Retail success in hospitals

01 August 2014
Retail success in hospitals

Outpatients, visitors and even staff are a huge retail opportunity for caterers. So how are they maximising this revenue stream? Rosalind Mullen reports

Walk into most hospitals nowadays and you're likely to see a Costa, a post office, a Marks & Spencer and a WHSmith. There's a lot more to healthcare catering than feeding patients. And it's no wonder. The potential annual retail revenue from hospitals is estimated at £2b-£3b a year. This is the revenue that an be garnered from visitors, staff and outpatients who want to grab a bite or a coffee or pick up necessities for a patient.

Some commercial enterprises have been bolder. In 1994, Nottingham City Hospital set up the first purpose-built hotel on-site with 52 bedrooms. Guests are either recuperating hospital patients who need daily treatment, relatives of patients, or delegates on hospital business. Patients or visitors pay £25 a night, while delegates pay £50.

On the whole, though, the focus is on developing retail concepts, with both in-house operators and foodservice contractors trying to anticipate the needs of hospital visitors and staff. Typically, the NHS trust concentrates on medical services, while everything else, from portering to catering, is looked after by either
consortium or a facilities management firm.

Simon Scrivens, managing director of healthcare at facilities services company Sodexo, explains: "It's not about us maximising revenue for ourselves; it's about us doing it for our clients."

Brand toolbox
Sodexo, which mainly operates concessions contracts, has developed a toolbox of brands so that it can offer the right consumer proposition for each hospital and its footfall. It uses its own brands as well as franchise partners, such as WHSmith, M&S and Costa.

"There are lots of options to get to the revenue from patients, visitors and staff. The concession model we operate is probably the right way of doing things and encourages us to be transparent with our clients," says Scrivens.

Sodexo has a substantial chunk of the healthcare business, of which about 10% of revenue comes from retail. Scrivens says the division is seeing like-for-like growth in retail of more than 12% and has done for the past three or four years.

Compass is another big player in healthcare, with its retail operation delivering about £90m in turnover a year.

"The momentum behind growth within healthcare retail shows no signs of slowing down and we have a number of new contracts scheduled to go live later in the year,"says Andrew Jones, retail director for healthcare at Compass Group UK & Ireland. "Across our healthcare business, our retail operations provide a strong economic stimulus for both the NHS and local communities."

The key to retail success in hospitals is in understanding the consumer. Hospital visits can obviously be stressful, so providing a familiar reference point in a sometimes unfamiliar environment is important. That's why operators tend to bring in high-street franchise partners alongside their own brands.

Compass, for instance, works with the likes of Costa and M&S. Convenience is also crucial, as busy hospital staff, who can't get off campus at lunch, want grab-and-go food and drink.

It's not just about the high street, though, says Andy Jones, national chair of the Hospital Caterers Association: "I know of many in-house restaurants that have taken retail ideas and built their own successful concepts. Bristol's new superhospital has done this to great effect. NHS Scotland has developed a coffee shop brand, Aroma, as has Nottingham with its Coffee City concept."

Nevertheless, Jones says hospitals increasingly outsource the retail side separately from the patients: "The trend is to link it to a refurbishment of, say, the main reception and fund it by offering retail space, which is then taken by, for example, McColls Spar, Boots, Costa, Subway, Greggs and M&S."

Scrivens, however, reckons that it is more efficient for healthcare caterers to run both sides "because behind the scenes the caterers are often (though not always) integrating patient dining and retail".

He adds: "It's much harder to run retail as a standalone business in a hospital, particularly since hospital space is much more expensive than traditional commercial space on the high street."

The best brands
As space in hospital buildings is committed to medicine, Sodexo sometimes adds new-build to house its retail outlets. He says investment is significant - often more than £1m - and typically it operates on a fixed concession fee with gains on revenue above a certain amount. So, what does the future hold? "I think getting to that £2b-£3b a year is the opportunity, and figuring out the best brands for consumers," says Scrivens.

Indeed, the opportunity in the healthcare sector covers more than just hospitals. "There shouldn't be a coffee shop in every GP surgery," says Scrivens. "But if you look at urgent care centres and so on, the ability to help provide revenues should not be ignored."

Certainly, healthcare retail is an area that has seen significant investment over the past few years and it will undoubtedly grow further. Jones at Compass says: "Visitors and staff increasingly want and expect access to a range of high street brands, and NHS trusts are seeing the financial and consumer benefits of a strong retail proposition at their sites."

Should hospital retail outlets mimic the high street?
Andy Jones, national chair of the Hospital Caterers Association (HCA), reminds us that hospitals are not the high street. He believes these retail initiatives should be more conscious of the environment they operate in.

"Trusts need to make the contracts robust to ensure that healthy eating is truly offered. I question the government's stance when they talk about wanting
change, but they allow the Subways and Burger Kings to be in the NHS," he says.

He adds that the HCA believes in offering choice, but would prefer offers to be balanced. "Do we need to offer duo bars of chocolate when, if customers want to eat two bars, they will buy two? And the same has to be said for shops. Do we really have to see large packets of biscuits and crisps, when small packets will suffice?" asks Jones.

Simon Scrivens, managing director of healthcare at Sodexo, reckons on-site operators shouldn't differentiate themselves from the high street, but concedes
that hospitals are a different marketplace.

"The high street is a competitive place and the brands that succeed there will also succeed in hospitals. Of course, not all brands are appropriate for hospitals,
since we don't sell, for example, alcohol or tobacco, so we need to be a selective."

What's new at Compass?

Compass has significantly grown its portfolio of contracts in the healthcare retail market in recent years, developing a mix of own-brand and partner franchises.

Its healthcare retail estate consists of more than 50 full Costa franchises, a growing number of M&S Simply Food stores, 38 own-brand Amigo convenience stores and other Compass-branded outlets, such as Delimarche, Spice of Life, the Baguette Company and Mondo Subs.

Compass's retail director for healthcare, Andrew Jones, believes the combination of own-brand and high street brands works well: "Key to success is ensuring your own-brand propositions match the environment you're in and that the offers are tailored to the audience. For example, our own-brand convenience store Amigo has worked well in the healthcare environment, providing a one-stop-shop for snacks, drinks, toiletries, cards and stationery."

Compass tries to ensure its hospital retail outlets stay on par with the high street. For instance, it has Wi-Fi in most of its Costas and has started to introduce
mobile contactless loyalty vouchers through a system called Glow. In addition, it is piloting remote ordering technology.

"Innovation is, of course, not just about technology," says Jones. "Our healthcare retail team now benefits from tailored training, enabling us to ensure our people have the skills and tools to deliver a first-class retail experience to our healthcare customers."

Looking ahead - Sodexo

Brands, brands, brands. According to Simon Scrivens, managing director of healthcare at Sodexo, that is what consumers want - even when visiting relatives
in hospital.

"They also want ease of use - from coffee to convenience foods, to restaurants to c-store-type activities," he adds.

"Most of the innovation is in bringing the high street into hospitals and that's where it'll continue. This gives consumers what they're familiar with. The aim is to persuade hospitals to contract or subcontract retail operations. Some hospitals operate retail themselves, but the majority don't have the expertise to make the most of it."

In an ever-more competitive market, Sodexo is bringing in banking and is now looking to introduce units where mail order companies, such as Amazon, can deliver.

"This kind of drop-off facility would make it easier for staff at the site to take deliveries in work time," says Scrivens.

Though it is too early to discuss details, these timesaving ideas will appeal to hospital staff who cannot get off campus easily and are likely to gather momentum.

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