The cost sector is more profitable than you realise

    cost sector

    Free school meals and cuts in public spending have opened doors for more competitively priced wholesalers to take maximum advantage of the cost sector. Elit Rowland reports.

    Strict government guidelines on what constitutes a ‘healthy diet’, together with vegetarian, gluten-free and halal options, are giving schools, universities, hospitals and other cost sector customers a lot to think about when putting menus together. Add to that the growing demand for food ingredients to be fully-traceable and locally-sourced, with high animal welfare standards, all at the lowest-possible price, and it’s no surprise that some wholesalers have steered well clear of the highly-demanding, low-margin realms of the cost sector.

    Until now that is. As competition among delivered foodservice wholesalers and cash & carries increases, budget cuts are pushing customers to seek more competitively priced products. Moving into this sector could therfore prove to be a lot more worthwhile than it initially seemed.

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    Fast facts: Free school meals
    • The law: All state-funded schools in England have had a legal duty since September to offer free meals to all children from reception to year two.
    • A 350% increase: An extra 1.55 million children are now entitled to a free hot meal every lunchtime – that’s almost two million children in total.
    • Parents’ costs cut: The scheme should save parents about £400 per year per child.
    • Fully funded? The Department for Education has promised the meals will be fully funded by central government (paying a flat rate of £2.30 for each meal taken by newly eligible pupils).
    • Shortfall: A BBC survey in July of 99 councils found that despite the government’s pledge, 34 said they did not have enough money for the scheme.

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    Bidvest 3663’s sales director Andy Kemp says schools and local authorities in particular will be among the fastest growing sectors in foodservice, making it an area that wholesalers can’t ignore.

    “The government’s announcement of free school meals is a good opportunity for wholesalers – particularly those who are competitively priced, due to public spending cuts,” he adds.

    To understand the scale of the opportunity, consider the London Contracts and Supplies Group (LCSG), which represents 15 London boroughs. For LCSG, free school meals have meant needing to provide as many as 4,000 extra dinners every day.

    Julia Dowsett, catering service manager for schools and children’s services at LCSG, says: “Our school meals were up 4% a year, but since free school meals were introduced, it has increased by 30%.”

    One wholesaler capitalising on the opportunities presented by schools and local authorities is Bestway Batleys Foodservice (BBF). Over the past 12 months, the £2.3bn business has been rapidly expanding its reach into schools, universities and local authorities. It has also just recently secured contracts with Rotherham Metropolitan Borough Council and NHS sites in Nottingham worth a total of £2m.

    In developing an infrastructure to support its new customers, BBF has been able to capitalise on the other, higher-margin businesses in the same location.

    BBF’s senior contracts manager Steve Irons says: “When you win a school contract, you can deliver to the local retailers and restaurants in that area, too. It builds a case to expand resources – for instance, buying new vehicles.”

    For wholesalers looking to grow and diversify their customer base, this could prove a logical route to follow. Steve Dixon, wholesale channel director at Cognosco Marketing, says: “Where it used to be clearly defined boundaries of ‘We won’t touch the cost sector because of low margins,’ the new mantra is that ‘Business is business,’ and volume helps to drive costs down, even if it is at a reduced margin.”

    Click here for part two: How does a wholesaler grow business in the cost sector?

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