Catering giants tune in to FM for revenue growth

26 February 2009 by
Catering giants tune in to FM for revenue growth

Earlier this month Compass Group announced its largest contract win yet for newly formed Eurest Services, with an electrifying £63m deal with utility company National Grid.

The new five-year deal saw Compass, which launched the new Eurest Services division in autumn 2008 as a "one stop shop" for clients, add considerable facilities management (FM) responsibilities to the existing agreement.

The move reflected the increasing FM focus among the larger contractors, with the likes of Elior having launched a dedicated FM division containing contracts worth some £30m in annual turnover in 2007, and Sodexho Alliance relaunching as Sodexo last year and marketing itself since then as a "provider of food and facilities management services".


So what exactly is FM? The European Committee for Standardisation defines it as: "The integration of processes within an organisation to maintain and develop the agreed services which support and improve the effectiveness of its primary activities."

Compass's FM deal at National Grid takes the shape of services at 579 sites, including catering (13), security services (38), cleaning (151), portering (18), reception services (22), vending services (293) and key holding (290). In other words, pretty much everything apart from heavy-duty construction and specialist maintenance and testing work.

Compass has provided limited facilities management for clients for some time now, most recently via its ESS arm, but the creation of dedicated division Eurest Services was about sending out a clear message to potential clients that it's serious about providing FM, which, for national and global contracts, is increasingly seen as a deal breaker.

As Graham Sims, managing director of Eurest Services, explained: "We created the division in response to customer feedback that showed clients were increasingly looking to rationalise suppliers and achieve guaranteed cost savings by doing so, without sacrificing food quality."

As illustration of the trend, one needs to look no further than Compass's own contract to provide services at the Shell Centre in London, which started with catering and has grown organically over the years. Originally one of five contractors at the landmark building in Waterloo, Compass became sole catering and FM supplier in 2007 at the one million sq ft site which houses up to 4,800 people.

Compass now provides everything from catering, resource management, space planning and office moves to cleaning and landscaping as part of a £12m deal. This, in turn, has led to an international catering/FM relationship, to which the company has just added the Shell regions of Eastern Europe and the Mediterranean.

Of course, there are financial realities here. Research firm Mintel has forecast that the value of the business and industry catering sector will decline as employers shed jobs and squeeze contractors for savings during the recession, so caterers are keen to find new revenue streams.

Value of FM

The British Institute of Facilities Management puts the value of FM at between £40b and £95b per annum in the UK alone, and rapidly growing, so it's easy to see why the larger contractors want a larger piece of this particular pie.

When Sodexo appointed its first-ever managing director of facilities management, in the shape of Neil Murray, last week, UK chief executive Yann Coleou underlined the importance of the role when he revealed that, "with more than 40% of Sodexo's turnover now coming from non-food services, FM is a vital pillar of our business".

Business and industry caterer ISS Eaton, acquired by FM company ISS in 2004, certainly benefited from its ability to offer both catering and support services - through its parent company - when it netted a £4m-a-year deal to cater at IT company Hewlett-Packard in April 2008.

However, not everyone feels the march towards providing FM services is inevitable, or even desirable, with independent contract caterer BaxterStorey opting instead for a partnership approach with the likes of FM heavyweights EC Harris, Johnson Controls and Carillion.

"BaxterStorey is a pure catering services provider and has no intention of expanding its service offering by providing allied ‘soft' FM services," said group sales director Simon Esner. "Many catering contracts are issued as part of a wider FM brief to the FM houses, who do not operate their own catering operations. BaxterStorey's aim is to support its FM partners by providing them a point of differentiation that enhances and completes the service range they can offer clients."

But Sims remains confident that Eurest Services is the right vehicle for growth, and said that, with clients looking ever more closely at managing costs due to the recession, the new division and its dedicated rivals are poised to do well.

"Business and industry is heading into a tough patch, but support services are still growing," he said. "Therefore, companies with more than one string to their bow will be best placed to survive and prosper. With Eurest Services we are positioned to meet more demands than ever."

By Chris Druce

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