Introduction
Compass Group is among the leading food processing companies in the world. For this reason, the company has invested across various continents with its presence being felt in over 90 nations. (Compass group, 2009, p.1). The company’s workforce consists of over 400,000 employees. Its business strategy lies in building value for the shareholders through commitment. Compass is keen on fulfilling its mission statement; delivering service and results through its people. This has been made possible because the company is a market leader in the various markets where their products are to be found. The constant pursuit of the company’s mission statement can only be enhanced through superior levels of service, quality, and efficiency. In achieving these results, the company has been able to focus on the total dedication of its staff to the enhancement of excellence.
The company has a vision of becoming the highest quality and most profitable operator of the world’s top hospitality and foodservice businesses. It believes in the provision of a standard of service that is distinct from that offered by the competition. In addition, the organization is committed to giving priority to clients and customers. Compass has established itself by developing a close working relationship amongst its workforce and listening carefully to customers’ complaints and responding quickly to the emerging business trends (Compass group, 2009, p.1).
A strategic focus of the company entails market leadership, preferred employer, operational excellence, and financial performance. The organization’s uniqueness is built on a high-quality portfolio of foodservice brands in clearly defined market sectors. These ranges include local, national, and international brands that are able to meet the different demands of the customer groups.
At Compass Group, innovative and new concepts are always developed to enable customers to choose wisely so that they meet their lifestyle needs and provide well-balanced nutritional options. The company operates over a wide area of sectors namely; business and industry, defense, offshore and remote sites, education, healthcare and vending. In getting close to the community, the company has a corporate social strategy where it is involved in community-based initiatives.
Compass strategy and performance
The company performed well between the years 2001 to 2005. For instance, its turnover has increased consistently from ÂŁ 8,716 in 2001 to ÂŁ 12,704 in 2005. This period also saw total operating profit increase from ÂŁ 676 in 2001 to ÂŁ711 in 2005. Shareholders were not left behind as the basic earnings per ordinary share have increased from 2001 to 2004(ÂŁ19.8 to ÂŁ21.1) but there was a drop in 2005 to ÂŁ19.1 (Compass group, 2009, p.5).
In the year 2005 36% of the company’s turnover came from the business and industry sector, which was the largest contributor. North America is the largest contributor to the company’s in turnover as far as the regions are concerned. This is because in 2005 it contributed by 32% followed by the United Kingdom at 23% (National Restraunt Association, 2008, p.12).
The company’s strategy revolves around building value for the shareholders through four commitments. These are; never to forget the importance of keeping the customer satisfied, ensuring the maximization of the return on investments, delivering on the company’s expertise on an unrivaled consistency, and continuing to place the best people in the company’s business.
Maximization of the return on investments over the period has been achieved as the company has witnessed an increase in profitability. On the other hand, the shareholders’ value has also increased because the basic earnings per ordinary share have shot up. The company has ended up as a market leader due to improved quality and cost-effectiveness, to achieve this, it has developed ways of working with exceptionally dedicated teams with vast skills in the needs and market segments.
In improving the standards of its operations, the company has used and applied superior systems, processes, equipment, and standards. Most significantly there have been massive investments in the use of information technology by adopting best practices throughout its businesses (National Restraunt Association, 2008, p.10). The results, as can be observed above, were achieved through the strengthening of the group’s objectives. This was done by pursuing continued growth through huge profitability and earnings on shares. Another strategy that the group has used to attain the desired growth is offering a high-quality portfolio of foodservice brands. These brands operate across all sectors of the market while suiting the different customer requirements.
Compass has used the idea of market segmentation to serve the market well. The company operates over a wide sector namely; business and industry, defense, offshore and remote sites, education, healthcare and vending. Through this, it has served the market well hence the satisfaction of its clients (Spiegelman, 2010, p.6).
In giving back to the community, the company has a reward for the best community-based initiatives across the world. It has made the first steps towards mitigating unemployment in the community, appreciating sustainability, and promoting inclusive participation as well cultural diversity. This has given it a wider presence all over the world (Compass group, 2009, p.4).
From 2001 the company stepped up its strategy of growth through acquisitions. Although this was sound as it helped the group bolster its position as the worlds leading caterer it affected the business’s strong cash flow. In 2000 the group completed an ÂŁ 18bn merger with UK media group Granada, therefore, creating two temporary divisions. Compass hospitality was formed and it comprised foodservice businesses, roadside restaurants, motorway services areas, and the former Forte hotel estate. The company was able to grow by 7% because of winning new contracts. This is a strategy that has been used to grow and henceforth attract new business frontiers (Spiegelman, 2010, p.8).
The group was able to focus on key sectors and this has seen a growth in the education, health and remote site sectors. On the other hand, there was good growth in Asian countries (geographically). The contract pricing has remained pretty stable over the year which has, in the long run, had the tail end of the Granada synergies in the UK market that has helped a lot.
It has also put some specialist purchasing teams in place, therefore, passing the baton of growth to continental Europe and North America to enhance growth at faster margins. The management has operated on economies of scale which has enabled them to get more and grow even bigger by driving the cost of food down. This has increased the market for the company in the UK.
Because employment is coming up after the economic crisis and a number of new markets have emerged the company is opening up other retail markets to tap into these (like the contract at the London Zoo). The businesses the company has secured have come from self-operators, new sites, and small regional players that have struggled to compete with Compass.
The company has focused on the education and health sectors of the USA because they are under contract. This is because they are huge markets with lots of opportunities to grow and they are likely to grow even bigger in the coming years. More presence has been emphasized on the North American market as the average size of a contract there is three to four times the size of the UK.
In recent years the group has acquired several large businesses which have given it a wide presence in 98 countries (Weinberger, 2005, p.13). In addition to these, the company’s top two competitors are not in these countries which have given them a wider presence. Most of the businesses are run by the nationals of that country and this is important as clients have been brought closer. Through this, the company has capitalized on these markets more strongly.
Organic growth has been their other growth strategy as they have put in place a great platform from which to leverage off in the 98 countries. This has been achieved through a solid management team with incentive programs that are about driving organic growth and return on capital. The company has also spent a lot of money on infill acquisitions and this has been the best way of going forward.
Bribery case
In the year 2005, the company was subject to US investigations into alleged bribery at the United Nations. The investigations involved its subsidiary Eurest Support Services (ESS), which supplied UN peacekeepers and used leaked details of UN tenders to win contracts (Weinberger, 2005, p.18). It was suggested that the scope of the investigations be extended beyond a contract that ESS secured in Liberia and called for further investigations into Compass.
ESS was to be later suspended as a registered UN vendor in October 2005. Later on in the year 2006, a Monaco-based catering company ES-KO international one of ESS competitors for the UN peacekeeping contracts lodged a claim for ÂŁ213 million in a New York court (Weinberger, 2005, p.14). This proved to be a second claim to be served on Compass in connection with the UN contracts scandal.
Previously Supreme Foods service had filed a claim of $ 125 million, alleging that ESS had engaged in fraud and bribery to win contracts to feed peacekeepers in countries like Liberia and Eritrea. In 2006 the company was able to settle the cases in trying to avoid a prolonged legal battle but it did not admit any liability.
The company was able to learn from these mistakes and it put in place the systems and controls to ensure that this was not repeated. To improve on its credibility it announced that it had instructed Freshfields and Ernest & Young to conduct some investigations into the relationship between HIS, ESS and the UN. As a result of these, it sacked the head of its UK division and two other employees.
As the lawsuit proceedings, the company stated that its UK school meals program had suffered criticism due to unhealthy school dinners. This was so following a high-profile TV series (Weinberger, 2005, p.12). Compass being a global company, such a bribery case largely impacted its credibility in the market.
Its subsidiary was suspended as a registered UN vendor which reduced business. In business ethics and structure this is not good for a company that seeks to do business all over the world. If the allegations were true then the group needs to avoid such mistakes in the future as the global configuration and coordination can not entertain these practices.
After sacking the head of its UK division and two other employees these exposed a problem in the business structure as it meant that some of the employees were dishonest. Such malpractices in business ethics could have cost the company lot of money if it were to be found guilty in the cases that it was involved in. Even after settling the suits to avoid prolonged battles it still parted with some money.
Opportunities and Threats
The US foodservice sales increased by 4.4% in 2004 from 3.7%, and this growth is prompting consumers to spend more on eating out (Harrison, 2007, p.17). Food sales are projected to increase by 4.9% in the year 2005 which implies that the market will be growing. To gain from these, the group will have to improve on quality and increase its market presence to reach as many people as possible. Since the market is ever dynamic and changing, the company will have to do, more comprehensive research to know what is suited for these emerging markets.
In the UK, the company has many synergies that arise from the Granada merger. Through this, the company will be able to pass on the baton of growth to other markets to grow at faster margins. To tap on this opportunity the company will have to improve on its specialist purchasing team so that it can increase the profit margins.
There is still good growth in business and industry in the UK as a market segment. This is because employment is slowly coming back after the global economic crisis (Harrison, 2007, p.13). In addition, other new markets that are emerging like education, health sector, and the group can capture this market by offering the right products. It can also increase the number of outlets to enhance its presence.
There are many barriers to securing big contracts in the UK and this is an opportunity, as other small players cannot compete with the group since it is well established. As the group has, an upper hand in these it can ensure that it executes the contracts well to avoid criticism and improve on its image.
In the USA, the education and health sectors are contracted which leaves a large gap that the group can capitalize on. They are still big markets with many opportunities to grow which implies that the market is untapped. To attract this market will mean that the group has to be quite innovative and give the market the best, as they will easily embrace something new and unique.
The UK and USA markets have many structural differences, for instance, the average size of a contract in the USA is three to four times the UK. This presents large opportunities for a huge purchasing power that the company can use to maximize its growth margins. The group will achieve this by enhancing sales in the USA market, as it looks more lucrative than the UK.
Compass has a management team that is well experienced and solid. The company can give them an incentive program that will help to drive organic growth and return on capital. It has enhanced these by establishing its presence in over 98 countries, which is a great platform for them to leverage off; organic growth is another frontier of increasing business and the company can use it well.
The visibility that they have over the top line as a company is good and it has sufficient new business to achieve high growth over the next few years. To enhance this it can improve on its margins by having good purchasing initiatives. In addition to these, the group has the right people, in the right market and the right business model with an exciting ÂŁ 250bn a year market opportunity. This wide market can be utilized to increase sales that the group will benefit from through high profitability.
It is evident that the USA has a very aging population that is contributing to high sales in the health care and nursing sector and the company needs to move closer to such a market to tap it. Although there is still good growth in the business and industry sector in the UK it seems to be quite mature. As much as the group can capitalize on these, it needs to expand into other markets as this one has reached its peak. In the UK, some competitors take from the group’s business.
Though they are not superior competitors, they pose a big threat to prospects and the group should come up with new strategies to counter them. Eventually, as they struggle to compete, they will find a way to outsmart the company.
Business and industrial catering is still struggling and this has been brought about by the ongoing global economic crunch that has not really ended. To cope with this the company came up with cost-cutting measures but they have led to diminished orders and low revenue for the company. These measures included the removal of many employee benefits and subsidized catering.
In such times, the company should focus on the education and health sectors, as they are less cyclical than the business and industry sector that is influenced by the global economic crunch.
Conclusion
The company has been performing well over the period 2001 to 2005. It has seen increases in operating profit, turns over, and the basic earnings per ordinary share. This has been achieved through good strategies that have increased growth. On the other hand, the company has also had its own fair share of problems like when it was allegedly accused of bribery claims. With increasing opportunities locally and abroad, the company has a good prospect of growth.
Reference List
- Compass group, 2009. Investor centre.
- Harrison, J. 2007. Striking balance: Organic growth and M&A.
- National Restaurant Association. 2008. Planet Retail.
- Spiegelman, P. 2010. Realign Your Company’s Moral Compass: Lessons to be learned from 2 cringe-worthy stories of dishonesty. Web.
- Weinberger, C. 2005. Planet Retail.