The Other Side of the Service Equation

John Lawn Editor-in-Chief

There was a time when FM's audience of foodservice directors was pretty much exclusively focused on food production and serving issues. That was before the era in which multi department and multi-location management became fairly common and before strategies like central production and off-campus catering made logistics a part of a fair number of directors' jobs.

Today, it's not unusual to find FSDs with responsibilities for everything from environmental services to travel departments to patient transport. Take that thinking to a larger level, and it's not much of a jump to understand why onsite's three largest management companies all have significant service business interests well beyond their original roots in foodservice.

As growth through acquisition of smaller management firms has become a strategy of diminishing returns, and organic growth through account penetration and conversions has become more challenging, the addition of new service capabilities has become an obvious alternative.

Aramark has been at this the longest, going back to the 1960s, and Sodexo USA has also made facilities management a key strategy. Today, we estimate that about 20 percent of each of these company's domestic North American sales come from these areas.

Select chart to enlarge.

Compass Group, built from acquisitions of mostly food-only management companies, likely receives only about 7 percent of its current revenue from non-food services. But it has shown more interest in such opportunities in recent years, most notably with its acquisition of healthcare facilities management player Crothall Services in 2001, and earlier this month, with its acquisition of Kimco, a specialist in building support services in the B&I sector.

Such initiatives do not stop with facilities management. At the end of 2008, Sodexo announced plans to launch a gift card rewards program that will offer cards redeemable at several dozen well-known U.S. retailers. The Sodexo Pass program would be managed using systems already developed by Sodexo in its global service vouchers business and could conceivably add significant top line (and some hard-to-estimate bottom line) revenue to its U.S. operations.

One clear result is that determining how much of the large contract companies' revenues comes from traditional foodservices is becoming more difficult, further muddying the question of which company is the largest U.S. contract foodservices provider. And because these companies usually do not clearly break out the relative contributions of these services in their annual reports, the question of how much of their profitability and overall growth comes from traditional foodservices becomes muddier as well.

As we point out in our Top 50 listings each year, top line revenue numbers are an imperfect measure in any case because they mingle revenue from different kinds of contracts.

The one thing that is clear is that outsourcing has become such a major part of our country's service economy that it's not surprising to see large outsourcing companies with a foot in the door using that leverage to develop new revenue streams. It's also clear we will see more of this in the future.