Business Breakdowns
· Matt Reustle
[00:00:00] S0: This is Matt Reustle and today we are breaking down the food catering giant Compass Group. My guest is Asif Jeevanjee, Chief Executive of Oakmount Capital. Now, whether it's your corporate cafeteria, the food stands at a sporting event, or the old hospital food tray, you can see the food services industry all around you. And Compass is the giant in this space with a history that really dates back to the emergence of this outsourced trend. Asif took me along this journey for both the business and the sector. How does the ecosystem work? What do contracts typically look like? And why had I heard of Aramark, but not Compass, when Compass is nearly double the size? While my business instinct with anything food related is, it's just so hard. You have perishable goods and a lack of visibility on sales. The list goes on. But here is another example of carving out an effective business model around an essential need product. Now please enjoy this breakdown of Compass Group. All right Asif, I am excited to dive into the world of food today, particularly the business of food and an interesting business that sits in that world with Compass Group. To start us off, I don't think that too much of our audience will be familiar with Compass Group. So maybe you can just start off with a simple explanation of who they are and maybe how somebody as a listener might interact with the business in their day to day life.
· Asif Jeevanjee, Matt Reustle
[00:00:00] S1: Well, it's great to be here Matt. Compass is a food service company, a contract caterer. They're a UK company, but their biggest business is, by far, in North America. They operate in a very large market. The best way to try and understand the business is to think about... many of your listeners will have used a corporate cafeteria. If you've worked for a large company, the cafeteria, there'll be a kitchen and seating area. They'll provide probably hot and cold meals and beverages. The operation of that cafeteria, which sits within the location of the client, which is your employer, is provided by companies like Compass. And the important point is it is on-site so you don't have to leave the building to enjoy your meal. [00:00:00] S0: Can you share some general context on the size of this market? I know two players at this point, but just how big is it? And any other context that you would put on that market as a whole in terms of its health or anything else you would use to describe it.
· Matt Reustle, Asif Jeevanjee
[00:00:00] S0: Can you share some general context on the size of this market? I know two players at this point, but just how big is it? And any other context that you would put on that market as a whole in terms of its health or anything else you would use to describe it. [00:00:00] S1: It is a massive market. It's very hard to size it accurately if you're looking at the global market. But if we use numbers that Compass provides, and they're in about 30 countries, they think that the food service market is about $320 billion. Now that is really just for the food service part of their business. They do have another part of their business which is on support services. So this is the providing of certain add on services like reception and cleaning, which is about 14% of their revenue. Some of the big players in this market are Sodexo and Aramark, but it is quite a fragmented market otherwise, with a number of independent regional players as well as; and this is a really important part of the market, in-house operations. And really one of the exciting areas of Compass is tapping into that and driving outsourcing of that over time.
· Asif Jeevanjee, Matt Reustle
[00:00:00] S1: It is a massive market. It's very hard to size it accurately if you're looking at the global market. But if we use numbers that Compass provides, and they're in about 30 countries, they think that the food service market is about $320 billion. Now that is really just for the food service part of their business. They do have another part of their business which is on support services. So this is the providing of certain add on services like reception and cleaning, which is about 14% of their revenue. Some of the big players in this market are Sodexo and Aramark, but it is quite a fragmented market otherwise, with a number of independent regional players as well as; and this is a really important part of the market, in-house operations. And really one of the exciting areas of Compass is tapping into that and driving outsourcing of that over time. [00:00:00] S0: It's interesting to hear that market size, that 320 billion is a staggering number. I can remember looking at the advertising industry, as of a few years ago it was something like 700 billion. So you think about how much that market drives so many different businesses and this being essentially half of that, but substantial. When you mentioned the fragmentation and those large players, are there any with sizable market shares? Do they break out what Compass Group has in terms of market share, whether it's by their markets or anything else? And some of the other big players that you referenced in there as well. What does a dominant market share look like in this industry?
· Matt Reustle, Asif Jeevanjee
[00:00:00] S0: It's interesting to hear that market size, that 320 billion is a staggering number. I can remember looking at the advertising industry, as of a few years ago it was something like 700 billion. So you think about how much that market drives so many different businesses and this being essentially half of that, but substantial. When you mentioned the fragmentation and those large players, are there any with sizable market shares? Do they break out what Compass Group has in terms of market share, whether it's by their markets or anything else? And some of the other big players that you referenced in there as well. What does a dominant market share look like in this industry? [00:00:00] S1: So Compass is the 800 pound gorilla in this industry. They have about 11 to 12% market share of that market. If you were to take the next two biggest players, which is Sodexo and Aramark, and add them together, their revenues would just about equal that of Compass. In the case of Sodexo and Aramark, a much bigger share of their business is in facilities management. So within food, Compass is by far and away the biggest player.
· Asif Jeevanjee, Matt Reustle
[00:00:00] S1: So Compass is the 800 pound gorilla in this industry. They have about 11 to 12% market share of that market. If you were to take the next two biggest players, which is Sodexo and Aramark, and add them together, their revenues would just about equal that of Compass. In the case of Sodexo and Aramark, a much bigger share of their business is in facilities management. So within food, Compass is by far and away the biggest player. [00:00:00] S0: That's a good opportunity to give a little bit of an understanding in terms of what these things mean. Food versus facilities services. I think I have some broader picture, but can you just talk a little bit about how the money moves through the system. I assume that Compass isn't growing and producing all of this food themselves, but what does it entail to be the food services provider for a large corporation? How did the dollars move through the system, thinking about their suppliers, and then how they supply to the customers.