Can’t stand the heat? Get into the kitchens...

Captain Birdseye has sailed into foreign seas. The frozen food giant significantly raised its profile in catering sectors such as pubs, restaurants and hotels by setting up a foodservice division last month.

It’s by no means the company’s first foray into foodservice, but with the ambition to create a £30bn business within four to five years, it’s a significant one. And Birds Eye isn’t alone in making waves in foodservice. Lees Foods, Grove Fresh, Glendale Foods, Musgrave and Scottish Shellfish Marketing Group are just a few of the companies that have either entered or significantly upped their game in foodservice over the past few months.

“There have always been companies making this switch,” says Malcolm Calthorpe, a buying consultant with 20 years’ experience in foodservice. “In the current economic climate, though, more are becoming aware of the benefits to be gained.”

Supplying foodservice brings advantages over supplying to retail. There is greater stability because menus change less frequently than shelf arrangements, while margins are generally better. And, of course, moving into new sectors means suppliers are less dependent on their retail customers.

So how does the foodservice market differ from retail? And what does it take to make it big in the sector? Increased consolidation in retail has put more power in the hands of fewer retailers, which have carte blanche to dictate terms and squeeze suppliers’ margins. Their trumpeting of own-label versions of successful products as cheaper alternatives hasn’t been good news for brand owners, either. Tesco is even using this approach as the focus of its current TV advertising.

The market for eating out (excluding institutional catering for schools, the NHS, armed forces and most beverage sales) was worth more than £30bn last year, according to research analysts Mintel. That’s a rise of 21.2% over the previous four years – and the figure is expected to go up another 20% by 2012. But the grass isn’t always greener on the other side; foodservice isn’t immune to the price rises and squeezed margins retail has been experiencing.

Wholesaler giant Brakes, for example, has introduced a fuel surcharge, and its rival 3663 First For Foodservice has reported a levelling off of profits. There has also been some consolidation, with Brakes buying loss-making Woodward Foodservice and 3663 looking to take over smaller rivals in the near future. There is also the impact of the credit crunch on eating out to consider, with people saving on nights out in favour of meals at home.

But on the whole, as the Mintel figures reveal, the sector remains healthy. Mintel says the pub is the most popular foodservice venue, while the smaller sector of cafés and coffee shops is the fastest-growing. With the combination of the ban on smoking and cheap alcohol in supermarkets, more pubs are being forced to serve food or face closure, and there is potential for them to extend into breakfasts, coffee and cream teas. In other words, there is money to be made at those tables.

“Foodservice is a more vibrant arena than retailing,” says Chris Ormrod, MD of foodservice dessert specialist Ministry of Cake. “It’s nowhere near as polarised, nowhere near as difficult to operate in and nowhere near as precious. As long as we preserve confidentiality, foodservice clients, unlike retailers, very rarely have a problem with the fact that we also supply their rivals. The foodservice world is a good place to be.”

So foodservice offers scope for expansion – as long as suppliers approach it in the right way. “Some manufacturers combine arrogance with ignorance and make the fundamental mistake of thinking that selling to foodservice is the same as selling to retail,” says Calthorpe, who, with GA Training, runs courses for retail companies that want to make the transition. “They approach the biggest wholesalers without doing their homework. There is a natural tendency to do what you know and to adopt the same approach. But whereas the multiple retailers have very similar methodology in terms of buying and logistics, foodservice providers vary greatly.”

Ormrod also warns that there are pitfalls for the unwary or ill-prepared. “The foodservice trade is quite suspicious of retail specialists knocking on their door and declaring that they have come to change the foodservice world,” he says. “Some manufacturers see it as a brave new world – and it isn’t. There are a lot of people to deal with and a lot of pressure on volumes – but not in the way most manufacturers are used to; it’s all much smaller. Everyone wants something different, so you have to tweak things for small runs.”

One major difference is that foodservice is much more fragmented than retail and much more diverse, ranging from catering at institutions such as prisons and the NHS to Michelin-starred West End eateries. It is also difficult to get meaningful data on which to base any calculations.

“The big wholesalers keep their own statistics but for many of the smaller cafés and shops they serve, there’s no EPoS data or equivalent at consumer level. The best you can get really is a hunch,” says Ormrod.

The fact a manufacturer may also have retail clients – on which 80% to 90% of its business may depend – can be a real problem at the foodservice end, adds Ormrod. No operator relishes being told that a product is in short supply, when it is clearly visible on promotional offer in Tesco. According to the experts, the secret to cracking the market is researching foodservice needs and separating the retail and foodservice businesses. Successful providers are those who manage to do both.

One such veteran is Nestlé Professional, which has been run as a separate business from Nestlé’s retail operations for the past five years, and is now the world’s biggest foodservice supplier.

Existing infrastructure
“We are not selling to the consumer but to the caterer, so we have more of a business-to-business model,” says Martin Lines, marketing director of the UK arm. “We focus solely on foodservice because we want to grow the channel.”

Birds Eye has followed Nestlé’s example in terms of setting up a separate business unit with a dedicated sales and marketing team, a care line and support staff, although it will use its existing production infrastructure.

Foodservice MD Justin Burbage says the company, which will also be supplying wholesalers, has invested heavily in research, working with industry experts and focus groups with caterers and consumers.

“We know foodservice is very complex and different from retail and we did not want to fall into the trap of forcing our retail model into foodservice,” he says. “To be successful when your brand is this well known, you’ve got to be credible, to understand the sector and offer them what they need. We had to ensure the products were relevant to caterers and consider them as part of a meal – how to fit them into a recipe and how they cook in different environments. Chefs already know about health and nutrition information, so what we have to talk about is storage, understanding products and how they work in the catering environment.”

Birds Eye’s current foodservice range includes fish fingers, chicken dippers, burgers and frozen vegetables. Burbage says there are plans to expand its coated fish and pre-fried poultry/fish offer, and reckons that one of Birds Eye’s biggest selling points is its brand heritage.

“We found there was a definite role for Birds Eye in the right place – for example on kids’ menus in chains – where we can add trust and core value to the menu,” he says. Manufacturers supplying packaged goods believe the right outlet can add weight to a brand’s image.

“When someone who knows what they’re talking about has selected your brand, this acts as an endorsement and makes its appearance in foodservice valuable to the brand,” says Simon Speers, MD of Bottlegreen Drinks.

However, the impact of branding varies greatly depending on the product and the eating establishment. While few foodservice outlets are willing to risk swapping say, Heinz tomato ketchup, Pepsi and Coke for less iconic products at the front of house, branded products don’t necessarily have the same pull, at least to the consumer, when used as an ingredient in the kitchen.

There are some exceptions, explains Chris Cleaver, managing director of business brands at consultancy Dragon Brands. “There may well be potential for brands to appear as a mark of quality, such as Patak’s on curries or condiments in some eateries, but not in Indian restaurants where the appearance of authenticity is crucial,” he says.

At the upper end of the food chain, customers want to believe their order has been created from scratch by a master chef – and that aura of exclusivity dwindles if the menu highlights the brand’s various ingredients.

Reassurance of quality
That doesn’t mean there is no value in brands pitching their wares to these establishments, suggests Cleaver. “The thing here is that the end user isn’t the customer but the caterer,” he says. “Brands are just as important to them as to the consumer, but in the sense that they provide a reassurance of quality and a promise of innovation and support.”

Lines takes a similar view. “Brands play a different role in out-of-home eating,” he says. “Usually they are not interacting with the consumer but with the chefs, so, rather than talk up the taste or flavour or health, the manufacturer has to concentrate on the brand’s trustworthiness and reinforce it as part of an offer.”

Sector veterans acknowledge the power of brand names in foodservice, but argue there are other more important factors. “Foodservice wants availability, quality and price – in that order,” says Ormrod. “If you fail on the first two, it won’t want to do business with you. It’s that simple.”

The key message to manufacturers wishing to expand into foodservice is that pricing structures, storage, logistics, promotional activity, pack sizes – even the value of a brand name – all operate differently.

“Foodservice isn’t just about bigger pack sizes,” says Lines. “It’s also about storage, ease of use and different applications. And there are different dynamics in different areas. An LEA may have only £1 per pupil to create a meal, while restaurants such as The Ivy have an almost unlimited budget. What it comes down to is that the supplier’s role is to help the foodservice operator make more money.”

The opportunities are there for suppliers looking to make their mark in foodservice, so long as they realise it’s a very different country from retail.