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Compass aims for UK savings across globe

27 May 2004
Compass aims for UK savings across globe

Compass, the world's biggest food service company, is aiming to drive down the cost of its food in other countries by replicating its UK purchasing model across the world.

In the six months to 31 March, Compass achieved an operating margin of 8.8% in the UK, compared with 4.7% in North America, and 5% in Europe and the rest of the world.

Chief executive Michael Bailey reckoned that cutting purchasing costs was responsible for half of the improvement in operating margins.

He said that the company was doing this by separating buying from distribution and purchasing directly from producers. He added that this had reduced the number of items on orders and established fixed prices irrespective of inflation.

Bailey said that he saw no reason why the company's UK purchasing discounts could not be achieved elsewhere. "We are an economy-of-scale business which is growing solidly," he said. "We are able to offset inflation by lowering the cost of food."

In Continental Europe, Compass has knocked 12% off costs by using two frozen vegetable suppliers to cover the whole market.

Although Compass is the largest caterer in the world, it has only a 5% share of a global market worth £250b. More than half of its new business is won from in-house operators.

Bailey said that there was great potential for growth in China. Last month, the company started a 15-year joint venture with the Shanghai Railway Administration for the provision of station and onboard catering services. At the moment, food outlets are very rare on station concourses in China.

Compass was in a confident mood when it announced its interim financial results last week. The group's turnover to 31 March was up by 7% to £5.84b, and pre-tax profits rose by 11% to £282m. In the UK, turnover grew by 7% and operating profit increased by 6% to £133m.

The company's figures were boosted by a strong performance in Continental Europe and in the rest of the world, where both sales and operating profits grew by 16%. The exception was North America, where sales fell by 2% to £1.8b, while operating profit increased by 1% to £84m.

Compass contracts
New or renewed UK contracts worth more than £100m in combined turnover, including:

  • Royal Mail - five-year contract with annual sales of £75m.

  • Land Securities Trillium, property outsourcing provider to the Department for Work and Pensions - renewed its £12m-annual turnover contract with Eurest division for 14 years.

  • Bristol Zoo Gardens' Clifton Pavilion - three-year deal with Milburns division, with annual sales of £400,000.

  • East Kent Hospitals NHS Trust - seven-year contract with Medirest division, with an annual turnover of £14m

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