The business and industry (B&I) contract catering sector is in decline as caterers ditch unprofitable contracts and clients look to make cost savings ahead of a UK recession, according to a new report.
Research firm Mintel's study on the mature B&I market predicts a decline in the value of the B&I sector of 1% for 2008 to £1.64b, with a further drop to £1.587b in 2009 as clients look to negate cost pressures by cutting back on catering.
Mintel also expects the decline in the overall number of outlets by 500 to 8,436 in 2007 to have continued this year, as contractors cull low-yielding or unprofitable contracts.
With clients looking for caterers to take on even more risk as the economic situation worsens, the move to "nil-subsidiary" contracts away from "cost-plus" and "fixed-price" deals is gathering pace, up 20% year-on-year in 2007 although still representing just 4% of the total contract catering market (of which B&I makes up nearly 50%).
The report warns that with most "commercial" contracts requiring 1,000 staff or more on site rising unemployment will be a challenge for caterers. although it adds that B&I caterers are likely to benefit from staff eating on site to save money as conditions tighten.
Overall, food costs, which are rising across the board, remain the biggest pressure caterers are facing, the report reveals.
Looking ahead, Mintel warns that market forces "are propelling the B&I sector down a road of becoming commodity businesses with price differentiation being the main factor". "In this case, smaller players will find it increasingly difficult to compete with the economies of scale afforded to the larger firms," the report says.
By Chris Druce
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