Competing in a Land of Giants

John Lawn

If you were to hop into Mr. Peabody's Wayback Machine (for those of you who remember the Rocky and Bullwinkle Show) you wouldn't have to travel back very far to find a time when the country's contract foodservice providers were mostly regional players specializing in one market segment or another.

By and large, companies like Detroit's Al Green Enterprises, Slater Food Service in Philadelphia, New York's Saga Dining Halls, Inc. and Chicago's Nationwide Food Services were typical of contract management operations in the 1950s and 60s.

There were several waves of consolidation in the decades that followed as such players were acquired, merged and re-acquired. The trend was epitomized in the 1990s when U.K.-based Compass Group and Paris-based Sodexho Alliance entered the U.S. market and established themselves with a long string of acquisitions. Along with Philadelphia-based Aramark, these "BigThree" dominate the marketplace today.

That much is history. At the same time, many regional and market specialist companies remain, as illustrated by our annual Top 50 listings elsewhere in this issue. Their service offerings are often highly competitive and they bring the advantages smaller companies always bring: a willingness to customize services for the client, a "hands-on" approach made possible by a leaner management structure and operational efficiencies that come from a narrower market focus.

Still, many of these operators (and those in the much larger part of the market that is still self-operated) often feel they are competing in a "Land of Giants."

When national media feature stories on college dining or school nutrition, they most often cite programs the Big 3 offer.Their professional public relations departments make it easy for reporters to get the information, pictures and interviews they need. And a regular stream of news releases from them tout every cafè opening and new program introduction, emphasizing their market presence.

It is the same when clients send out RFPs. The large companies respond with the kind of full court press made possible by dedicated sales departments, whose only job is to create sales proposals that will land new business. There are also clear advantages that stem from their ability to develop large-scale systems to support their services: accounting, payroll, human resources, culinary training, and so on.

On the other hand, a perspective that is sometimes missed is that these companies also must compete with one another. In recent years, this competition has grown much more intense.

Their economies of scale are similar. As each has become a "broad service provider," handling virtually every kind of business, they have had a greater difficulty establishing distinct competitive differences in the minds of customers. Further, the visibility that comes with size can be a handicap as well as an advantage.

When a rogue employee of a national company is involved in an embarassing local incident, it can rapidly become national news, spreading across the Internet and turning up any time the company's name is Googled by a reporter looking for information. Unions, which typically do not like contract organizations, take advantage of this effect and often work with student and social activist organizations to maximize it.

There is no doubt that management companies have dramatically "raised the bar" in terms of foodservice professionalism and customer expectations. The more sophisticated menu offerings, retail foodservice and display merchandising we know today are only some of the areas where they've had a clear and positive impact.

At the same time, they too can find it difficult to consistently meet expectations in these areas, particularly under the intense profit and margin pressures they face at individual accounts. As publicly-traded companies, all of the Big 3 have also had to deal with the expectations of stockholders and analysts. (Aramark's recent announcement that it is " going private" once again does not really change this equation, as equity investors can be just as demanding as public investors).

With the era of significant acquisitions now over, profit and revenue is much harder to deliver and must come organically. When it comes to new business, especially accounts with the potential to be profitable, the " lowhanging fruit" has already been picked. Today, the Big 3 are constantly looking to steal business from one another, and have driven down operating margins as they do so.

My point is that competing in a "Land of Giants" can be just as problematic for the large companies as it is for smaller contractors and independents. There are economies of scale to be had, but much less so than in industries like manufacturing.

The quality and cost effectiveness of food services still depends significantly on the quality of local directors and managers, their staffs and the pride and creativity they bring to the job. This will never change, even in a market where giants tread.