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KN55000

KEY NOTE CONTRACT CATERING JUNE 2000

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ISBN 1-84168-086-9

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EXECUTIVE SUMMARY

Strong growth has been a feature of the UK contract catering market in recent years and, in 1999, the market was valued at £3.01bn following a 13.5 percent sales increase over 1998. In 1998, sales increased by 17.4 percent. 2 years of significant revenue growth increased contract catering’s share of the total UK catering market to 5.9 percent in 1999. The main reasons for this impressive market growth have been the general upturn in the economy, the willingness of companies and other organisations to outsource more of their non-core activities, increased branding of contracted outlets, a reduction in catering subsidies, and the move by many contract caterers into the provision of other support services such as cleaning, security and property maintenance. A significant proportion of the annual increase in sales has come from revenues generated by the provision of other support services. The largest sector of the contract catering market is business and industry. While this sector continues to grow, its share of the total market has fallen as other sectors have grown more quickly. These other sectors include healthcare catering and catering for the public. Over the last 5 years, education has also seen healthy sales growth, although its growth was less impressive in 1999. Total sales in 1999 were particularly hampered in the state school sector because of cost pressures and the difficulties associated with implementing the new Best Value scheme. The remaining market segment is other catering, which includes catering for construction and remote sites, the Ministry of Defence (MoD) and prison catering. The rapid growth in the contract catering market of recent years has encouraged many new entrants to come into the market. By 1999, there were around 3,785 catering business and canteen operators registered for VAT, compared to only 2,450 in 1995 and around 2,705 in 1990. The overwhelming majority of caterers are small, local companies. At the top end of the market, however, the industry has been consolidating as more and more medium-sized UK businesses have become part of larger players. The top three contract caterers — Sodexho Ltd (formerly Gardner Merchant Ltd), Compass Group PLC and Granada Group PLC — account for 79 percent of the UK market. When the next three largest suppliers — Aramark PLC, Elior UK Ltd and Initial Catering Services Ltd — are added, the share claimed by the top six companies is 92 percent of UK sales. The planned merger of Granada’s food service businesses with Compass would increase industry concentration even further. Many of the leading suppliers to the market are looking beyond the UK and have plans to increase their penetration of the global food service sector. Further growth in the UK market can be expected as part of this process, with more branded outlets, more support services and moves into other areas such as workplace retailing and home meal replacement (HMR) services helping to maintain sales growth. Key Note forecasts a 9.5 percent increase in sales in 2000 but, after that, annual sales will grow at a much slower pace. By 2004, the market is forecast to reach £3.77bn.

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Last updated by Jacob van Eldik 22th July 2000