Emily Garside

26th August 2021

Industry

Industry trends in the contract catering sector across Europe

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After a difficult year for the contract catering sector worldwide, there are some signs that a return to normality could be possible in the next few months. Varying degrees of lockdown across Europe, including the closure of schools and offices as well as the cancellation or postponement of both public and corporate events no doubt had a serious effect on contract catering specialists in all areas. But as we move into the second half of 2021, now is a good time to look at the financial strengths and weaknesses of the sector as well as monitor opportunities for recovery and growth.

It is worth noting that even going into the Covid-19 pandemic, a number of companies in the contract catering sector were already in difficulty. Recent research conducted by Plimsoll – a leading supplier of industry- and company-specific financial analysis – found that in markets across Europe a significant proportion of companies were already rated as “Danger” before March 2020:

Country

% companies previously rated “Danger”

France

17

Italy

12

Germany

25

UK

5

 

According to Plimsoll’s analysis, “Danger” companies are affected by a combination of factors, including increasing debt, low profitability, low return on investment, and weak liquidity. While some of these firms may have been able to improve their financial health, others will no doubt have struggled to survive through the following months. While the full effects are yet to be seen, the risk is clear: 9 out of 10 failed companies across all sectors had been rated as “Danger” by Plimsoll up to 2 years prior to their demise.

Looking at the sector as a whole, some larger firms were better equipped to react quickly to the crisis. Industry leaders including Compass Group and Sodexo were able to focus on contracts in areas like defence and healthcare, redeploying staff to sectors with greater demand. But smaller businesses were often left with fewer options, needing to rely on national emergency economic schemes which were brought into place in many nations.

Ranging from the UK’s “coronavirus job retention scheme” to Germany’s “kurzarbeit” system and “chômage partiel” in France, most governments provided a means of subsidising salaries either fully or partially for companies in difficulty due to the health crisis. Some, as in Italy, also imposed a temporary block on lay-offs for economic motives. The latter may have helped to maintain staff numbers through the worst of the pandemic, but as these emergency measures are relaxed redundancies may become inevitable for many firms, regardless of their size. There are already signs of this among companies most recently publishing employee figures; just over 50% have reduced staff numbers compared to the previous year.

However, there is some evidence that the financial schemes did help to some extent to soften the blow of the crisis. In Europe-wide analysis conducted by Plimsoll, around 70% of contract catering companies publishing accounts in late 2020 have still managed to report positive net current assets despite suffering through a difficult year overall. On the other hand, 30% have been left with negative net current assets and may need an injection of capital in 2021.

While things are now starting to improve, a lot of uncertainty remains for key areas of the contract catering sector. The gradual reopening of business and travel is likely to provide caterers with a much-needed boost, although this is unlikely to be fully felt until late 2021 at the earliest.

Across Europe, many office workers are still working from home, while others have moved away from city centres with a view to working more flexibly longer term. Catering companies operating in these areas will need to monitor trends closely and perhaps diversify into new areas accordingly. Once restrictions ease further, coworking spaces could prove increasingly popular as they provide more flexible options for business owners than the long-term leases on traditional offices. At the same time, some companies are looking at offering high-quality food options as incentives to entice their staff back into offices full-time. For many catering firms, providing specialised services that can meet these evolving needs could provide new areas for growth in the next few years.

As expected, according to the latest company data there are indications that profitability has fallen across the board as a result of lost sales due to lockdowns and the impact of fixed costs. Among the European catering companies analysed by Plimsoll virtually no companies publishing accounts since September 2020 have reported a growth in sales.

However, it is worth noting that around 20% of these companies have managed to increase their profitability. In order to achieve this, these firms have been successful in reorganising their operations efficiently; maximising resources by cutting fixed costs and shedding less lucrative contracts. This greater focus on profitability in this time of survival could prove to be an effective strategy in the months to come and beyond.

With a potentially more consolidated market moving forward, it will be more important than ever to have robust financial resources to secure future contracts and maintain financial health in the long term. The most successful could soon find themselves with the resources to buy up businesses struggling to stay afloat.

Plimsoll has also examined acquisition targets across the European catering market and assigned ratings taking into account a range of criteria including ownership structure, profitability and potential value.

Their analysis has identified 67 “high potential” acquisition targets across Europe that are struggling financially but could provide good turnaround opportunities for those willing to take the risk. On the other end of the scale, 31 companies are classed as “high value” targets – despite the difficulties of the last year these are financially strong and would make excellent acquisition prospects for those willing to make a higher initial investment.

We have already seen some interesting acquisitions taking place in recent months, both in Europe and further afield. For example, Sodexo took a majority shareholding in UK-based Fooditude back in December 2020, and more recently a new collaboration between BonCulina and workplace vending specialist Bon Appetit will focus on hot food vending predominantly in hospital settings.

These types of deals can provide much insight into broader developments and trends within the catering industry. For example, the integration of technology for a range of applications, including minimising costs, reducing wastage as well as management of allergens and facilitating customer orders is a key point of interest likely to see further integration into the sector in the near future.

Another area that has been highlighted by the pandemic is the growing popularity of a direct-to-customer approach. Due to the aforementioned changes in private-sector working patterns and therefore a more widely dispersed consumer base looking like a more permanent possibility, the ability to provide more personalised options and direct delivery could be a huge benefit to caterers with clients in this area.

The challenge for contract caterers over the months to come will be to strive for flexibility. Monitoring change, reducing reliance on high fixed costs while securing as diverse a portfolio of customers as possible could be the keys to success in a period of recovery for the industry as a whole.

Overall, the sector does have the potential to recover strongly. In fact, analysing data from late 2020 and early 2021, Plimsoll has rated an encouraging number of companies as “Strong” across key national markets.

Country % companies rated as “Strong” – 2020/21
France 29
Italy 30
Germany 29*
UK 10

*estimate

These successful businesses are likely to be the future protagonists of the industry, currently gathering cash and making the most of efficiency gains. The most resilient companies will show the strength and flexibility to both survive the shock created by the pandemic but also take advantage of new opportunities that have arisen as a result.

To find out more about Plimsoll’s Contract Catering Industry Analysis, visit plimsoll.co.uk.

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