Catering's shifting sands

Uncertainty hangs over the contract catering sector as the major companies recruit a new generation of executives, large independents ponder their next move and small players vie aggressively for a slice of the action. Tom Bill investigates

Eight high-profile departures from the UK contract catering sector in one month is more than a coincidence.

While the recent exits from Aramark and, in particular, Compass signal a fresh start for the two catering giants, the moves are symptomatic of wider change.

It's not just limited to the big boys, either. Many medium-sized companies are reaching critical mass, and niche players are winning more business than ever before from their larger rivals.

Mark Philpot knows what life is like at both ends of the market. He was managing director of Sodexho's fine-dining division, Directors Table, between 2000 and 2002 before leaving to set up caterer Vacherin.

Reshuffling packs

With both the UK arms of Sodexho and Compass now headed by people from outside the hospitality industry (Philip Jansen and Ian El-Mokadem, respectively), Philpot believes the bigger players should think carefully before reshuffling their packs further.

"Personal relationships are absolutely crucial in this business," he says. "It doesn't necessarily follow that bringing in good financial operators will mean they have the right personal touch."

Compass's recent clearout of six top executives, which included widely respected figures like Philip Nash, was a case in point. One source close to Compass told Caterer: "When it was announced that Nash was going, someone asked whether they needed to tell the clients. They just didn't get it."

Although Philpot doesn't believe the bigger companies will change tack dramatically by employing from other sectors, he says their know-how will become more diluted with people who haven't come up through the industry and "don't understand it warts and all".

Some have also suggested that, after the departure of former Aramark UK boss Bill Toner, Elior chairman Tim West and Compass UK chief executive Don Davenport, there is now a lack of charisma at the top of the "big four".

Former Missing Ingredients managing director Sean Valentine rejects the theory. "It's much easier for a smaller player to create sparkle and personality," he says. "Because margins are so much tighter now, companies have to worry about bottom lines and shareholder value." Valentine also says a fresh pair of eyes on the industry is no bad thing.

Throw all of this into the mix with the fact that Elior and Aramark are both poised to return to private ownership, and it is clear that the ground is shifting under the big players.

And what about the large companies of tomorrow? BaxterStorey, Charlton House and Holroyd Howe are all nearing healthy turnovers of about £80m, £60m and £40m, respectively.

But the bigger medium-sized players are unlikely to grow any further without changing their business models, according to consultant Peter Pitham.

"They've reached a stage where they'll need to grow, but the only way to do so is through acquisition," he says.

The companies themselves claim to be happy with the status quo. After BaxterStorey appointed one of the Compass departees, John Bennett, as its third managing director last week, chief executive Alastair Storey denied it was gearing up for merger or flotation. One industry commentator, however, said the appointment might herald one or both - pointing to the fact that the company's Reading head office has a lot of unused square footage.

And the potential for selling to a larger rival is always in the background, according to food service consultant Chris Stern. He believes "selling up for a few million quid" will eventually prove too tempting for people like Charlton House chief executive Robyn Jones or Rick Holroyd and Nick Howe.

Perhaps the biggest change is taking place among the small niche players, which are now picking up some prominent deals. Philpot thinks so. "Clients are less and less worried about using smaller companies," he says. "They like the fact they can get straight through to the people at the top of the company when there's a problem."

Weighing the options

The fallout from Compass's "annus horribilis" last year and the tightening up of global corporate governance laws means clients are weighing up their options more carefully than ever.

According to Stern and Pitham, the long-standing issue of retained discounts is now higher in the minds of clients, and external auditors are being called in more often.

"They are starting to ask, ‘Why does it have to be done like this?'" says Stern. He believes big groups could be stung into action as a result. "Aramark is now talking about pushing up its management fees rather than earning money through discounts," he says.

Revolution, it seems, is in the air.

Recent exits

Compass

• Philip Nash
• Chris Copner
• Trevor Briggs

Aramark

• Simon Titchener
• Kevin Craven

Small companies with large deals

• Harbour & Jones (Sky Television)
• Jill Bartlett (Greater London Authority)
• Artizian (Ernst & Young)

By Tom Bill

E-mail your comments to Tom Bill](mailto:tom.bill@rbi.co.uk?subject=Catering's shifting sands) here.

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