IBM food deal bucks industry trend

23 March 2000
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23 March 2000 | Elizabeth Bellamy

A £1 billion deal signed by American IT heavyweight IBM with a British caterer has bucked industry trends.

The contract for food and vending machines was awarded to Compass this month after a round of renegotiations. The deal will see the catering company, which previously had a five-year contract over 34 sites, serve 100,000 staff at 64 of IBM's North American locations.

The catering company has described the contract as "evergreen", and reports suggest the deal will run for 30 years. A spokesperson would not confirm this, but Gary Green, the company's chief executive, has said the deal was the largest contract renewal the group had ever signed. No one at IBM was available for comment.

The deal goes against industry trends, said Phil Hooper, sales and marketing director at rival caterer Sodexho. "Large companies are moving away from longer-term arrangements towards three to five-year contracts," he said. While Sodexho holds a number of 25-year contracts with public sector clients in the UK, Hooper said it was unusual to see such a long-term deal in the private sector.

Most catering contracts lasted for up to seven years, said a spokesman for the British Hospitality Association (BHA). Ten years was considered "quite long" and 15 years was the maximum. "IBM and Compass must have huge confidence in each other."

IBM would need to make sure Compass was "flexible and willing to change" during the deal, said Linda Barnes, operations procurement manager at the New Millennium Experience Company. Barnes, who controls an annual catering budget of more than £17 million, said that buyers needed to make sure their suppliers were customer focused and willing to adapt to the changing needs of market during the contract. "This is a major long-term partnership," she said.

The IBM-Compass deal is on a concessionary basis, whereby Compass pays IBM a percentage of its sales. In the industry, said Barnes, the average figure for such arrangements was between 10 per cent and 15 per cent.

This type of contract would become more widespread in the future, as companies stopped subsidised meals in an effort to cut costs, said the BHA spokesman.

The BHA's Contract Catering Survey 2000, published in February, found that 32 per cent of contracts are signed under a cost-plus basis, where the buyers of the catering services pay all costs plus a management fee.

The survey also found that 52 per cent of contracts are fixed price, where the caterer works to the buyer's budget and all profits go to the caterer.

SMmar2000

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