The following foodservice companies have kindly funded the research and publication of this guide. IGD would also like to thank them for their time in interviews and steering group meetings. IGD would like to thank the following organisations for their valuable help and advice with the research and publication of this guide: SOURCING IGD would also like to thank the following organisations for their help in the production of this guide: UNDERSTANDING FOODSERVICE Bernard Matthews • British Hospitality Association • British Potato Council Cherry Valley • English Lakes Hotels • Ensors • Fairfax Meadow OPPORTUNITIES FOR FARMERS HC3S • Hampshire County Council • Hippo Campo • Horizons • Ilchester Cheese Company PDM Produce • NHS Purchasing and Supply Agency • Pure Organics • Udale • Travis Foods AND SMALL FOOD PRODUCERS IGD, Grange Lane, Letchmore Heath, Watford, WD25 8GD. SOURCING A programme supported by Business in the Community and IGD contents The guide is structured to provide information which helps answer a series of questions. This information will help inform the decision of whether to target the foodservice sector and if so, which sector(s) to target. How is the foodservice Market size and structure 07 market structured? Types of companies operating in foodservice 08 Routes to market 11 introduction Factors affecting choice of routes 12 In 2004 the foodservice market in the UK was worth £33.2 billion in terms of food and drink sales to consumers. What is required to supply Baseline requirements 15 This clearly represents a big opportunity the market? Factors to consider 16 for domestic suppliers and yet in our experience few farmers or small What determines sources of supply 17 producers specifically target this sector. Perhaps the biggest barrier is the complexity of the foodservice market Category specific information for Beef 19 and a lack of information on how Are there any category specific requirements? different sections of it operate. Category specific information for Poultry 20 The guide aims to fill this important Category specific information for 21 gap. It lays out the structure of the Potatoes/chips foodservice market, discusses what is required to be a successful supplier and explains how this differs from retail. It is designed to help suppliers Which sectors should you target 24 pinpoint the best opportunities within foodservice and gives several Which sectors should I target? examples of potential role models. Who should you approach 25 Uniquely, this guide has been initiated and funded by a group of seven leading foodservice companies. They have also given IGD full access to their buying teams ensuring that we address the real commercial issues. It Are there any case studies ARAMARK and Fairfax Meadow 27 demonstrates that British foodservice companies are keen to encourage to show how other domestic Brakes and Ilchester Cheese Company 28 British suppliers provided that those suppliers are prepared to gear suppliers have got on? themselves to the needs of this sector. I call this ‘meeting halfway’. Compass and Travis Foods 29 We would like to thank His Royal Highness the Prince of Wales and 3663 First for Foodservice and Ensors 30 Business in the Community who, through the rural action programme, have been long term supporters of ‘local sourcing’. Thanks also to English Mitchells & Butlers and Bernard Matthews 31 Farming and Food Partnerships, Food from Britain, Meat and Livestock Sodexho and PDM Produce 32 Commission and National Farmers Union for their important contribution to the development and dissemination of the guide. Whitbread and Cherry Valley 33 Joanne Denney-Finch English Lakes Hotels and Udale 34 OBE, Chief Executive I hope you find the information here useful in developing your business IGD in foodservice. Hampshire County Council and 35 Pure Organics Where can I find more Where to find useful information 36 useful information? What do the different Glossary – what’s what 37 terms mean? Disclaimer This guide provides generic information about the foodservice sector. It is not intended to be a definitive or comprehensive guide to apply in every situation. 7 VICE MARKET VICE MARKET How is the foodservice market structured? HOW IS THE FOODSER STRUCTURED? HOW IS THE FOODSER STRUCTURED? 1.1 MARKET SIZE AND STRUCTURE From the graph, in 2004 outlets operating in the ‘profit’ sector accounted for 87% of food and drink sales revenue to the final consumer, 66% of total outlets and 58% of the total number of meals served (Source: Horizons). In contrast, most outlets operating in the ‘cost’ Definition sector ‘sell’ a relatively high number of meals compared to the ‘sales’ generated. This is due ‘Foodservice’ is the term commonly used to describe the provision of meals out of the to the requirement for many cost sector operators to deliver a set number of meals to an home; it is also known as the ‘catering’ sector. agreed budget, with price per meal being the key focus. Market structure The foodservice market is much more complex than the grocery retail market. To make 1.2 TYPES OF COMPANIES OPERATING IN FOODSERVICE understanding easier the foodservice market tends to be divided into two broad categories: The names ‘ARAMARK’, ‘Brakes’, ‘Compass’, ‘3663 First for Foodservice’, ‘Mitchells and Butlers’, ‘Sodexho’ and ‘Whitbread’ may not be familiar. These companies are Profit sector Cost sector however some of the largest in the UK foodservice sector and, in some cases, the world. It is important to understand that companies operating in the ‘foodservice’ sector do not all do the same thing. Manufacturing apart, at the simplest level the large majority of Staff catering companies in foodservice can be categorised into either: Restaurants Education Quick service restaurants Health care Operators... …of foodservice outlets Pubs Custodial (eg prisons) Hotels Ministry of Defence Leisure Welfare (e.g. old people’s homes and meals on wheels) Distributors... …to foodservice outlets Meals within the ‘profit’ sector are provided in response to consumer demand. Meals Wholesalers... …of food to distributors and/or within the cost sector are generally provided out of necessity. The distinctions are not foodservice outlets always clear however. Market size A foodservice company may perform one, or more than one of the above functions. In 2004 the UK foodservice market was estimated to be worth £11.1 billion in terms of Operators food and drink purchases by caterers. When valued in terms of sales to the consumer Operating a foodservice outlet includes all of the functions associated with both ‘front’ the sector is estimated to be worth £33.2 billion (Source: Horizons). and ‘back’ of house, including kitchen operation and meal preparation. For reasons that will become clear, the profit and cost sectors do not contribute equally All of the operating functions can be undertaken by the owner; alternatively however the to the overall value of £33.2 billion sales to consumers, nor to the number of outlets owner may decide to contract some functions out to third parties. In this guide the operated, or number of meals served. The chart below shows the approximate focus is on who runs the ‘back’ of house ‘catering’ function. percentage contribution of profit and cost sectors in terms of these three measures. As a general rule, operators can be categorised into those operating their own catering Percentage of food and drink sales / outlets / meals served in profit and cost sectors function (defined here as ‘in-house operators’), and those running the catering function on behalf of others (contract caterers). 100% 90% Operator... 80% 70% 60% 50% In-house operators Contract caterers 40% Undertake their own Undertake the catering Cost catering function function on behalf of a client 30% Profit 20% 10% 0% Food & drink sales Outlets Meals served Single Units Multiple Units Source: Horizons (2004) (independents) (Chains/Groups) 8 9 VICE MARKET VICE MARKET HOW IS THE FOODSER STRUCTURED? HOW IS THE FOODSER STRUCTURED? An in-house operator can vary from being very small, running a single ‘independent’ Five important points for suppliers to note about the nature of contract catering are: unit, to a national or multi-national company running large ‘estates’ of branded outlets. There is often an extra link in the chain compared to in-house operators: the Likewise, contract caterers, depending on their size may run single units or large contract caterer’s direct client is often a business or public institution, rather than chains on behalf of the owners. In-house operators and contract caterers can be the consumer. found operating in both the profit and cost sectors: more information is given in the following section. The nature of the contract agreed may limit the contract caterer in terms of supply choices. For example, a fixed cost contract may put great pressure on achieving The decision of whether to operate your own catering function or contract it to a the lowest cost price for goods. specialist catering company to do it on your behalf is determined by a large number of factors including type of outlet; sectors in which they operate, number of outlets, Within a particular type of contract the client may insist on particular services looking to outsource, number of meals served, core competencies, specifications. In the public sector EU procurement rules do not allow efficiencies, cost comparisons and so on. country of origin to be specified, however specifications relating to freshness, seasonality, assurance etc. may be used. (See also Contract caterers www.defra.gov.uk/farm/sustain/procurement). Many types of organisation outsource their catering functions, along with other services, to contract caterers who increasingly provide facilities management services additional Contracts can be for relatively short durations (ie rolling for 12 months) at the end to catering (cleaning, laundry, porterage and security). The most important sectors of which the contract can switch to another contract caterer or revert to (and the relative sizes) for contract caterers in terms of numbers of meals served are in-house operation.