Suppliers tend to think of foodservice as a holy grail. But it isn’t that simple, says Siân Harrington

It’s not uncommon to hear suppliers talking about foodservice as if it were a fairy godmother ready to deliver them from those fiendish food retailers who suck every last bit of growth and profit out of their companies.
One wave of the magic wand and not only can suppliers achieve better margins than in the mature grocery retail sector, but they can do so at the same time as maintaining their business on the retail side, offering the obvious benefits of high-volume business.
Unfortunately, the path from ‘hell to heaven’ is not that easy to tread.
Yes, foodservice is an obvious area to look at. Richard Ash from recruitment company Nigel Wright Consultancy’s food and drink division explains: “As margins have become increasingly squeezed by retailers, suppliers have looked to develop their business within foodservice, which promises better margins.”
The rewards are potentially rich, says Mike Hughes, MD of field marketing company CPM, which sponsored a recent report. Foodservice is a “potential goldmine” with £16bn worth of purchase volume up for grabs over the next decade, he says.
And, of course, consumer lifestyle changes show no let up in fostering the growth of out-of-home consumption, with most commentators expecting parity of expenditure between retail and foodservice over the next 10 years. Last year the market grew 5% to £67.5bn, says PlanetRetail.
But, warns Chris Hales, sales director, chain accounts at Unilever Foodsolutions: “If you think you can just walk in and find people begging to pay higher prices for your products, you will be sadly disappointed.”
It’s not simply a case of creating a foodservice division and expecting the strength of the brand name to do the rest.
Ian Crawford, 3663 director of marketing and buying, says: “While there are undoubtedly some similarities in the operating principles applied to retail and foodservice markets, there are clear distinctions in requirement and approach. Foodservice operates through specialist trade channels, requiring both manufacturers and distributors to contribute through an understanding of the respective consumer and operator drivers.”
Yet, to date many suppliers have committed neither the resources nor the energy required to effectively reach target markets. Instead, they often use foodservice as a way of filling excess capacity, fielding weak account managers and listing inappropriate products, says Ian Crabtree of foodservice consultant ISC Associates. “There
is a negative relationship between supplier and buyer. Often manufacturers are not even doing the basics. They agree the deal and think that is it. They are not taking time to understand the business.”
Crabtree argues that foodservice is not well provided for by suppliers, who tend to try to sell existing retail or wholesale packages into the market. They need to move from the transactional base to become a partnership, he adds. “Manufacturers should not expect operators to do anything for them. They need to take ownership from gate to plate. Even if manufacturers, wholesalers and operating companies sat planning together, it would be a major step forward.”
The result is that for many manufacturers the potential becomes purely aspirational and rarely, if ever, achievable, says Crabtree.
As in retail, foodservice operators are increasingly looking for value-added products, return on investment and a collaborative approach. No wonder the more progressive operators are starting to take advantage of retail-like buying practices. As Ash explains: “They are looking to hire in buying skills from the retail sector. The more this happens, the more the difference in margins between manufacturer/retail and manufacturer/foodservice will level out.”
Hales says that at least three buyers he used to deal with in retail have turned up in foodservice.
But this trend can only mean a more aggressive stance in terms of dictating how suppliers work with buyers. In response, national account managers will need the backing and power usually afforded those in retail. They should not, says Crabtree, be “employees either moving in or out of the food business, aspiring individuals passing through to the big prize of retail, or retiring individuals waiting for their pension”.
But for suppliers targeting this sector, it’s not all bad news. On the plus side, more retail buyers in foodservice will bring a closer focus on the consumer and a more rigorous approach to trends and research.
n The Grocer is running a conference - The Future for Retail and Foodservice, the Supplier Story - on November 16 in London. For more information, contact Elizabeth Brown on 01293 867612 or e-mail her at

From retail to foodservice
>>unilever FooDsolutions’ Chris Hales Explains the Differences
Chris Hales, sales director, chain accounts at Unilever Foodsolutions, has been on both sides of the fence,having previously worked at Kraft managing the Sainsbury account.
He concedes that all too often suppliers sit foodservice under the retail sales director and do not give it the focus it deserves.
But he believes this is changing. “Foodservice is seen as the poor relation to retail, but that mindset is getting out of date,” he says, adding that there are benefits to working in sales in the foodservice market.
“Having seen both sides, what I like about the out-of-home marketplace is that you can be far more empowered as an account manager and more entrepreneurial. And it is a lot of fun.”
Key to success is understanding the market. “It has a significantly broader customer base than retail and there is far less domination by large customers. In retail it is basically the multiples, convenience and independents, with four big players. In foodservice the airline customer is different to the hotel customer, who is different to Compass, which is different to a pub.”
Hales adds: “In out-of-home you need to see whether you can adapt a brand to a specific sector or just choose sectors in which a specific brand can work. A product or solution that works in one sector doesn’t necessarily work in another, unlike in retail where Marmite works whether it is in an independent or multiple - you may just have a different size.”
Take soup. Unilever supplies dehydrated soup for cost-driven operations, premium dehydrated for the workplace and Knorr 100% ambient ready-to-use for visitor outlets in hospitals and other front -of-house operations.
Then there is the question of front-of-house versus back-of-house.
Front-of-house is more like retail, with brand names such as PG Tips and Knorr resonating with the consumer. But back-of-house is a different matter altogether. “We do bouillons and stocks, for example, and have to understand how chefs use the products, so it is not just about taste but also functionality,” explains Hales.
Unilever employs its own team of chefs to focus on this sector of the marketplace and to help with innovation and NPD.
So what are Hales’ tips for suppliers looking to move into this market?
“Treat foodservice seriously. Give it a dedicated resource and genuine autonomy. And understand that you need a long-term consistent approach. Entering this market is a marathon, not a 100m sprint.”

Tips to take you to the top
>>How to succeed in foodservice
n Develop a clear and concise knowledge and understanding of the market dynamics and key drivers for both national operators and independent caterers
n Review the calibre and effectiveness of your national account management structure. NAMs should not see foodservice as a mere upward step on the career path, or as the sort of job they take on while heading for retirement
n Collaborate with key partners, share information and understand their objectives
n Provide the end user with complete solutions
n Invest in research and data about foodservice and consumers
n Ensure distributors such as Brakes and 3663 are knowledgeable about your products and that they are always in stock
n Identify most profitable customers
n Put category management practices in place
Source: Industry interviews and How well do you sell? Report by Ian Crabtree, ISC Associates, on behalf of field marketing agency CPM