Talking shop
When Charlton House won the contract to cater for the Foreign & Commonwealth Office in London in May, it persuaded the client to shell out £50,000 to refit the on-site shop. An extravagant gesture, it might seem, but shops are big business - and growing. Launched under the name of Traders, shop sales shot up by 40%, with a predicted turnover of £240,000, bringing the total catering turnover to about £1m.
"The objective was to provide a cost-effective service as an alternative to the staff restaurant," explains Alison Tyler, Charlton House's director of business development. "An unused area was converted into a coffee lounge, we reviewed the existing product range, and decided to offer convenience foods. These include boxed salads and sushi, jacket potatoes, pre-packed sandwiches and bean-to-cup coffee. We also sell items from tights to videos with free popcorn."
Charlton House, with 70 contracts and a turnover of £18m, has three other shops, and sees this side of the business flourishing.
"Shops dovetail into the existing catering service, and are inexpensive to operate because you usually only need one person to run them," says Tyler. "They also provide a service for employees on remote sites as well as keeping customers in the building where they spend more."
Most contractors now see the shop as a positive addition to their services and revenue. Investment ranges from £1,500 to equip a kiosk to £60,000 for a walk-in, high-street-style shop. Gross profit can reach 30% on turnover of £100,000-£250,000, sometimes equalling that of the staff restaurant.
At one of its sites Sovereign Catering, which operates 110 contracts and 11 shops, manages a restaurant, café and shop and the turnover is an even split between all three. "This is definitely a growth area," says managing director Peter Green. "As long as you have sufficient numbers and a strong need, such as an isolated site, this is an efficient method of generating profit and reducing subsidy as well as offering an additional service to client and customers."
Shops stock about 1,000-2,000 items such as shampoos, newspapers, confectionery, plasters, flowers, cards and gifts. Some shops outsource dry cleaning and photographic services. All offer a grab-and-go range of sandwiches, snacks and cold drinks. The price of food produced on site is the same as in the restaurant, with other products priced the same or slightly lower than the high street.
Contractors either manage the shop as part of a cost-plus agreement or on a commercial basis with a profit split with the client.
"A cross between Prêt à Manger and a petrol forecourt" is how Mike Smith, managing director of BaxterSmith, founded in May this year, describes the shops.
"The secret is to have the shop professionally fitted out and decorated. It will give it the smart, high-street look," he says. "It's using the retail concept to feed people. They're also an option for sites that are too small in size or population to sustain a full restaurant.
"One of our clients was opening a satellite unit with only 100 people on site. Employees were moving from three other sites where a full staff restaurant had operated and the client was anxious to provide some kind of service. We suggested a shop selling good-quality bean-to-cup coffee, pre-prepared sandwiches, bagels and soup, as well as a wide range of items from gifts to newspapers. Food prices are subsidised in line with the other sites."
BaxterSmith took over two existing pantries and turned one into a shop and the other into a seating area. Both client and customers were satisfied.
The sure sign of success is when an idea gets its own brand. Sodexho has opened 137 shops in three years and expects to open another 100 in the next 12 months. To strengthen this sector, it launched its retail brand, Just Trading, in May 1999.
"As we were opening more and more shops, we wanted a clear brand and identity and a way to spread best practice," says Tony Barnard, strategic development director. "Each shop has the same colour scheme and uniforms. Staff are trained in the skills of laying out the shop to best advantage, such as putting low-value, impulse buys near the till.
"The staff restaurant is a huge cost base, often open only at lunchtime, whereas the shop is accessible all day. We've found that sales here tend to be extra and do not take from the restaurant. This secondary spend means we've penetrated the on-site population in a way we hadn't before."
On-line service in shops
Sodexho offers Internet shopping from its Web site. By the end of this year it will become the first contractor to open an on-line service in three shops, offering customers with no access to the Internet a chance to order items such as hampers and wine.
In 1996, Compass launched the StopGap shop brand for its retail outlets at locations such as railway stations. Growth was initially slow, but this has now changed dramatically, says Mel Owen-Turner, retail development manager for Eurest Sutcliffe, the business and industry sector of Compass Group UK.
"This has now become the fastest growing sector, with 50-80 shops opening in the past 12 months, bringing our total with Granada to 200," he says. "A lot of this is due to the growth in desk-dining. Some of the workforces, especially in IT, are much younger. They are happy to sit at their desks, surfing the net, typing with one hand and holding a wrap in the other.
"Convenience is important, second only to the taste of the food. Flexitime means people can be working 12-7pm and want to eat lunch later. We have afternoon munchers who buy pasties, rolls and cakes at tea time. They can do this because the shop is open all day."
When there is no other catering available, StopGap provides hot food such as lasagne and jacket potatoes, a popular service accounting for up to 30% of sales where it is sold.
The Eaton Group, which has 59 contracts, operates four shops and managing director Alan Walker firmly believes they are here to stay. "They make a healthy gross profit of 29%-30% and keep employees on site where they buy more. The more services or franchises the caterer can offer, the more lucrative and valued is our service. The more we can do for the client, the longer the relationship. I see the natural progression as taking on management of services such as gymnasiums and banking."
In contrast, Chris Hind, managing director of Nelson Hind, part of the Elior group, considers the whole subject of shops as simply a fashion.
"I don't mean to sound cynical," he says, "but I've seen these ideas come and go. We have only 10 shops out of 290 contracts, so it's not exactly a big influence in our industry. We offer it to clients as part of a service. It's all part of the move to offload non-core service activities such as reception and cleaning. It's more client-driven than good marketing and branding."
Benefits of on-site shops
Keeps employees on site, tempting them to buy food they would otherwise buy on the high street
Offers an alternative for clients with space restrictions or low numbers on site
Generates income and helps subsidies
Can be used as a recruitment incentive
Strengthens the bond between client and contractor
Source: Caterer & Hotelkeeper magazine, 9-15 November 2000
