he expects word of mouth to boost the number of contracts to more than 50 by next year.

Baxter is equally confident. Regeneration is drawing new companies north of the border to set up 24/7 operations that need the style and service that an independent caterer with City experience can offer. BaxterSmith Scotland's focus is on business and industry - one of its biggest contracts is to feed 2,000 people at Pearl Assurance at Bathgate, just outside Edinburgh - although it has one contract at a professor's faculty in Edinburgh University and it might consider private schools.

Aitken admits that contracts are less lucrative in Scotland, but says this is offset by cheaper costs, particularly of local produce. He adds that sales have increased by 35-40% at most contracts.

So how do Baxter and Aitken feel about being joined by the other independents? "We had a steal of nine months on the others," says Aitken. "You only have the unique selling point once."

Baxter adds that the competition will be good. "It will raise everyone's game," he says. "It'll make it harder for the big boys. They'll feel the pinch."

BaxterSmith Scotland still has a potential advantage over its peers, however, in that Aitken was managing director of Compass in Scotland and his operations director Michael Ball was managing director of Sodexho Scotland. Between them they looked after 70% of the market and know it inside out.

Trends are already changing. The Scots used to demand mainly cost-plus, but Aitken's clients now want more guarantees. He notices that clients appreciate working with smaller, more hands-on caterers which use local suppliers.

"We don't use bains-marie. Our winning formula is fresh food and the standards of our staff," he says. "The big boys are not in control, they are systemised," he claims.

the Scottish market

• Only about 25% contracted out.

• Market said to be worth about £300m.

• Sodexho and Compass hold at least 70% of contracts.

ARAMARK

• More than 200 contracts with a total turnover of £80m.

• Holds 50% of the offshore market and 10% of onshore.

AVENANCE

• 28 contracts with a total turnover of £5m.

• This is made up of 26 B&I contracts and two in education.

• Key clients are Norwich Union and Burton Foods.

• Infrastructure in place for further growth.

BAXTERSMITH

• 32 contracts, 130 staff and total turnover of £5m.

CATERING ALLIANCE

• Four contracts - one college, one training centre and two B&I.

COMPASS

• 500 operations and 5,000 staff in Scotland (regional turnover not available).

• Most contracts are in the B&I sector (Eurest), but it also has contracts in education, offshore, retail and travel, leisure and roadside.

SODEXHO

• 150 operations with an annual turnover in excess of £40m, employing 2,000 people.

• Contracts are in B&I, healthcare, defence, education and leisure.

VIEW FROM A BIG PLAYER: ARAMARK

While the independents chip away at the market, Aramark has appointed Roy Miller as managing director of Scotland and Offshore. His remit is to boost the company's presence.

Not that Aramark has been a slouch in Scotland. The company has had a presence up there for the past 20 years and has more than 200 contracts turning over £80m a year. This includes 50% of the offshore market, putting it ahead of the pack. Onshore is a different matter, though. Despite being the UK's third-biggest caterer, it has only 10% of the market, most of the rest being held by Compass and Sodexho.

Miller is undaunted. He reckons Aramark can beat the independents by having the local infrastructure of a big company and also trounce its larger rivals by not being too cumbersome: "There's a huge opportunity to take as much off Compass and Sodexho as possible by being different. We aren't as huge, so we can still ‘do bespoke'."

According to Miller, Aramark also has the advantage of its offshore expertise. He says the different areas of best practice, such as health and safety, can be adapted to impress onshore clients. They also like the fact that Aramark has significant blue-chip contracts in the region, such as insurance group Aegon UK and Scottish and Southern Energy, as well as oil and gas companies BP and Amerada Hess, which are offshore clients.

"The first thing a client does is ask to see an example. We have them up here, but the small independents have to take them south," Miller explains. Like the independents, he has no doubt that blue-chip clients are where the opportunities lie. "We've walked away from ‘cost, cost, cost' people. We've got to make money," he says.

Aramark's size means it can more easily chase education contracts, which require staff to be reassigned during holidays. There's rich opportunity as the company holds the only two contracted-out universities, Robert Gordon in Aberdeen and the University of Paisley. The other market Miller is eyeing is independent schools.

COMPASS POINT
Graham Box, Managing Director of Compass Group in Scotland

Which caterer has the most business in Scotland?
"We are, I believe, market leaders in every sector."

What are the opportunities and challenges faced by smaller caterers?
The population of Scotland is 5.1 million - about two thirds of London - and espite the concentration on the central belt, the geographical spread and infrastructure requirements can be challenging.

What are the advantages?
"Career development opportunities! Over the years many small independent caterers in Scotland have failed to achieve critical mass and have withdrawn or been acquired.