Size matters

Contract catering is like a Latin American economy: almost totally controlled by a tiny elite. Three companies hold 90% of the market, while a multitude of smaller firms scrabble for what they can get of the remainder.

With huge international conglomerates behind them and turnovers nearly reaching billions, the big three are well placed to scoop up all the large contracts, but they don't limit themselves. They are as ready to bid for a job to feed 50 as one to feed 10,000. And as they can afford to run loss leaders, and squeeze suppliers, their pricing is inevitably highly competitive.

But 10% of the market still evades them, allowing smaller independents a foothold. This can result in a company with a turnover of £900m competing for a job against a company with a fraction of the financial clout. And sometimes the minnow wins.

"The industry is dominated by the big three: Gardner Merchant [GM], Granada Food Services and Compass," explains Phil Phillips, technical services manager at the British Hospitality Association. He oversees the association's Contract Catering Forum. "They have huge turnovers, in the hundreds of millions. But they will compete with the smaller companies for contracts."

According to GM, its turnover now reaches £900m, while Granada earns £800m. In its most recent annual report, released in December 1997, Compass recorded a turnover of £658.1m. Behind the giants, the next biggest is Aramark, with a turnover approaching £200m. After that, the wealth of companies drops dramatically into the tens of millions.

However, the independent companies survive and even thrive, despite the size of their competitors.

"We can compete on price, but we also have a lot going for us that the bigger companies don't have," argues Chris Richards, chairman of Summit, which with a turnover of £23m is one of the biggest of the independents. "We have the freedom to respond to our clients more quickly because we don't have the bureaucracy, or a parent to okay everything with, and we are seen as more reliable and personable. A client can call me up on a Sunday if there is a problem. Some of our clients have experience of the bigger firms and they have chosen us instead."

Many clients do indeed believe that the smaller firms will be leaner and therefore more able to respond immediately to their needs.

"We have a flat management structure that can provide a bespoke service for the client," explains Rick Holroyd, co-owner of Holroyd Howe, which was set up a year ago and already has a turnover of £1m. "Food is very personal. Clients want to know they can call up the managing director directly if they are concerned. They want to know we are nimble and close to them."

Of course, the larger companies are aware of this personal service factor and often organise their structures to run along local levels. However, Holroyd insists: "The client still knows they are a big company, and if they are after a smaller player then that's what they will opt for."

Building on the personal, approachable side enables the smaller independents to snatch contracts and thereby grow as companies but, once a firm has a turnover in the tens of millions, it starts to attract the attention of the bigger players. Granada has followed a strategy of aggressive expansion through acquisition. It only entered the industry five years ago, when it bought Sutcliffe from P&O, yet it has been the most acquisitive, buying up 15 existing contract caterers since 1993.

"An analogy could be a lawn where many of the companies are small seedlings," says Phillips. "Once they reach a certain height, a mower, being one of the bigger contractors, comes along, cuts it off, and takes it over."

Summit has been in business since 1980 and, in those 18 years, Richards has been approached by a number of bigger companies interested in absorbing his company into their own. But he has held out. "We wanted to be independent - that's why we set the company up in the first place," he says.

In the past few years, though, some major companies have been snapped up. Last year, Baxter & Platts was acquired by Granada while Gardner Merchant took over Marriott. However, even smaller firms can attract the big players. During 1997, GM also bought Cadogan Catering, a specialist in garden catering with a turnover of just £3m. GM's director of corporate affairs, Bob Cotton, explains: "We tend to buy up companies that will take us into a new market."

Holding out

Some companies will be absorbed into existing divisions or, like Baxter & Platts, will at least for a time continue as a separate division within the group. But a number are holding out. Robyn Jones, managing director of Charlton House Catering, which she set up eight years ago and which now boasts a turnover of £10m, likes her independence. "There is always a price one can't refuse," she says. "But if I were to sell, what would I do? I'm too young to retire and I don't want to work in one of the big companies."

In most other industries, the existence of such fierce competition would kill off the smaller groups, but the nature of contract catering, which doesn't need a vast amount of capital, enables independents to emerge. A new company can be born with just one contract. In some circumstances, it may not need equipment or even premises, if it works in-house for the client. "All a company needs to start up is experience," says Phillips.

Growing trend

There is, however, one hurdle that many independents have more difficulty negotiating. There is a growing trend towards contract management, where the client has more needs than catering. It may want the contractor to look after security, cleaning and even health and safety, services which a smaller firm often cannot provide. "We do provide cleaning on some contracts, but we mostly concentrate on catering," says Jones.

There is also a threatening cloud on the horizon in the shape of a possible recession. The bigger companies are confident they will ride out the storm because of their size, but the smaller contractors are also talking bullishly. "We are small enough to react to a problem," says Jones. "We can suggest savings to the client to help them, rather than react when they want to close the contract."

It's intimacy such as this that gives the independents their strength. The minnows may not control the sharks, but they are determined to swim in the same sea. And while there are clients who prefer working with independents, there will always be 10% of the market denied to the big three.