Brand awareness

03 August 2004
Brand awareness

Those who have been in the catering industry for the past 10 years or so will remember Jerry Brand blowing the lid on purchasing discounts in the early 1990s. He caused a furore by claiming his larger rivals were charging inflated prices for into-unit raw materials. His allegations made national headlines and brought contract catering into disrepute.

Now he's back with a new business called Host Management. And guess what? He reckons contractors are still overcharging clients and the practice is more widespread than ever. One school bursar he spoke to recently found he could buy the same goods from the same supplier at nearly half what his caterer was charging. The bursar sacked the contractor and went in-house.

Chris Stern, of Stern Consultants, endorses Brand's view and claims the major contractors continue to make significant sums from purchasing discounts. "Getting to the bottom of what major contractors actually pay for a can of Coke or a breast of chicken is very difficult," he says. In some cases contractors own their suppliers. For example, Sodexho owns Tillery Valley Foods.

In response to the allegations, a Compass spokeswoman says the prices of its goods are benchmarked against external indices. Its raw materials cost more than a supermarket's because of more complex and costly distribution logistics compared with supermarkets, which deliver in bulk and usually out of hours. Sodexho says it believes transparency with clients is important and is confident of its ability to deliver a cost-effective service to all its clients. Aramark declines to comment, and suppliers 3663 and Brake Brothers both say they don't discuss their contractual agreements.

Brand isn't against purchasing discounts in themselves, but thinks clients should know about them. In September he will launch Host X, a website where facilities managers can compare their invoices against the prices offered by Host Management. He guarantees that Host can supply ingredients at prices 15% to 35% lower than the majority of contract caterers.

Brand's 1990s campaign to stamp out hidden discounts did cause changes. Companies, either under their own steam or with the help of consultants, took measures to control costs. This is reflected in the fall in cost-plus contracts - in which the client is billed for all costs plus a management fee - from 53% in 1994 to 29% last year.

The majority of contracts today are some form of fixed-price or profit-sharing agreement in which the contractor shares risk and profit with the client. Still, the Holy Grail of nil cost doesn't mean a client isn't paying over the odds for food, so the allegation of inflated into-unit costs is still relevant.

However, Stern reckons three-quarters of clients are now switched on to the existence of purchasing discounts. In his experience, in-house operators charge the lowest food prices and major caterers charge the highest, even though they often use their "purchasing power" as a marketing tool.

The practice of buying goods at one price and invoicing the client with a higher sum still appears to be widespread. But, in the long run, it may not make economic sense. According to Jonathan Doughty, managing director of consultancy Coverpoint, purchasing discounts damage the sales potential of a school or staff restaurant.

"If a raw material is sold into unit at a higher price, it produces a selling price that is unattractive to the customer," he explains. "This results in lower sales, which often results in lower total volumes and therefore lower discounts from the supplier. It's a vicious circle."

Brand also insists that purchasing discounts are bad for the caterer, client, and supplier. But some clients still put up with them, taking a better-the-devil-you-know attitude. "If a company has a catering budget which contains inflated prices for food and it's achieved year after year, it's incredibly difficult for them to believe you can get the same quality, if not better, at a reduced price," he says. With his new company, Brand has again set himself the task of changing such entrenched beliefs.

So will Brand blow the whistle on purchasing discounts all over again and bring contract catering into disrepute? Both Doughty and Stern are pleased the subject has been raised again, but don't think it will have the same impact as 10 years ago when there was much less control over costs.

Doughty wonders whether Brand is in danger of sounding like a stuck record: "I'm surprised Jerry doesn't try something else to herald his return to the industry. It's much more important now to consider the skills of the caterer and their retail ability to sell product and services," he says.

As long as the meal or item is reasonably priced, of good quality and what the guest wants, the price of the raw materials has little relevance, Doughty argues. The raw material goes through many stages before it's turned into the finished product, and those stages have much more impact on the final cost. Stern adds that there's a danger of becoming obsessed with the cheapness of food. "It's short-sighted of clients to focus on cost alone. You're buying a service, not food," he says.

In terms of outlets, Brand is returning to a shrinking market and, in his opinion, this is because some contractors have lost the trust of clients. More than 600 school restaurants and 139 staff restaurants were either closed or taken in-house during 2003, according to the British Hospitality Association. "Caterers, particularly those listed, have got to grow, but there's not much space left. The situation is like guitar strings being overtuned, and off they pop," he remarks.

With the emphasis on purchasing transparency, Brand is confident Host Management will pick up business from his larger rivals. Some caterers won't be overjoyed at his return, but whether you like it or not, Brand is back - with a twang.

The return of jerry brand
When contract catering company Russell & Brand was bought by Marriott for £15.8m in 1996, the company's 39-year-old major shareholder could have decided to not work another day of his life.

A condition of the sale prevented Jerry Brand, who had held a 76% share, from working in contract catering for five years, but he never considered retirement or moving into another industry.

In 1997, he invested a portion of his wealth in commercial and residential property, but also £2.5m in plans for a 100-strong restaurant chain called Orange Balloon. Frustrated with the slow growth of the venture, which stalled at six restaurants, two-and-a-half years later he cut his losses and sold the assets to pizza chain Ask.

Now he has returned to the contract catering market. This year he founded Host Management with £300,000 start-up costs. Host has secured three one-year rolling contracts in the independent education and healthcare sectors with total sales of nearly £1m.

To keep overheads low, Host will have only one office, in Petersfield, Hampshire, and area managers will work from the road and home. One area manager will look after a maximum of 50 contracts. "They'll have a share option and run their territory like their own business," Brand says.

Brand wants to float Host on the Alternative Investment Market within five to 10 years in order to attract high-calibre staff and demonstrate integrity to clients. But he still wants to retain majority ownership, which the City won't like. Why? "There's a little bit of ego there," he says. "After building up Russell & Brand, the name had gone the day after I sold it. I don't have to sell this business."

Instead, he wants to stay at the helm of Host for the next 20 years, unlike his experience with Russell & Brand: "Eight years - zoom, and it's gone," he remembers.

Brand acknowledges he's entering a mature and crowded market, but believes it offers opportunities for any entrepreneur. "You're going to have to be a tough guy to get in. It's a hunting ground," he smiles.

Up Close and PersonalHome: Petersfield, Hampshire
Married: yes - just! I seem to try Marina's patience on a daily basis
Children: Toby, 14, Ollie, 12, and Georgie, nine
Favourite music: not sure, but Commander Cody is pretty cool
Theatre or opera? both, please, and throw in the ballet as well
Free time: golf, aerobics, circuit training, running
Favourite restaurant: Pecuno Mundo in Portugal - for me the best restaurant ever, as they get food, service and ambience right every time
Favourite hotel: haven't got one - I don't like hotels
People who have inspired me: my mother. When I was 16 I failed every O level I took and got suspended from school. I was the complete rebel, but my mother never gave up on me, and I eventually realised that I needed to work for a future. Got five O levels and two A levels and became a prefect. The rest is history, but it could have been different. My father threw me out of the house at 14, so I know where I get my sympathetic genes!
People I admire: anyone who has the guts to believe in themselves and go for it (as long as they're not in my way)
Regrets?Describe yourself in five words: I don't think so, but then hindsight is a wonderful thing
tough, but lovable and loyal

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