As we know, there have been very few start-ups in the contract catering world of late until the recent launch of Houston & Hawkes. It’s become unusual to see entrepreneurs start up new contract catering businesses because the barriers to entry have become so high. In days of old, people would start up with some spreadsheets for accounts, a few manuals ‘adapted’ from their previous employer, a host of new ideas and initiatives up their sleeves, mostly cost-plus contracts, and an unshakeable belief that they could make a difference.
Fast forward to today and there is way more legislation and regulation to take care of like allergen rules, health and safety, dietary analysis and employment checks, for example. Add to that the complex contractual finances, expected investment by the caterer and the increasing involvement of client procurement departments, who are unwilling to allow their business to become a big percentage of the caterer’s overall turnover, and it’s not surprising that so many tender opportunities are either out of reach or too risky for a start-up to go after.
I was thinking about this situation the other day and wondering what the solution could be to give clients more options. We’re seeing more small caterers being absorbed into larger scale caterers as those big businesses seek to increase turnover or quickly enter new markets. Meanwhile, the owners of the small businesses look for a satisfactory exit and financial reward for their years of hard work in building their companies. If there is more consolidation and fewer start-ups, might we soon be left with just a handful of larger caterers to choose from and how then do they stand out from each other? They all do good food, look after their people and have innovative ideas, so how will they differentiate?
It’s got me wondering if we could learn anything from the hotel world. There are many hotel brands out there but when you start to analyse it, so many of them are owned and operated by a small number of giant hotel companies – IHG, Hilton, Hyatt and Marriott, for example. But all of these super brands have a big variety of sub-brands that appeal to all sectors of the market – from budget to luxury, urban-chic to holiday destination. The parent companies provide the head office support services, finance and group level marketing initiatives, for example, and the sub-brands focus on what they need to do in order to find and keep their particular customers and they have more localised decision making on the aspects of the brand which make it unique.
It strikes me that in contract catering, small companies are acquired and ‘integrated’ in one of three ways:
1. The small caterer is absorbed into the parent company and the small brand disappears.
2. The small caterer keeps its name but is essentially just the same as the parent company.
3. The acquired caterer is allowed to keep its brand and individuality but with the back-up resources of its larger parent.
There are pros and cons to all of the above, but I wonder if the third option is most like the hotel world and whether this route would continue to give clients and consultants the choice and variety they seek if it applied to foodservice. Is it also the most palatable for those entrepreneurs selling their business, enabling the owners to get a return on their investment and watch their legacies continue? Option three gives the acquiring companies the ability to grow turnover and enter new markets with more confidence too.
So, what can we learn from how hotel companies manage their sub-brands? Do the work and invest appropriately to ensure that there is differentiation I’d say. They make sure that there is substance to their offer and it’s not just a smokescreen. Caterers with sub-brands need to invest in their constant development and innovation and let their teams, clients and consultants know what the brand stands for and what makes it different. In our sector, that’s no easy task when many caterers already operate to high standards, but it is possible. Time will tell how the current period of industry consolidation works out in the long run – but for the companies that get it right, the benefits will come through.