It's tough - but contractors remain confident

3rd March 2010, 11:33am

The past 12 months have been a testing time for the contract catering sector but, as the annual Food and Service Management (FSM) Forum survey shows, it's survived in surprisingly good shape.

It must be doing something right, says Phil Hooper, chairman of the forum.

Against the background of falling gross domestic product (GDP), low economic activity and rising UK unemployment, the food and service management sector survived 2009 in better shape than many might have thought a year ago.

The worst recession in a generation was, in fact, a year of some growth for many FSM companies.

It's true that levels of employment in client companies in the B&I segment have fallen, which has led to lower demand for meals, but other markets, particularly in the public sector, have held up remarkably well when seen against the generally poor economic background.

And opportunities to provide full facilities management (FM) services for both new and existing clients are being enthusiastically taken up by food service providers. In my own company, Sodexo, FM services now account for almost as much as catering.

Clearly, food and service management companies are doing something right.

Like most catering operators in the commercial sector, they've reacted to the recession by cutting costs – employment being by far their biggest single item of expenditure – and have continued to extricate themselves from contracts which have been only marginally profitable.

What remains is a sector that is leaner, more professional and, most important, potentially more profitable than before.

Confidence that there is still growth in the sector is not misplaced with many companies believing that the recession will encourage more clients to out-source in-house catering facilities in favour of better managed (and thus less expensive) contracted catering.

This is not to say that 2009 has not been tough. Clearly it has.  Some major contracts have been lost because of client company closures; with employment falling, and forecast to fall further in the next 12 months, meal take-up in B&I in particular will take time to recover.

As B&I represents half the FSM market any downturn here is potentially damaging. Nevertheless, one consequence of the recession is that customers who are taking advantage of using client dining facilities are tending to eat more meals in-house because of the good value they represent.

This is a good sign. As more people sample what the caterer has to offer, they are more likely to stick to eating in-house once the country moves out of recession, leading to a higher uptake in the future.

Certainly, most caterers believe now is a great opportunity for them to tempt more people to taste, and enjoy, what they have to offer – and to keep them returning.

However, one segment of the B&I market that has been particularly affected – and understandably so – is corporate hospitality.

As client companies have cut back on entertaining, both in house and at public events, caterers have also suffered. Few believe that that this segment of the market, which is dependent on the general improvement in the general state of the economy, will recover quickly. In contrast to B&I, public sector catering has been largely unaffected by the recession although there are ominous signs on the horizon.

Whichever government gains power after the general election in June, there will assuredly be a squeeze on public spending which may affect catering in education, healthcare and other public sectors.

Budgets could be affected, the provision of free school meals may be reduced or prices increased – all of which would affect the catering provider.

Even so, it is difficult to see demand for catering services in these markets decreasing significantly as patients will still need to be fed and school lunches, though under cost pressures, are likely to remain critically important whichever political party wins power.

Any pressure to reduce costs, however, will certainly have an impact and will be a major challenge for caterers. There is precious little slack in either the healthcare or the school meals budgets and any attempt to cut costs further will be extremely difficult to achieve.

If further cuts are made, food quality and nutritional standards will certainly be affected.

Yet, even this step might not be the ill wind that many fear.  There is some optimism – borne out by results - that a squeeze on catering costs in the public sector will encourage local authorities and NHS Trusts to seek out less expensive, commercial alternatives to their in-house operations and thus open new opportunities for contractors.

This also applies to facilities management services.

Both in B&I and in other segments, there is growth in providing other support services and particularly so for the larger companies for whom FM has become a growing, and increasingly important, market.  But smaller companies, too, are beginning to recognise the potential in this market.

In fact, caterers have an advantage in this area because clients, eager to put all their support services in the hands of one company for ease of control, tend to believe that the catering company, being the more specialist and highly skilled, will be more able to take on other services, such as cleaning and housekeeping, than vice versa.

This trend is already apparent. Indeed, total non-catering turnover by catering companies now amounts to nearly 20 per cent of the total and growing. This is clearly a significant market which many companies will be keen to exploit as the country moves further out of recession.