Compass Group PLC History

Company Perspectives:

Our mission is to achieve leadership in our chosen foodservice markets through the constant pursuit, in partnership with our clients and partners, of superior levels of quality, efficiency, and service. The total dedication of our staff to achieving excellence is the major factor in our success. Key Dates:

Key Dates:

1987:

Company is formed from the purchase of Grand Metropolitan's London catering division.

1988:

IPO on London Stock Exchange.

1991:

Francis Mackay is named CEO.

1994:

Acquisition of Canteen Corp.; Michael Bailey heads up North American division.

1995:

Acquisition of Eurest International makes Compass Group the largest foodservice company in the world.

1999:

Mackay is named chairman and Bailey is appointed CEO.

Company History:

As the world's largest foodservice company, Compass Group PLC is aptly named. Catering to more than 70 countries, Compass Group's operations provide food and beverages in myriad form from vending machines and corporate catering to bringing popular franchises such as Burger King, Kentucky Fried Chicken, Taco Bell, Pizza Hut, T.G.I.-Fridays, and Harry Ramsden's to alternative outlets, including schools, airports, military bases, and correctional and healthcare facilities. Compass Group also has its own profitable brands, including Caffé Ritazz, Café Select, Upper Crust, Not Just Donuts, Franks, and Sushi Q restaurants. With annual turnover exceeding £4.8 billion (US$7.9 billion), Compass Group sits well within the FTSE 100 as one of the U.K.'s most successful conglomerates.

From Something Established, Something New: 1987-94

Compass Group PLC started with a bang. The year in which the company became a reality--1987--was fraught with ups and downs. In the political arena, Margaret Thatcher was reelected to her third term as prime minister yet failed to stop the publication of Peter Wright's MI5 memoir, Spycatcher, in Australia. Politics paled, however, when compared to Black Monday, which sent the stock markets and financial world stumbling. What became the world's most extensive foodservice empire had begun as the contract services division of Grand Metropolitan, a London-based food and spirits company. When Grand Metropolitan agreed to sell its catering unit to members of the parent company's management for £164 million (US$260 million), it was hailed as Europe's most expensive spinoff in history. Hence the auspicious formation of Compass Group PLC was underway.

Compass Group was headed by Gerry Robinson, who took the helm as CEO, albeit on an abbreviated basis. Robinson soon departed for British television giant Granada Group, and subsequently steered it into the foodservice industry. Robinson's segue provided added incentive for Compass Group, as the two companies became competitors. By the time Compass Group went public in 1988 on the London Stock Exchange, Robinson had made a crucial acquisition by purchasing Sutcliffe's to head up Granada's catering division. Yet Granada was more heavily into television programming and hotels than the foodservice industry and did not pose a more serious threat to Compass Group until later in the decade. In the meantime, Compass Group began its climb to the top with meticulous attention to the evolving foodservice industry and its key players.

In 1991 came a changing of the guard and a major turning point at Compass with the appointment of Francis Mackay as chief executive. Soon after Mackay took control came the ambitious plan to become the world's largest foodservice company, to be attained through both organic growth and by buying up rivals and companies leading various sectors within the industry. Among the early acquisitions were railway caterer Traveller's Fare (later renamed Upper Crust), bought from British Rail in 1992, Scandinavian Airlines Systems' catering business in 1993 (which marked Compass Group's jump into airlines and airports), and the 1994 acquisition of Canteen Corp., the third largest vending and foodservice company in the United States. With the Canteen purchase came the formation of the North American Division, headed by Michael Bailey, a former chef with Gardner Merchant who joined Compass a year earlier to oversee the company's branded foods division.

As Compass grew, so did the competition. Chief among its rivals were Gardner Merchant in the United Kingdom, France's Sodexho Alliance, and the U.S.-based Aramark. Gardner Merchant had bought the U.S.-based Morrison Hospitality Group in 1994 and was then gobbled up by Sodexho. The combined clout of Merchant and Sodexho were a force to be reckoned with; their merger made them the world's largest contract foodservice company, with combined assets of over US$4 billion. Not to be outdone, Compass engineered a coup of its own: the purchase of Accor's Eurest International for US$931 million. In return for selling Eurest, Accor received a 22.5 percent share of the newly energized company, and Compass Group bested its rivals to claim the top spot as the largest foodservice company in the world.

Being Number One: 1996-98

Compass Group's domination of the global foodservice industry was in full swing by 1996. The company's management, however, was not content to sit upon their laurels; they were keenly aware their three rivals--Sodexho, Aramark, and Marriott Managed Services--had aggressive expansion plans. Though Compass had ended up spending over £3.9 billion (US$2.5 billion) in its buying frenzy to reach the top, the downside was a hefty debt load, which translated into lower profit margins than expected, but not significantly so. Since its debut as a publicly held company, the Compass Group had yet to have a loss or any serious downturns--in fact, turnover and profits continued to climb, though perhaps more modestly than some had hoped. Revenues for 1994 and 1995, despite major expenditures for acquisitions, were a healthy £917.9 million and £1.51 billion, respectively, with corresponding operating profits of £62.8 million and £91.2 million.

Since Compass Group seemed to be engaged in constant one-upmanship, its next win or 'trophy' contract was a big step in preserving its status as number one. Touted at the time as the largest contract of its kind in the United States, Compass's coup was a five-year, US$250 million agreement with IBM to serve 100,000 employees at locations in 29 states. In 1996 and 1997 came several strategic acquisitions, Professional Food-Service Management and Service America for the North American division, and France's SHRM to bolster home operations. Then controversy arose when Compass beat out Sodexho for a US$40 million EuroDisney contract; Sodexho cried foul, stating Compass had 'undercut' them and was willing to lose money on the contract to win it. Mackay countered that such claims were ludicrous, that Compass Group's purpose was to make money, not lose it. The Disney agreement, one of the U.K.'s three largest catering contracts, was a feather in Compass Group's increasingly well-plumed hat.

Turnover soared from 1996's £2.65 billion (itself a 29 percent from 1995) to 1997's £3.7 billion. Broken down by geographic region, nearly half of Compass's turnover was represented by its European/World division, at £1.8 billion; followed by the North American division, at £1.2 billion; and U.K. operations at just over £668 million. Tallied by operating division, the business and industrial segment represented more than half of the company's overall revenue.

With its increased presence in the foodservice industry and the clout its number-one status carried, Compass Group had not only earned a solid reputation but was able to bolster its bottom line by negotiating more favorable terms with suppliers. Better pricing on its own supplies meant the company could seek larger contracts more aggressively. In 1998 the North American division sought and won a contract for the Smithsonian Institution, including sites in the National Museum of American History, the American Art & Portrait Gallery, and the National Museum of Natural History. This same division also acquired the U.S.-based Restaurant Associates, for US$90 million. By the end of the year Compass Group's stock value had quadrupled since its introduction a decade earlier, and profits had increased by 14 percent to £54.3 million from 1997. Compounded growth figures from 1994 to 1998 showed a tremendous growth rate of 46.4 percent in turnover, a 36.5 percent increase in operating profits, and shareholder return for the same period up by 32.2 percent.

In 1998 the playing field became stacked in favor of Sodexho, when the company's U.S. arm, Sodexho USA, merged with Marriott Managed Services, a part of Marriott International. The result, Sodexho Marriott Services, of which Sodexho Alliance owned over 48 percent, was a powerhouse in the U.S. foodservice arena and tough competition for Compass Group's North American division.

Preparing for a New Century

Compass Group's continued success was due in part to its clear delineation of business segments, covering the broadest spectrum of food and beverage services. Unlike Aramark, both Compass and Sodexho Alliance were not as diversified into related businesses and remained firmly entrenched in the foodservice industry (though Compass had owned a hospital management company which it sold in 1996). Aramark, on the other hand, was a major player in the hospitality field, providing maintenance, housekeeping, and food services around the world, in addition to its massive uniform rental agency (ranked second in the United States).

By the end of the 1990s, Compass Group had seven major operating groups: Eurest, in the business and industrial marketplace, including multinational companies with many locations as well as offshore and remote sites. Medirest and Bateman, catering to the healthcare community in hospitals, rehabilitation centers, and nursing homes; Chartwells and Scolarest, which covered the educational market from preschool to university in both the United States and the United Kingdom; Flik and Roux Fine Dining, providing elite dining services, often working with well known international chefs such as Albert Roux; Canteen Vending Services, along with Selecta (Europe's top vending operator, partly owned by Compass Group), supplying outlets primarily in the United States as well as other international contracts; Select Service Partner (SSP) food and beverage units in airports, rail stations, shopping malls, and other quick-stop concessions; and lastly, Letheby & Christopher and Restaurant Associates, both of which catered high-end sports, social, or leisure outings in the United Kingdom and the United States, such as the English Open, the U.S. Open, PGA European Golf Tour, Rugby World Cup, and Ryder Cup.

Within its seven market segments were Compass Group's increasingly popular proprietary brands, including Ritazza and Caffé Ritazza outlets (coffee), Stopgap (convenience marts), Upper Crust (breads and sandwiches), Not Just Donuts (breakfast foods), and Profiles (workplace dining with a twist--chefs preparing dishes while interacting with clients). Compass had also been putting its mark on franchising as well, with such high visibility food chains as Burger King, Pizza Hut, Sbarro, T.G.I. Friday's, and a more recent venue, Harrods Tea Room in association with the famous department store.

Compass Group's management was full speed ahead with further expansion, in particular with its German subsidiaries in railway stations, airports, conference centers, and sports facilities, in an effort to capture a larger slice of that country's ever growing £10 billion catering marketplace. Beyond Germany, Compass Group's extensive empire represented less than a third of the £170 billion foodservice marketplace and the company was intent on controlling more through both acquisitions and bigger contracts. New contracts included its role as the official caterer for the 2002 Winter Olympics in Salt Lake City (worth an estimated US$25-$40 million); contracts for rail stations with Spain's Renfe as well as a similar contract with Spanair in Madrid; an agreement to provide food, coffee, and vending services at 11 MCI Worldcom sites in the United States; a new contract with Crown Cork & Seal for up to 40 sites in Africa, Europe, and the Middle East; and a ten-year, US$300 million contract for 27 United Technologies sites.

Investments and acquisitions included buying a 50 percent stake in Brazil's largest catering company, Générale Restauration S.A., and purchasing P & O Australia, making Compass Group the leading remote-site caterer in Australia. Internally, Compass picked up Brake Brothers as a new catering supplier, after the company was dropped by rival Granada Group. The company's SSP division, meanwhile, operating in 56 airports in 18 countries worldwide, had received high approval ratings for its Copenhagen Airport operations, and was awarded a new contract with the Toronto Airport. SSP hoped the Toronto deal would open further doors in North American airports and railway stations. Eurest Dining Services' North American arm was similarly praised, receiving a Supplier Excellence Award from the Prudential Insurance Company, while Chartwells USA was named the fastest growing contract foodservice company by Nation's Restaurant News.

In July 1999 Mackay assumed the role of chairman, while the North American division's Michael Bailey was named group chief executive. Compass Group finished the year with turnover of £4.81 billion (US$7.92 billion), a 14.3 percent increase over 1998 and with operating profits of £261.4 million, another substantial increase over the previous year's £218 million. Accor, the French hotel giant who once owned nearly 23 percent of Compass, had sold most of its shares and possessed only 4.5 percent of the world's largest foodservice company.

The Future: 2000 and Beyond

In 2000 the clash of the foodservice titans continued with each contributing to the industry's record expansion (with almost a decade of uninterrupted growth). Compass Group was still the leader, yet Sodexho Alliance was close on its heels and gaining as the United Kingdom's second largest foodservice provider. The privately operated, third-ranked Aramark, with rumors of its impending IPO still swirling after several years, pursued further domestic expansion and had steadily gained an increased international presence. All three conglomerates were adding further focus to in-house proprietary brands, offering unusual foods and beverages to suit wide-ranging tastes and tailoring outlets to particular clients' needs. Additionally, Compass Group and its major rivals had not only one another to worry about but how to continue to out-muscle smaller competitors through clout, reputation, and incentives.

While the business and industrial segments carried the big name corporate contracts or the 'trophies' in the industry, the correctional facility and child care segments had much potential. In this respect, Aramark was already ahead in the game, servicing correctional facilities in nearly three dozen U.S. states, light years ahead of both Compass Group and Sodexho Alliance. Yet all three companies were headed in the same direction, to exploit new markets and gain more control of existing markets through organic growth and acquisitions. Two disparate quotes sum up the industry, its potential, and its dangers for the new millennium: first, from the December 1, 1999 issue of Restaurants & Institutions, Compass Group's North American division head Gary Green stated, 'Being big, bigger, biggest means nothing. Being the best is what it's all about.' Second, Dennis Reynolds, covering the foodservice industry for Cornell Hotel & Restaurant Administration Quarterly, reminded, '... You're only as good as your last meal.' Both men, intimates of the industry, spoke the truth.

Principal Subsidiaries: Compass Group UK Ltd.; Compass Services France S.A.; SHRM S.A. (France); Compass Group Deutschland GmbH (Germany); Compass Group Holdings Spain S.L.; Compass Group Nederland B.V. (Netherlands); Compass Group Norge A/S (Norway); Compass Holdings, Inc. (U.S.A.).

Principal Operating Units: Bateman and Medirest; Chartwells and Scolarest; Eurest; Flik and Roux Fine Dining; Canteen Vending Services; Select Service Partner (SSP); Letheby & Christopher and Restaurant Associates.

Principal Competitors: Aramark Corporation; Fine Host; Granada Group PLC; Sodexho Alliance SA; HDS Services.

Further Reading:

• 'Company Report--Compass Group,' Investext, May 21, 1997.
• 'Expanding Fast in All Directions,' Financial Times, August 15, 1997.
• Matsumoto, Janice, 'Contractors,' Restaurants & Institutions, September 15, 1999, p. 72.
• Reynolds, Dennis, 'Managed-Services Companies,' Cornell Hotel & Restaurant Administration Quarterly, June 1997, p. 88.
• ------, 'Managed-Services Companies: The New Scorecard for On-Site Food Service,' Cornell Hotel & Restaurant Administration Quarterly, June 1999, p. 64.
• ------, 'Productivity Analysis in the On-Site Food-Service Segment,' Cornell Hotel & Restaurant Administration Quarterly, June 1998, p. 22.
• Rousseau, Rita, 'Compass Points to Global Future,' Restaurants & Institutions, December 1, 1996, p. 23.
• ------, 'Contractors,' Restaurants & Institutions, August 1, 1996, p. 40.

Source: International Directory of Company Histories, Vol. 34. St. James Press, 2000.

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