Catherine Roe has been in the top job at Elior in the UK for close on six years, and during that time the Oxford graduate has had her work cut out. Her immediate predecessor, Tim Hammond, stopped the rot after the last recession, but Roe righted the ship. She spearheaded a series of acquisitions, which included buying the enviable Lexington business, as well as managing exits and diversifications. The aim was to recreate the UK operations as a more resilient entity. All good, but is it enough to withstand the unpredictable headwinds of today’s increasingly volatile economy?
If anyone doubts the unpredictability of those squalls besetting food businesses generally, they need look no further than at the latest bogeyman: the coronavirus, or rather covid-19, as the fast-moving respiratory disease is now officially styled. Though cases remain relatively low in Europe at present, the highly infectious nature of the disease could ultimately prove more deadly than either the previous SARs outbreaks or even ebola. Some epidemiologists fear covid-19 has the capacity to mutate into a similarly lethal type of pandemic as the Spanish flu of 1917 that infected half a billion people around the world, killing 50m – substantially more than the death toll from the First World War itself.
It is already proving economically deadly to car manufacturers and mobile phone companies anxiously awaiting vital parts from factories in China in lockdown. It is already hurting the UK hotel industry, who can no longer rely on the 400,00 or so visitors from China last year to fill their rooms in 2020. But what about the contract catering industry, which is local rather than global in scope? Does the latest virus have the capacity to turn into one of those rare black swan events that nobody could have foreseen, and one with the power to finally push a distinctly teetering global economy over the edge with serious implications for us all? “I think Brexit has made people a lot more circumspect about making big predictions,” says Roe.
Like any company boss worth their salt, it is ultimately her job to ensure contingency plans are in place were there to be any significant break out of the virus here. She confirms that the coronavirus is something she is already having to prepare board papers on. But how on earth does anyone prepare for something as potentially catastrophic as a pandemic?
As she says, her UK company, part of the wider Elior group listed on the Paris stock exchange, is a more resilient entity than it once was, having diversified away from its once almost sole reliance on running staff restaurants in the workplace. Today the contract caterer has also developed a strong presence in the UK schools and university markets, in healthcare and care home catering, as well as in the events and venues markets. Not only is the company better positioned to take advantage of growth, but also to withstand market and economic downturn. “Were the City of London to decree that people had to work from home were the coronavirus to spread here, then obviously that wouldn’t be good, but we still have other businesses to fall back on.”
The latest scare comes hard on the heels of an industry already grappling with falling consumer confidence. The fact that Brexit is finally ‘getting done’ may not on its own be enough to give the low yield, low growth UK economy the boost it so badly needs.
While things are far from dire in the industry, they could nevertheless be better. The results released last November by Compass, the world’s largest contract caterer, acted as something of a bell weather, signalling as they did signs of distinct slowdown in Europe.
While Compass’s overall full year results reflected strong growth, this was predominantly because of its buoyant performance in its key North American market, which account for 62% of revenues. Europe, however, was something of a disappointment, resulting in plans to scale back operations, along with those in Japan and Brazil. Its group chief executive Dominic Blakemore singled out cost-cutting and low consumer confidence across a range of industries in mainland Europe and in the UK for the move.
Elior’s consolidated group results for 2018 to 2019 published in December showed consolidated revenues of €4.9bn – up by 0.8% on the previous year. This included -0.8% of organic growth (which was better than the company anticipated), 1.4% of acquisition-led growth, 1.2% of currency variation and -1% from accountancy policy change.
The conpany’s international division, which accounts for some 55% of overall revenues, also reflected the impact of contract retrenchment in Italy, customer losses in the US and a more difficult UK market. The UK contribution was distorted by Tesco’s decision to close its staff restaurants, something that adversely hit Elior’s and other caterers bottom lines.
Elior UK’s most recently published figures at Companies House for the year ending September 2018 show turnover of £384.7m compared to £354m in 2017. Normalised profits, which exclude exceptional items and the results from subsidiaries acquired part through the financial year, more than halved from £11.7m in 2017 to £5.4m. The results were also impacted by the company’s withdrawal from the UK defence industry as part of the British government’s Hestia initiative to consolidate soft facilities management services.
Despite clear signs of darkening economic skies, Elior’s UK operations are better equipped to deal with cyclical downturns after its series of acquisitions over the past few years, which included premium B&I specialist Lexington, Taylor Shaw and Edwards & Blake in the education sector. “We have broadened our portfolios, something that has given us opportunity and direction,” says Roe. “Children at school and students in universities, as well as the elderly in care homes, will always need feeding in these sustainable sectors.”
But what about B & I, a sector that is not only a mature one, but dangerously over-competitive? It remains, after all, the predominant part of Elior’s UK operations. Lexington has continued to put in what Roe describes as “a very solid performance”, justifying Elior’s decision to let it operate and flourish in a quasi-autonomous manner under the leadership of Julia Edmonds. Work has also been undertaken to consolidate and extend its regional business clients, with new contracts north of the border. “We are consolidating outside of London, getting quite a few contracts regionally up into Scotland and extending our patch. A lot of work is going on in terms of our offer.”
New UK deals recently announced at group level as part of Elior’s first quarter results include catering contracts at the UK headquarters of French bank BNP Paribas, Canford Healthcare, SS Great Britain and the National Football Museum in the visitor attraction and heritage sector. While Roe concedes that “Europe may be under pressure”, something reflected in B&I to some degree, there is nevertheless still opportunity to grow even in the current market. “I wouldn’t give up on the UK, there still growth there,” she says. “B&I may be highly contracted out, but less so in other areas.”
But costs have been rising markedly in the industry and Brexit is still creating considerable uncertainty with regard to what arrangements will finally emerge as Britain exits the European Union. “Brexit was blamed for a lot of the price increases we saw over the past few years, but actually underlying food price inflation was already a feature of the market, much of it down to adverse weather conditions,” says Roe.
As a result, Elior has collaborated with its European partners to seek out alternative sources of supply where feasible. It is also having to work harder than ever to boost staff retention and productivity. Labour is constantly under review.
Like many services industries, Elior was taken by surprise by the current rise in the new national living wage, announced by the government earlier in the new year. At £8.72 for employees over the age of 25 – a 6.2% increase – it was a far steeper rise than many employers anticipated. “We all want to give our employees the right level of pay and, while the new minimum rate was higher than people were expecting, we cannot change any of that,” says Roe. “We just have to make sure we have the right level of output to match it and make sure our clients also understand that.”
There is also a strong ethos in Elior that the right technology can not only drive better delivery to customers, but also control costs. “We are constantly upgrading our infrastructure,” Roe explains. “It is something you have to do, both at the front end and back of our operations.”
The current rate of technological advancement means that there is now a plethora of interesting software around that allows companies to make a meaningful difference to the way the run their businesses and, critically, how they communicate with customers. “The really interesting thing is the way you can opt in and out of various new technologies,” says Roe. “You can now manage things such as labour scheduling your sales force in ways that previously you could only have dreamed of.” Ultimately, such tools allow you to use your own internal networks more effectively and to be less reliant on agency staff.
Despite those tricky market pressures, life in the B&I market is not all gloom by any means, Roe concludes. Flexible working may be increasing, but it also has brought new opportunities. “National organisations – businesses – still want people to come back to their hub,” she says. “It’s a social thing, a mental health thing and an important touchpoint for the employee.”
While there are people who no longer want to sit down for a traditional restaurant lunch at work, particularly among millennials, there are other opportunities to serve up good quality food that provides a healthy impact at work. “On the continent, new initiatives tend to be based predominantly around lunch, but in the UK there is much more scope around breakfast, elevenses, even dinner or some form of takeaway,” explains Roe. “It is our job to make the working day less humdrum for employees.”