Supplying UK retail business is one of the toughest markets to crack - it’s competitive, demanding, price-led and volatile. So what about branching into foodservice?
It’s an attractive proposition with out-of-home sales worth 34p in every food pound spent, a figure that is predicted to grow to 50p in the next decade. Sales through catering are worth £25bn through some 262,000 outlets, according to the latest figures from British Hospitality Association.
Foodservice could represent a valuable new revenue stream for suppliers and could even be used to launch brands, but it’s not an easy option.
Most of its existing suppliers stress the complexity of the supplier/customer relationship and the fact that you not only have to know the market and decide who you’re targeting, but also ensure your product meets the needs of those operators, the customers they serve and the wholesalers who’ll distribute it.
Critically, you have to understand the consumer in an out-of home environment.
Encouraging Scottish food manufacturers to target foodservice clients is a particular focus for Scottish Enterprise, which held a foodservice conference last year.
Its regular ‘dining clubs’, where suppliers send their products to a restaurant to be cooked by the chef, have proved so successful they have now been rolled out across Scotland.
In this initiative, a selection of suppliers have the opportunity to showcase products and the evenings have proved a useful networking tool for at least one company, which has now picked up a local hotel contract from a local hotel.
A recent study by Scottish Enterprise showed 82% of suppliers listed foodservice as a key business opportunity, with 52% reporting growth of over 20% from foodservice in the past year.
“It’s another opportunity. A lot of people are considering it and it’s something we’re trying to encourage,” says a spokeswoman. But she warns you can’t just roll out a retail product to foodservice. “Caterers like to think they’re different in what they want.”
This is echoed by Mackie’s foodservice manager Raymond Pirie. The well-established Scots ice cream manufacturer moved into foodservice three years ago and six months later appointed Pirie to develop the business. “Caterers hate a retail pack made bigger - that’s not what it’s about,” he says. “We are developing new products for them, it’s about establishing a partnership.
Pirie warns that distribution in particular can be a trickier proposition than in retail. “Whether you establish links with the customer or the wholesaler depends on who you are targeting,” he says. “There’s a lot of negotiating to be done involving the distributors and their contacts.”
Foodservice operators in general don’t run their own supply chain either, so not only do you have to build a relationship with your ultimate customer, you have to have a good relationship with the distributor or wholesaler too.
Jon Walsh, marketing director of Nestlé Foodservice, adds that distribution tends to take longer. “Launching a new product in retail and you get 90% distribution in three months. In catering it can take a year.”
No companies in foodservice have more than a 5% market share by value and over 90% of foodservice businesses have an annual turnover of less than £250,000.
The large hotel and restaurant chains like Whitbread, Pizza Express and The Restaurant Group (formerly Garfunkels), as well as the big contract caterers like Compass and Sodhexo tend to buy, or negotiate, direct.
So it’s important to decide who you’re aiming at - contract caterers, fine dining restaurants, the branded chains or the wholesale sector. Wholesalers represent the largest distribution route into foodservice, with national companies such as 3663, Brakes and Booker, who all supply some of the national chains as well as smaller companies, down to smaller, more specialist or regional wholesalers.
It’s worth remembering success in retail is no guarantee in foodservice, however big your brand. Having worked for Whitbread for many years, Mark Allibone now commercial director of The Sauce Company, knows foodservice well. The Sauce Company supplies both retail and catering, with 68% of its soups and sauces business in foodservice and 32% in retail.
“You have to take a longer term view with foodservice,” he says. “You have to adopt a bread today, jam tomorrow approach.” Neither, he says, can you cherrypick big lines to supply, as a customer in foodservice might just want 12 cases of a product. “You have to have a partnership and it might be low volume to begin with. But it’s a refreshing, open partnership and one in which customers are very honest about where they are going and what they want to achieve.”
And it’s certainly not a question of simply providing larger pack sizes. Allibone points out that foodservice operators have very different needs in terms of compliances, packaging and storage of the product. Some can handle chilled, some can’t, some have the skill to add value to the product, others want a more finished product.
“You have to be very adaptable. Foodservice wants brand differentiation, too. One pub company will want something very different to another. Often divisions within one company want differentiation. You have to be willing to do that.”
Global giant Procter & Gamble is best
known for its retail brands, ranging from Pringles to Ariel, but the company has supplied foodservice with snacks and beverages and laundry and cleaning systems for 20 years. Mat Baker, sales director of P&G Professional, says the market represents an important opportunity for P&G to bring its consumer expertise into out-of-home. Ariel, Flash and Fairy are supplied into contract catering, hotels and although the products share brand names, the professional formulations are different.
P&G also runs its Professional business alongside its retail one, rather than separating them out.
“We talk about being brilliantly focused and brilliantly attached,” says Baker. “You have to be focused to be successful - a lot of companies fail who try to sell retail brands into foodservice.
“You have to be serious about the market. It’s about commitment.”
Baker agrees that big brand names don’t necessarily succeed in foodservice and with its limited distribution network it can be difficult to gain a foothold.
But for Baker, the foodservice market is one that’s worth investing in. “You develop long-term partners with customers that would be the envy of my retail colleagues,” he says, adding that some contracts can be for as long as five years - “it becomes highly collaborative and an interesting place to be. It’s not just a transactional relationship.”
The biggest foodservice supplier in the market is 3663, which has an annual turnover of £1bn, around 9,500 product lines and around 30,000 customers.
Des Bell, director of marketing, says that making a successful switch from retail to foodservice is a combination of the product, the company and the brand, but again emphasises the need to understand the customer. “Companies that have products that are targeted at retail must understand what drives the needs of consumers in foodservice, whether it be in prisons, hospitals or restaurants, but also what drives operators’ needs as well as those of suppliers such as ourselves.
“If a product is appropriately positioned it can lead to a successful foodservice business, but foodservice is an amalgam of markets - it’s very different selling into hospitals, schools and pubs, there are different consumer expectations, different customer needs and constraints.”
In a pub, for instance, a consumer will want to eat sitting down, while in a sport centre they will probably be after something to go, he says, adding: “I think in harder times in retail, suppliers do look for other opportunities. In foodservice you can build brands at a fraction of the price you can in retail, which is dependent on promotions, but you need to be clear about what you want foodservice to do for your business.”
Walsh is less reticent. His advice to potential foodservice suppliers is “just go for it”. Nestlé has long been a successful player in the foodservice sector with its Nescafé brand, the culinary brand Maggi, aimed at chefs and its multi-snack vending products.
Walsh says the company’s policy of extending brands into foodservice has been very successful, particularly for Nescafé and Kit Kat. But not every brand will make the transfer: “Our thinking has changed on this. Now where it makes sense to pull through brands into foodservice, we will. We’ve learnt the places where it makes sense.”
In the final assessment, Walsh believes that the similarities with retail are greater than the differences.
“The same fundamentals apply, although you have one extra element - the end user, so there are four stages than three.”
Anyone eyeing the market, just needs to do their homework, he advises.
“You have to be much more precise and have more finesse as it’s not just about getting the four or five big customers. You have to judge the pace right.”
From retail to catering...