Top 30 Contract Caterers

01 January 2000
Top 30 Contract Caterers

CONTRACT catering is changing fast: the leading companies are using more brand names; the distinction between high street restaurants and employee catering facilities is disappearing.

And while Britain's contract catering market is overwhelmingly dominated by a handful of companies which have got where they are largely by providing catering services to the business and industry sector, those companies are leading the move away from this heartland into new markets, including schools, hospitals, leisure centres and other local authority-owned venues.

Of the 4 million or so meals served each day by the contractors, most are served in employee restaurants and canteens.

Market leader Gardner Merchant holds about 3,000 catering contracts in Britain, of which about 1,750 are in the business and industry sector. Of new contracts signed in 1993, 55% have been in the public sector or the leisure sector - a striking contrast with the past.

Compass Group has even assembled a portfolio of "Famous Foods", including Burger King and Pizza Hut, which it will operate exclusively on non-high street sites. These include its traditional staff feeding market, but also in hospitals, on airports and railway stations, colleges and sports venues.

Gardner Merchant, like Compass, has a string of brand names of its own, such as Directors' Table, Ring & Brymer and Town & County. It has not yet announced any Compass-style franchise deals, but this summer the company will launch some new catering concepts for contracts where it serves the general public - such as Wimbledon and other big sports events. These could be branded with names familiar on the high street.

Sutcliffe, too, will be announcing new offers, but believes bringing high street brands into staff feeding is too capital-intensive for clients. Instead, the company has for the past year been testing six different generic offers - jacket potato, pasta, pizza, burger, Chinese dishes and baguettes - which are likely to be branded and made generally available to its clients.

About 60 of Sutcliffe's contracts are mass catering on transient sites such as railway stations and airports. It does not have franchises for any high street brands as yet, but the company has been talking with franchisors. Sutcliffe hopes to announce news of both these developments in March.

There are various reasons for the shift of strategy going on at the top of this market, but they basically come down to three major issues. First, the squeeze on payroll and the closure of offices and factories across Britain during the past four years has put a limit on the growth that is possible in the business and industry sector.

Second, those businesses which are still using contract caterers to feed their employees are watching costs more and more vigilantly in all departments, and the level of subsidy on staff meals continues to be under pressure. Caterers need the sales skills which high street operators have, if they are to come close to that "nil subsidy" target.

Miles Quest, author of the forthcoming British Hospitality Association report on the sector, says the third reason for contractors' interest in commercial brands lies in the saturation at the top of the market, mainly by the ‘big three': "If any of the leading companies are thinking of expanding in contract catering, there are very few companies that are big enough to be worth taking over. Hence the new interest in commercial catering, particularly in the case of Compass, which has taken over Travellers Fare, Summit Catering Services and Letheby & Christopher."

Stuart Kelly, company secretary of Russell & Brand, sees a combination of innovations, including food courts, as the way to reduce subsidies for clients.

Savings will be made partly through the discounts which contract caterers can command from suppliers, but also through investment in information technology and through development of food courts and other catering programmes.

In some cases these food courts will consist of a number of branded units familiar from the high street. This is one way in which Compass will exploit its "Famous Foods" banner.

As caterers mimic the high street more and more, so customers' expectations are more demanding, and a big majority of the leading caterers are investing in quality programmes such as Total Quality Management (TQM) and BS5750.

This is happening among catering companies of all sizes. At one of the small, regional caterers, Peter Unsworth, managing director of London Catering Services, reports margins have been eroded by a combination of "competitor activity" and restraint on customers' spending power.

"LCS has countered this to a certain extent by concentrating on quality and training of staff, making the progress towards BS5750 and Investors in People," says Unsworth.

Two-thirds of the companies which responded to the survey report either that they have already achieved the BS5750 standard or are currently working for it. Some 40% say they use TQM.

Very big shares of the catering market are to be won, not in the private sector, but from local authorities and other public bodies. The local authority direct service organisations (DSOs) rank alongside all but the biggest catering companies and are increasingly competing with them for business.

Three of the best-known public sector organisations feature in the Top 30, including the biggest of the DSOs, Catering Direct - which has grown out of the school meals and civic catering service in the Strathclyde region.

Avril Robertson, director of Catering Direct, is well aware that the business environment around town halls is changing: "Our industry is mainly concerned with local authority catering and therefore will be affected by local authority reorganisation and continued competitive tendering pressures," she says.

Robertson is also well aware that the contract to run much of Strathclyde's catering expires next year, and she can look forward to competition from the commercial companies for that business. Catering Direct and the many other DSOs which have learnt to cope with compulsory competitive tendering can also look forward to legislation which will free them to compete with contract caterers in the market outside town halls, too.

Legislation for the restructuring of Scottish local authorities, currently on its way through Parliament, will probably break up Strathclyde into 10 smaller councils - and logically Catering Direct should be split 10 ways to match.

As the biggest DSO in Western Europe, however, Catering Direct is not likely to take that lying down. Robertson and her colleagues must be planning - though they will not talk about it yet - ways of convincing their political masters that they should be kept as a unified organisation, with powers to bid for contracts outside their present local authority limits, as well as within them.

It can then only be a matter of time before at least one of the big DSOs - probably Catering Direct - breaks out of its public sector confines, and becomes a fully-fledged commercial company.

Forward Catering Services, the former Civil Service Catering Organisation (CISCO), has been operating increasingly as part of the profit-led private sector since April 1991. Now Sutcliffe has emerged as front runner in the race to buy Forward.

Quadrant, the Post Office staff caterer, has been repositioned as an internal contractor for the Royal Mail. If the current Department of Trade and Industry review of the Royal Mail finds in favour of privatisation, there are several possible scenarios for Quadrant, ranging from a management buyout, or a stock market flotation, to straight sale to one of the "big three".

If Quadrant was relaunched as a separate company, it would be free to bid for other companies in the sector, which it cannot now do.

Since its repositioning within Royal Mail, which owns 100% of Quadrant, the caterer has been free to operate in the public sector. It now has access to 200,000 customers - employees of Royal Mail and its other clients.

It has secured 24 external contracts, including as the London headquarters of Her Majesty's Stationery Office and a fire training centre in Yorkshire. Quadrant has yet to win its first school meals contract, which could be the next market to be developed.

Alongside the staff feeding contracts, within and outside Royal Mail, Quadrant has developed staff shops offering newspapers, confectionery and other "Essentials" - the name under which the shops trade. But it has yet to brand any of its catering in this way.

"A sea-change is going on in the contract catering world, which is being led by the top three or four companies - who will in turn get bigger and bigger," says Quest. o

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