A tale of two companies
The two largest UK-based foodservice operators – Mitchells & Butlers and Compass reported their latest annual figures on the same day today – 29 November 2006.
No doubt this is a coincidence but it is no coincidence that both companies reported improved growth in both like for like turnover and profits. Mitchells and Butlers saw their total revenue grow by 5.5% and their operating profit up by 6.7%; the figures for Compass were 7.4% and 2.4%.
The similarities however can not be stretched too far.
Mitchells & butlers is a company that operates almost totally in the managed pub sector in the UK. Earlier this year, in its annual review of the prospects for the foodservice sector, Horizons forecast that food sales in this sector will grow by 3.6% a year between 2005 and 2008. Mitchells & Butlers saw their same store food sales grow by twice as much. Despite the company’s stellar performance, we still hold to our forecast for the market as a whole because there are many other companies in this sector and we believe that most of them will not be able to outshine Mitchells & butlers over the long term. This is because the company has built, and continues to build, a large estate which is increasingly able to benefit from economies of scale concerning marketing spend, staff recruitment and training, and particularly food purchasing.
Mitchells and Butlers also report on the effects of the smoking ban in Scotland. Food sales are up and drink sales are down. This, too, is in line with a market analysis report published by Horizons in October in which we said “Given experiences in other countries, in Scotland and the specific experiences of several UK operators, we forecast that the smoking ban will reduce sales in the UK as a whole by £1.57 billion by 2010 below the level it would otherwise have reached i.e. if the smoking ban was not introduced. Inflation will hide this decline and will, in effect, lead operators to report increased sales over the period”.
Compass, on the other hand is a truly global business in which the UK accounts for 18% of sales and 22% of operating profit.
The company has reported that, so far as the UK is concerned, it is going through a period of change. The school meals business has suffered – with a 4% fall in “organic sales” – as a result of slow take up of the healthier options introduced as part of the “Jamie Oliver effect”. At the same time, the company has made decisions to get out of a number of unprofitable contracts.
Horizons forecast a difficult few years for contract caterers generally in the UK as their mature market provides few opportunities for outstanding growth. We expect to see a 2% decline in the turnover of contract caterers over the period 2005 to 2008.
Overall, the two companies have been able to paint a positive picture of their performance over the last twelve months. For one of them, the future looks bright; the other will find conditions challenging in the UK at least.
