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Aramark demands 12% price cut from suppliers

Aramark demands 12% price cut from suppliers

Contract catering giant Aramark has demanded its suppliers cut prices by 12%, in a letter dated 1 June.

The letter from chief operating officer Mark Faulkner, said that the company requires some of its suppliers to "make immediate proposals for price reductions on all products or services provided to Aramark, effective 1 July 2011".

"Savings at this level or higher will be essential to secure a long-term relationship," he added, which raises the prospect of Aramark discontinuing its relationship with those suppliers that are unable to fulfil the cost-saving burden that has been placed on them.

The US-based foodservice firm had recently completed a financial and operational benchmarking exercise, which highlighted a 12% "opportunity gap" in procurement and logistics. It is not thought to affect food suppliers.

Faulkner said the exercise found there were "too many lines of products/services, too many suppliers in the same category and a complicated and inefficient distribution solution".

However the letter, which was described by one catering consultant as amounting to a "ransom note", runs the risk of backfiring.

Jonathan Doughty, group managing director of Coverpoint Foodservice Consultants and chairman of Foodservice Consultants Society International (FCSI), said that "only those who need the business" will drop their prices.

"Whilst we are still languishing in a post-recession sluggish economy, many of Aramark's suppliers are growing again and seeing new opportunities," he explained.

"Aramark could end up with the poorer quality providers staying with them and the more professional and quality providers leaving them."

Chris Stern of Stern Consultants said that he recognises the need for efficiencies in the current market, but slammed Aramark's tactics. "To simply issue a generic, aggressive letter to suppliers is not the hallmark of the sophisticated organisation we thought Aramark was.

"Whilst focusing on the supply chain is of course critical, they should also review their own performance on a site/micro level. Our experience with most caterers and especially the larger ones is that this is an area where efficiencies are typically available."

A spokesman for Aramark told Caterer that it is "determined to offer best value" to its clients and constantly reviews all costs, "especially those which do not directly add value to those clients or our consumers".

"As part of this approach, attention is currently focused on secondary suppliers, particularly those of ‘non-core' goods and services (suppliers of food and other products which directly impact clients/consumers are not in scope).

"The company sees this more as an opportunity than a threat and the letter emphasises that the process ‘will ultimately end in fewer, higher volume suppliers delivering fewer items through a consolidated distribution network'.

"Early indications are that many of those approached have seen the letter as a positive ‘call to arms' and are keen to explore how they can extend their relationship with Aramark in return for offering more favourable terms."

While this approach has been used by large corporate businesses before, particularly in the supermarket sector, it has not been seen to this degree in the contract catering industry before.

But according to Doughty it was employed to bring "fire power" to competitive strategies against other supermarkets. "The difference is that these were ‘fit' businesses that were well respected in their market and seeking to gain a competitive advantage over their competition. Aramark are asking their "partners" to address their own poor performance.

"If they were market leader, way ahead of others, then one might understand it. Sadly they are not."

* Tell us what you think about Aramark's letter on Table Talk

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By Janie Stamford

E-mail your comments to Janie Stamford here.

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