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Belt-tightening puts the squeeze on contractors

11 December 2008 by

We all know hospitality has been badly hit by the downturn, with the soaring pub closure rate of five a day, high-profile restaurant failures such as Tom Aikens and, as of last week, the collapse of hotel group Folio and property investor aAim stealing the headlines.

Well, not necessarily so, because business and industry (B&I) remains the engine room, making up nearly half (47.9%) of a UK sector worth almost £4b. And, as research firm Mintel said in a report last month: "B&I catering is intimately linked with the health of the wider UK economy." You only need to turn on the TV or glance at a newspaper these days to see where that's heading.

Banking crisis

In fact, there has already been blood spilt within B&I catering thanks to the banking crisis that has engulfed the City and wider financial world. The collapse of Lehman Brothers (catered by Compass Group) and the struggles of others, such as HBOS (Aramark) and Citigroup (Compass), has put unexpected pressure on caterers from clients that were traditionally as close as you could get to a "sure bet".

Now, as boom turns to bust, caterers face a dichotomy where, on one hand, an economic slowdown should play into their hands, as outsourcing services is a classic way to reduce cost. However, at the same time the economic climate has seen clients fuelling the ongoing trend towards more "commercial" contracts, including nil-subsidy and concession, which transfer a greater deal of responsibility and, therefore, risk to the caterer (Caterer, 27 November, page 6).

Although contract caterers are not, by and large, resisting the move towards these sorts of deals - Mintel says they jumped 20% year on year in 2007 - they do remain conscious that nilâ€'subsidy contracts require significant volume to work - generally 1,000-plus staff on site - at a time when clients are being forced to make redundancies.

The fact that caterers are typically awarded contracts of three years or longer affords them a level of income security that pubs and high-street restaurants can only dream of, but, behind the scenes, clients are tightening their belts and profits are under pressure. As food service consultant Peter Pitham said: "I have seen an increase in clients wanting to reduce their catering exposure, particularly reducing costs."

Chris Stern, a fellow food service consultant, said that even clients that are well placed financially are now being prudent about the services they provide to their staff. "Internal hospitality is reducing significantly, meaning possible catering staff cuts and, where hospitality has been subsidising staff restaurants, an increase in client subsidy," he said.

Mintel's report forecast that the value of B&I will have declined by 1% in 2008 to £1.64b, with a further drop to £1.57b in 2009. With food inflation still a pressure, for caterers it all adds up to a big squeeze.

Alastair Storey, chief executive of BaxterStorey, said that while trading in 2008 had held up well, he is under no illusions that 2009 won't be tough. "We've already initiated talks with our clients to discuss ways to save costs for them if they want us to," he said.

BaxterStorey has also been preparing proactively for 2009 via programmes such as "Credit Crunch Cooking", which educates kitchen staff on the use of secondary cuts of meat in a bid to manage costs.

"I'd be lying if I said I wasn't feeling edgy about 2009, but at the same time I'm very excited," said Storey. "As contract caterers operating in difficult economic circumstances, our staff restaurants become very attractive to customers compared with the high street. It's up to us to be at the top of our game, and to make sure we demonstrate value for money."

Tips to keep people munching during the recession

  • Be proactive
    Take steps such as training staff to make better use of resources and talking to clients to explain ways that cost can be removed.
  • Market yourself
    If clients are under pressure to reduce the amount they spend on wining and dining customers outside the building, sell them the option of hosting meetings on the premises.
  • Demonstrate value for money
    It will be what clients want to see and a way of winning custom from the high-street operators.

Contract catering news round up >>

Aramark to cater at all HBOS sites >>

Lehman Brothers collapse is bad news for Compass >>

BaxterStorey's Linda Halliday wins Springboard outstanding contribution award >>

Industry-wide code of conduct on the way for contract caterers >>
Compass Group retains contract with the Wellcome Trust >>

By Chris Druce

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