The dynamics of the contract catering sector are shifting because of the rise in expectations driven by high street multiples. Sara Bean asks what contractors are learning from the chains.
8 December 2016 | Sara Bean
The differences between the catering provision offered within the workplace and what is available on the high street are diminishing.
Data from NPD's CREST® market research shows that workplace food service is declining (-2 per cent) year on year. What with the slow death of subsidies for employees using in-house restaurants, staff seeking alternatives to the in-house canteen from the high street and an increased demand among end-users for street food, contract caterers are facing some serious challenges. So what can they do to compete?
Paul Hurren, managing director of Lusso (part of CH&Co Group), explains: "The trick is to take the best of both worlds - take the consistency and innovation from the high street and street food, but adapt this in the flexible way that workplace dining demands. You can't be as rigid as a high street brand in the workplace as [neither] clients, nor customers, want it."
A major differential between contract caterers and high street vendors is that the latter usually has one style of food and changes the menu infrequently. By contrast, workplace caterers provide multiple offers that may be adapted on a daily basis to provide constant variety and avoid menu fatigue for those who patronise the facilities every day.
The challenge, of course, is in providing the appropriate level of variety to end users within the cost confines of a service that is often unsubsidised and where the costs are tight. Caterers agree that they have to work harder than ever, but say that is a positive thing as well, because the food they provide has to be what clients and end users really want to buy.
When it comes to cost, contractors have another advantage over the high street.
Paul Cowie, head of catering for OCS, says: "Although there are fewer subsidies, we have the benefit of working within the client's premises, so we don't have the costs the high street does in terms of rates, power etc, which reduces the overheads.
"Because we can flex our offerings, unlike a fixed high street brand which only changes every three or six months, we can change the menu on a daily basis and utilise the best market value for the products we buy in. That allows us to be more competitive and make the food exciting enough for people to come in and eat different things every day if they like."
Some forward-thinking organisations are bucking the subsidy reduction trend, particularly in tech, media or start-up environments, and offering significant subsidies to support a wider employee retention policy, often linked to the health and well-being agenda.
For the smaller contract caterers - squeezed between the larger contractors at one end and high street food vendors at the other - there is obviously less scope to invest. So, for instance, where a contractor might need to go in and change a space to support them in delivering the food service, the smaller contractors don't have quite the same access to capital.
Space in the market
But although it is telling that there have been some significant acquisitions of the smaller catering firms over the past few months, all the contractors I spoke to think the market still has space for everybody.
Says Allister Richards, MD of Gather and Gather: "The volume in your supply chain and the strength of your spreadsheet doesn't change the complexity of needing to offer a wide variety of food types. The value of the pound in the consumers' pocket doesn't differ whether they're buying from a major contractor or a highly bespoke caterer."
Changes in the way that many businesses manage their estates - with occupiers moving into multi-tenanted buildings rather than single occupier environments - are also affecting how food services are managed.
Anthony Bennett, founder and director of Bennett Hay, explains: "Sixty per cent of our business is commercial; we work in multi-tenanted buildings where landlords are open to assigning common areas to catering and we pay a percentage to be there, so we're operating rather as you would in the high street."
"That, for me, is the future of workplace catering."
While at one end of the scale the contract catering sector is adopting the best traits of the high street, it seems unlikely that the high street operators are going to challenge for client work directly. With the exception of food and hospitality corporate WSH Group buying Benugo in 2008, there is very little evidence that the high street is going to infiltrate the workplace catering arena. The high street brands are too susceptible in a workplace environment where staffing levels might fluctuate and they have no recourse to attracting in the general public.
"The fact is that those high street brands are successful because they can supply a defined offer," says Richards. "I think translating that into the workplace and asking them to stretch what their brand stands for is too much of a challenge and it could potentially devalue their commercial tariffs. Our industry talks about commercial contracts, but we still are very beholden to client specification around what we offer, when we offer it, and the price points that are possible within that environment."
Craft coffee craze
Where the two sectors do come together, though, is where companies are creating large campus-based workplaces, and within these the contract caterers tend to work with the high street brands and operate on their behalf within that market.
According to OCS's Paul Cowie, although there is evidence of some competition between high street brands and catering contractors working within the healthcare and higher education sectors, it's not a brilliant fit for the retail brands.
He says: "One of the challenges is that it is a very expensive model, and while a typical high street provider would be looking at seven to 10 years to pay back an investment, in the contract market the typical contract would only be three to five years."
The growth of high street offers from Pret, Starbucks and other mega-chains has, however, affected how contract caterers go about tendering for work and how they compete with one another for business.
The challenge in the contracted sector is to try and mirror the levels of expertise in the high street with for example, a massive movement around supplying craft coffee. This also ties into the change in the way buildings are managed. The traditional bulk cook canteen where food would be cooked in vast amounts and put out on large counters is disappearing fast, replaced by smaller kitchen and serving spaces where food is often cooked fresh in front of the customer.
"Equipment suppliers have risen to that challenge by having better equipment which is more environmentally friendly and cooks food at a quicker pace than ever before," explains Cowie.
Brexit and brunch
On the high street one of the biggest growth sectors is brunch, yet contract catering has traditionally been geared up for breakfast and lunch around traditional hours of service. But all this is changing.
"Traditional staff restaurants are being replaced with social hubs for employees to meet and collaborate," says CH&Co's Hurren. "Which is why contract caterers should be assisting their clients in utilising their space more effectively throughout the day."
Contract caterers are also facing quite a few other challenges, including a continuing labour skills shortage and the consequences of Brexit.
The British Hospitality Association's (BHA) annual Food Service Management Market Report 2016 recently revealed that three in 10 organisations within the sector are not confident about the government's ability to support the industry - up from 25 per cent in the previous year - and blames uncertainty, including the EU referendum result, as a possible explanation for this decline in confidence. In addition, every respondent said that reviewing and consulting with businesses on the National Living Wage would have a positive effect.
Sourcing food is also already an issue, with the fall in value of the pound resulting in upward pressure from supply chains. OCS has been involved in forums with the government and put its opinion across - but currently there is no firm guidance to food service providers.
Paul Cowie says: "It would be very short-sighted of the government to impose import tariffs on food, particularly when you consider the fact that the seasonality of our products are in Europe and beyond."
These issues can be seen as a brake on catering services being brought back in house. Nevertheless, there are those who argue the need to address a gap that has grown between FM service providers and contract caterers. The theory, expounded at a recent discussion facilitated by contractor Bartlett Mitchell, is that catering is emotive and needs to be ring-fenced from other FM services; that as part of a TFM deal, it can sometimes run the risk of being commoditised - and that of all the FM service lines, catering comes out least well from a commoditised approach.
Speaking at the event, Julian Fris, director of FM consultancy, Neller Davies, explained: "It's important for FM leads to look at their catering offer as more than just another service line. It can be utilised to aid broader wellness objectives, as well as create commercial and reputational currency amongst its employees and other stakeholders. While there will always be debate and discussion around using specialist vs TFM providers, no one-size-fits-all solution."