The foodservice squeeze

It’s unlikely that there will be four foodservice buying groups in five years’ time, writes Chris Binge

Consolidation happens to every industry – the only variable is time. Look at car manufacturing, banking, housing, financial services, steel-making, telephony and, yes, even foodservice wholesale.  Do you remember Watson & Philip, Cearns & Brown, DBC, Woodwards or even UYC, Ross Youngs, Vincent Sorge and TFC? In their day, they were all leading players in delivered foodservice but have all now been absorbed into either 3663 or Brakes.

The retail food supply market is worth £120bn. Convenience stores are worth about £14bn, while cash & carry is valued at £11bn and delivered foodservice at about £8bn.

Today, in delivered foodservice we have Brakes and 3663, with a combined turnover of about £3bn and over 30% share of the total delivered foodservice market in the UK, followed by four buying groups: Caterforce, Country Range Group, Sterling and Fairway Foodservice. But it is unlikely that there will be four foodservice specialists in five years’ time.

These groups are mainly made up of independently-owned wholesalers, with a collective turnover of around £1bn and around 10% of the market, followed by JJ Food Service and Fairfax Meadow with turnovers between £150m and £200m, Blakemore, Reynolds and Russell Hume at between £100m and £150m, followed by Holdsworth, Hopwells and T Quality with turnovers between £50m and £100m. Those businesses share around 70% of the delivered food­service market.

So, what does the future hold for these businesses? While every industry consolidates over time, there would appear to be a lot more consolidation to come in ours – what about Booker and Booker Chef Direct? Is their growth in delivered foodservice going to be solely organic? Unlikely. Acquisitions will come.

The bigger businesses will plough their own strategy in the marketplace as they strive to become or maintain a dominant position. But what about the smaller businesses? There is always a place for small, nimble, niche operators but they will be unable to grow beyond a certain size – and will eventually be absorbed by bigger players.

It is companies in the middle ground that have to decide on their business exit strategy. What do they want to do with their business and over what timescale?  Frankly, most will want to sell their business at some point and the bigger and more profitable the business, the more it will be worth.

The two models.  Different types of buying group

So, how does a small or medium sized business grow or survive and then grow? All businesses have to have a competitive offer and that is where buying groups are vital. I can see two main business models for the groups available at the moment: the ‘one size fits all’ or the tailored models.

With the ‘one size fits all’ model, thereare often many diverse members and the buying group acts remotely, not trying to understand its members’ needs, not listening and not building relationships with its members. With this approach, the group considers its own future over its members’.

The tailored approach, on the other hand, involves having members with similar types of businesses, promoting a ‘family’ environment where the current and future needs of members is considered, by seeking frequent feedback,  adapting plans and strategies to support members, explaining the rationales behind all actions, and being open and transparent.

One of the main benefits of buying groups to suppliers is that the collective purchasing of products and services delivers volumes in one negotiation or agreement, with one main point of contact. This will deliver better pricing than an individual business can achieve, particularly when it is competing with the ‘big boys’.

That said, buying groups should not be exclusively about prices. They can use their collective volume to make own-brands viable, creating additional points of difference to their members’ competitors: exclusive products available only for the group’s members.

Buying groups are also responsible for arranging comprehensive and co-ordinated promotional plans for their members; developing systems with costs shared across many businesses; and sharing market research, knowledge and ­experience.

A good buying group should be a collective of similar businesses that require similar products and services, where the collective purchasing volumes (for products and services) can be united to deliver better cost prices for the group members and better efficiencies for the suppliers.

But the philosophy of a buying group is also important.  It should be simple and must exist to help, support and benefit its members. It should encourage sharing of experience and working practices across its membership. The success of a buying group should in part be gauged by the success of its members. The group should encourage member interaction and feedback, and should be continually striving to provide a better service. There shouldn’t be any downside to being a ­member of a buying group.

Growth strategies:  How to deal with ‘churn’

The individual business strategies of members will differ and exit strategies will have different timescales so there will always be churn (members leaving). So a buying group needs to have a growth strategy that will introduce new members as well as help the organic growth of the existing ­members.

Members of buying groups are normally competitors and it’s the role of the buying group to be aware of the Competition Act and ensure no collective or individual infringement of the act. Introducing new members to a buying group needs to be done sensitively.

There is also the fear that a member will lose independence by joining a group, which isn’t the case, and respective centres should support the local and regional activities of the group’s members.

Ideally, for a small or medium-sized business, there should be no downside to joining the right group – just friendship, help and support, and increased profitability.

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Chris Binge is the chief executive of Fairway Foodservice, a buying group working on behalf of 17 foodservice wholesalers. The members' collective turnover in 2012 was £494m


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