If, as planned, Sir Francis Mackay survives until next February as chairman of Compass Group, it is far from certain his chief executive officer will be around to make a farewell speech.
Shareholders are baying for Michael Bailey's blood after a plunge in profits at the world's biggest contract caterer. Mackay himself might have been pushed if he hadn't already decided to go. And staff throughout the group's sprawling hierarchy are steeling themselves for expected redundancies as the board tries to pacify investors.
For the chairman it is an ignominious end to a 19-year career with Compass in which he helped take it from 250m national contract caterer to globe-straddling 12b food service behemoth.
But since Mackay stepped up from chief executive to executive chairman in 1999 the sector has lost its gloss. The glory days of the 1980s and 1990s, when clients signed cheques with barely a murmur about value for money, are over. Stirred out of their torpor by canny purchasing consultants, clients are questioning the hefty margins made by contractors. Some customers are demanding fixed-price contracts rather than open-ended cost-plus deals in a bid to restrain costs. A few are signing up to fully transparent, net-price arrangements in which the caterer can no longer hide the discounts it achieves through bulk buying.
At the same time, the nature of contract catering has changed forever. Anonymous works canteens have been replaced by heavily branded restaurants designed to compete with high-street offers. For caterers, retail disciplines such as merchandising and category management have become as important as purchasing.
And now questions are being raised about the healthiness of bulk-bought, convenience products that have served contract caterers well for decades.
Against this background, Mackay and Bailey have not been alone in feeling the heat.
In the past year, Sodexho, Aramark and Avenance have each lost members of the old guard.
Mytravel Boss In June 2004, French-owned Sodexho Alliance brought in former MyTravel chief operating office Philip Jansen to run its UK and Ireland division after a string of profits warnings. He replaced Franois-Xavier Bellon, who had been in the post just a few months before being forced to quit by ill health.
Jansen has stopped short of criticising the previous leadership but believes there was possibly too much emphasis on top-line growth - winning contracts to build turnover without ensuring they were profitable. He has set out to bring more rigour both to Sodexho's day-to-day operations and to the way it structures its contracts.
Last July, Tim West stepped down as chief executive at Avenance to make way for Mike Audis, who is seen as having a strong business focus. Audis has since been appointed chief executive of the caterer's parent company, Elior UK. Audis is a very different personality to the gregarious West - "more of a thinker", say those who know him, with a strong focus on strategy.
And in February 2005, Aramark UK chief executive Bill Toner quit after six years in the post - a move that appeared to take even his replacement, former US business division president Andrew Main, by surprise despite months of industry speculation. But Main has already instituted a major review of UK operations "to ensure the business structure is aligned to match the growth opportunities available to us".
Planned departure? Industry-watchers are cautious about lumping all these moves together and interpreting them as a sea change for the sector. Mackay's departure, according to Compass, was planned well in advance. At Avenance, West had been around long enough to earn an easier life and has stayed with the company in non-executive, ambassadorial role.
But all agree the sector is undergoing change and if senior directors do not have the requisite skills to respond then they may need to bring in others who can. The new skill sets include a stronger understanding of retailing, branding and the consumer and a willingness to deal face to face with clients.
Jonathan Doughty, group managing director of consultancy Coverpoint, says the problems faced by Compass and others are structural to the industry. "Everyone loves to have a pop at Compass but that's grossly unfair. It's an outstanding business and the quality of leadership has been outstanding too. But if the shareholders are baying for blood, they will get it."
In terms of City sentiment, the problem for the big corporations is more one of perception, he says. "It's always ‘lumbering Compass' or ‘giant Sodexho' or ‘slow-moving Aramark'. Actually, Compass is still incredibly agile for its size - look how it mobilised to feed the troops in Iraq. Only large corporations can do that."
But Doughty says he is seeing far more demand for specialisation from operators in the retail and business sectors and believes those who are good at one often struggle at another. The boutique approach is in vogue, delivering fresh food made on the premises with small-company flair. This is where the faster-moving, privately owned caterers have cashed in. The "lumbering giants" have to find a way to deliver a similarly tailored service while still leveraging the benefits of scale.
"Boutique is cool," Doughty says, "so they are going to borrow and steal other people's clothes and have bespoke companies within each group that can deliver that. At Aramark you have Parallel, at Sodexho it's Directors Table and at Compass it's Baxter & Platts and Restaurant Associates. These are brands people can identify with."
Cyclical problems Food service consultant Chris Stern says some of the pain Compass and Sodexho are suffering from is cyclical. "This is running a big business," he says, "it's nothing new." But he believes the big operators could all catch a cold over one significant issue: the pressure for fresher food.
"Compass, Sodexho and Aramark have increasingly relied on branded services, and hand in hand with that comes a tremendous amount of convenience product. Of course, it's much harder to manage fresh food. But some of their competitors, such as BaxterStorey, are concentrating on this, and if you look at the successful parts of Compass, what do they focus on? Fresh."
Caterers prefer to buy prepared products for two reasons he says. Firstly it's about control: they can guarantee consistent quality while deskilling kitchens. The second reason "if you were cynical" could be that they can bulk-buy from manufacturers and generate generous "purchasing kick-backs".
The bottom line is that fresher food means lower margins, which gets to the root of the contract catering sector's problems. "If you want to play a quality game, you do not make the same profit," Stern says. "The profitability of the small people is rubbish compared with Compass or Sodexho, who have to look to their shareholders."
The question of the "right" margin for contract caterers - and whether those margins are being inflated - is vexing all parties, especially since analysts at Deutsche Bank issued the second of two controversial reports on the sector in March. It concluded that the issue of purchasing inflation - "potentially misleading customers by claiming the cost of purchases is higher than it really is" - had all the potential to wipe millions off caterers' profits once customers cottoned on.
Clients were reportedly paying a hidden premium of 30-40% on some product lines, it suggested, and warned: "We believe that newsflow around this subject is likely to intensify and facilities services directors may come under more pressure than before to consider a different approach for their contract catering solutions. Revenue and/or margin pressures for the major players are a real possibility."
Transparent pricing This report drew heavily on the views of Jerry Brand, managing director of caterer Host Contract Management, who has been intoning the mantra of transparent pricing for more than a decade. With Host, which he launched last year, Brand has taken this to its logical conclusion. Host aims to make its money from a straight management fee, not from mark-ups on product, hidden or otherwise, and allows clients to see exactly what they are paying for product on a daily basis via sophisticated IT systems. While the 10m-a-year Host can never buy as well as the 12b Compass, Brand claims he has negotiated some "amazing prices" on behalf of customers.
By showing customers "what they should be paying" he aims to pull the rug out from beneath the big four. And he claims to have won two contracts in the past two weeks "all because of transparency".
Publicly, the big guns are dismissive of Brand's approach, saying there is little virtue in just being cheap. Aramark's Andrew Main says UK providers should refocus on service and building long-term relationships with customers. "I'm surprised at the singular focus on purchasing and aspects associated with purchasing," he says.
True cost of catering But City analysts suspect there is still a degree of navety among facilities managers about the true cost of catering, and Brand's tactics could blow the market open. It's likely that some of the big companies' existing contracts could be grossly over-priced, while others are haemorrhaging money, says one, adding: "The worry is that caterers will struggle to normalise the contracts with weak margins but that customers might start to flush-out the high-margin ones."
The 1980s and 1990s were a purple patch for contract caterers. It was the era of rapid growth and equally rapid consolidation, funded by high equity prices. Now, the business and industry sectors are mature, and public sector purchasing managers are increasingly wary of lining the pockets of private suppliers. For those who built their catering businesses in the hey-day of cost-plus contracts, the golf course must now look ever more attractive.
Is net pricing finally on its way?
Four months after Deutsche Bank published a 40-page update on Europe's contract catering sector, its contents are still being chewed over by the sector's executives.
The reason: a stinging appraisal of the pricing policy of the leading caterers.
Deutsche Bank analysts had already raised the sensitive issue of "purchasing inflation" in a report last November, damningly sub-titled "Blowing the lid off purchasing". This suggested the true cost to caterers of bought-in products was considerably lower than clients were being told, thanks largelt to discounts and over-riders in return for bulk purchases.
But by March, after "a number of meetings with a range of UK industry participants", Deutsche Bank had concluded this margin-boosting practice was far more widespread than first thought.
One of its principal witnesses was Jerry Brand, who built and sold contract caterer Russell & Brand in the 1990s and who has consistently sniped at his bigger competitors over their murky pricing arrangements.
The Deutsche Bank report provides considerable details on Brand's latest venture, Host Contract Management, which is built on a transparent pricing model. Of its 29 clients, 27 have opted to have full access to purchasing cost details and pay Host a flat management fee.
Deutsche Bank acknowledges that the diminutive Host, which began trading only last year, is not set to take "meaningful market share" from the likes of Compass or Sodexho. But it says the players should take note.
"If Jerry Brand is as successful at conveying his message as we believe he should be, the whole of the UK contract catering industry should come under scrutiny," it says.
Thanks to the efforts of the purchaasing consultants and professional facilities managers, many customers are wising-up to the real cost of catering.
"Clients have becomemore intelligent," says food service consultant Chris Stern. "The game is up for discounts."
One consequence has been a move to fixed-price deals might cap the cost of catering but they don't tell clients where the baseline is. And Brand claims that a £100,000 fixed-price contract might cost the client 25% less under a net pricing arrangement.
Caterers will be hoping to convince clients that cost isn't everything and that Brand's argument can be outweighed by excellence of service. But if Brand has long been a thorn in the sector's side, the Deutsche Bank report has given that thorn a painful twist.