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Land of giants: the changing face of the foodservice industry

Land of giants: the changing face of the foodservice industry

As the bigger foodservice businesses continue to snap up the smaller players, Janie Stamford looks at the drivers of consolidation and where the next startups in the sector are going to come from

When CH&Co merged with Concerto Group last December it was another in a growing list of business deals. And not just for the catering companies involved, but for UK foodservice as a whole. The sector has been through a period of extraordinary consolidation in recent years, with caterers of all sizes snapping up rival operators in a bid to bolster their offer and snag a bigger slice of the action.

It’s a trend that shows no signs of slowing either. Insight provider Plimsoll’s latest analy­sis of the leading 614 contract caterers in the UK found that 152 are in danger of failing, 56 are ripe for takeover and 204 are making a loss. These figures suggest there is still plenty of room for more mergers and acquisitions (M&As) in the coming months.

But as the number of independent operators shrinks, is there a pipeline of new entrants to the sector to fill in the gaps? Will we ever again see the likes of the late Robyn Jones, who co-founded CH&Co with husband Tim from their back-bedroom?

Next-level expansion
The drivers behind periods of market consolidation are myriad. M&As can be a shortcut to major growth. They can diversify a company’s offer, raise performance while reducing costs, and even eliminate some of the competition. For the company being bought, it can be the difference between stalled growth and the sort of next-level expansion that comes only with significant investment and pooled resources.

“Market consolidation is being driven by efficiency together with [the quest for] maximising market share and driving corporate value,” says Chris Stern, managing director of Stern Consultancy. “Look at what Bill [Toner, CH&Co chief executive] has done. The company is more profitable and more competitive all at once. And for the small players the promise of some cash in the bank is pretty appealing too.”

CH&Co in its current guise is the product of multiple M&As that have seen it more than triple in size from an annual turnover of £97m in 2013 to £300m after the deal with Concerto Group at the end of last year. And the 2016 merger between CH&Co and the Brookwood Partnership in particular offers a neat demonstration of Stern’s point. The deal gave the former a bigger foothold in the education catering market, while enabling the latter to compete much more effectively.

Bill Toner
Bill Toner

According to Toner these deals are in part being driven by catering’s move from being a paper-led sector to one that is tech-led – and that comes at a cost. “Brookwood had got to a reasonable size – £30m – but they knew that investment in technology was going to be a big ask for them,” he explains. “The back of house was becoming clunky, and that was going to warrant significant investment, so the merger made absolute sense. They could benefit from everything [CH&Co could provide] in a heartbeat.”

After the dust settles
This is not the first wave of market consolidation to hit the sector by any means, and nor will it likely be the last. The Caterer was analysing the fallout of major deals some 20 years ago, including Sodexo’s merger with Gardner Merchant in 1995, Compass Group’s acquisition of Eurest in 1995, and Granada’s purchase of Sutcliffe in 1993, CCG in 1996, Shaw Catering in 1997 and Baxter & Platts in 1997.

But it is what happens after the deals are done that has evolved. It used to be common for a bought business to be swallowed up into the greater whole, with the personalities that helped make their enterprise so attractive to the purchaser in the first place jumping ship. A happy consequence of this entrepreneurial spirit was the creation of new catering companies, many of which, such as Artizian, Bartlett Mitchell and BaxterStorey, are still in operation.

Recent deals, however, have seen a much more concerted effort to integrate the bought business into the new parent company, as Stern explains: “Caterers have learned from past mistakes and they tend to leave any merged companies appearing as if they are trading separately. Just look at Lexington [bought by Elior in 2014] or the Good Eating Company [bought by Sodexo last year].

“There is definitely less negative fallout as a result. Key players tend to stay, maintaining relationships with key clients, then drift away gently over a period of time.”

Fresh opportunities
But for some operators this latest period of M&A activity represents an opportunity, as not all clients are happy to stick with their caterer after an acquisition.

Wendy Bartlett, executive chairman at Bartlett Mitchell, which she co-founded in 2000 with business partner Ian Mitchell, says: “As one of the few remaining independent businesses in the industry, it has been positive for us. We have seen increasing demand from clients. We’ve recently picked up contracts from the bigger companies as clients want to have a closer relationship with their catering partners rather than be just a number in a large caterer’s client list.”

Chris Mitchell, managing director at the Genuine Dining Co, agrees: “It’s been positive for us – there aren’t many small, niche independents left that offer something bespoke.”

CH&Co's Ground Cafe, Salford General Hospital
CH&Co’s Ground Cafe, Salford General Hospital

Genuine Dining was created in 2010 following a management buyout at Yes Dining backed by serial entrepreneur Luke Johnson. It remains one of only a few new catering businesses in recent years to make a major mark on the sector.

This, says Mitchell, is a problem. “Where have all the boutique businesses gone?” he asks. “I am sure we will see new caterers emerging from all this period of consolidation as business leaders leave their current companies, so we are waiting with bated breath to see where they end up. And we embrace this – it’s good to be challenged.”

But instead of asking where the new players are, the question should perhaps be what’s stopping them? “It’s a tough gig for a caterer because of things like contractual investment, due diligence and regulation,” says Bartlett. “They all make it mind-blowingly difficult to get a catering business going in the same way we did from a back bedroom and little investment.”

Another issue is the changing face of client/caterer deals. Once upon a time all it took to get up and running was that first foot in the door: the first contract and client relationship upon which to build.

“But there are fewer risk-free contracts,” says Chris Brown, a catering consultant at Turpin Smale. “Businesses want nil-subsidy catering and if they have more than 1,000 people on-site, they want to see money coming in.”

This, coupled with the growing cost of operating (thanks to food price inflation, rising labour bills, ever more legislation and necessary investment in technology) is a major barrier to market entry.

“Although the counter-argument to that is the whole rise of the café culture,” adds Brown. “Not everyone wants the big, heavy cooked lunch these days so a smaller startup would be able to provide the café/sandwich lunch alternative.”

Sam Hurst, chief executive of Grazing Food, shares Brown’s optimism: “It has become increasingly difficult for individuals to start catering companies from scratch due to red tape, but it is not impossible. The industry is full of very determined people and is a hotbed of entrepreneurialism. There will be others that come through the ranks as cycles change and develop.”

New players
So where are the challenges to today’s caterers coming from if not new players? What will it take to ensure the market keeps innovating?

“I would say that role has been taken over by the high street,” says Brown. “Even the likes of Deliveroo and UberEats are challenging the market. The day the catering industry doesn’t have entrepreneurs who are risking a lot to do something new would be a very sad day. This sector is just wonderful for people to come in and disrupt how things can be done.”

But while these tech-driven businesses, alongside the likes of pop-ups and street food, might inspire operators across the board to keep dreaming up fresh ideas, Toner is not convinced they will be a major threat to traditional catering models.

“They will always be niche and small,” he says. “If you’ve got a thousand employees, are you going to have a thousand bikes turning up with food? It’s not possible.”

Is this extended period of M&As set to continue? Toner certainly thinks so, for all the reasons they have been happening already. Does that mean CH&Co is still on a spending spree? “It’s not driven by me,” he says.

“It’s only where there’s a market opportunity, and some deals take six months, others take two years. When you’re looking to buy a house in a certain area, if one doesn’t come up for sale there’s nothing you can do about it.”

What about Bartlett Mitchell and Genuine Dining Co? Is there any temptation to sell up? That’s a firm no, from both parties. “We are constantly approached, but why would we sell something that is a part of our lives?” asks Bartlett. “Food and hospitality is what Ian and I live for, not materials or money. Selling our business wouldn’t make much sense!”

Mitchell feels the same: “Yes, we have been approached, but we are too busy having lots of fun. I’m only 35, so what else would I do?”


Grazing’s new model
“The market has needed shaking up for some time,” says Sam Hurst, chief executive of Grazing Food. “We believe that, with our different service model, we are in a great place to take advantage of this.”

The new service model to which he is referring is a catering on demand online ordering system that the company’s business and industry brand Grazing Catering launched last year in what Hurst believes is an industry first.

sam-hurst-grazing-food

The aim of the service to provide clients with an ad hoc workplace food offer without the need for contracts and on-site facilities. “The squeeze on space due to higher costs has seen ‘delivered-in’ businesses target companies that can
no longer afford to dedicate vast amounts of square footage to kitchens.

“While there will always be a need for traditional catering service models, we are seeing an increase in requests from fast-growing companies who are looking for something a little more flexible. We believe our model sits between delivery and traditional catering services.”


Takeover timeline

2017

  • CH&Co merges with Concerto Group 
  • Alliance in Partnership acquires Contract Dining Company
  • Sodexo acquires Centerplate
  • Sodexo acquires the Good Eating Company
  • CH&Co merges with H+J

2016

  • Servest acquires Catering Academy
  • Elior acquires minority stake in La Belle Assiette
  • Sodexo acquires the public contracts of Peyton and Byrne
  • Elior acquires Waterfall Catering Group
  • CH&Co merges with Brookwood Partnership and ABsolutely Catering
  • ABM Catering Solutions acquires the contracts of Talkington Bates Midlands
  • Servest acquires Accuro

2015

  • CH&Co and HCM Group merge

2014

  • Bartlett Mitchell acquires Inn or Out
  • Elior acquires Lexington Catering 
  • Host Contract Management and Catermasters Merge
  • WSH acquires Searcys

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