Foodservice Management Firms, or FSMs, represent a sizeable share of foodservice purchasing, however they are often not a focus for manufacturers. The lack of understanding how these critical supply chain members operate is a big reason.
Sometimes referred to as “contract” or “managed” operations, these companies run a foodservice program within noncommercial segments, like college & university, business & industry and healthcare. In fact, multiple FSMs may work the same account. For example, Sodexo may run the food court in a college or university, while Compass Group operates the sports facilities.
Foodservice IP (FSIP) estimates that Foodservice Management Firms and associated GPOs account for 60-70% of the spending in the nearly $200 billion non-commercial foodservice business. Companies outside the top-two vendor spot will have little success. A dedicated in-house sales, marketing and finance team is critical to success.
It is important to understand the different purchasing branches within an FSM. FSMs typically have a managed order guide (MOG) that includes products that the corporate entity requires each account to purchase for consistency and cost purposes. These items may include cleaning chemicals, cutlery, disposable packaging, beverages, etc.
The leading FSMs also operate internal buying groups or GPOs that offer discounts on specific branded products and sourcing through traditional distribution with major broadliners often goes through the FSM. For this reason, manufacturer sales teams should be clear when negotiating contact pricing as to whether the SKU is included in the GPO list, as volume can vary significantly.
The leading Foodservice Management Firms are Compass Group, Aramark and Sodexo. Each has an internal buying group or GPO:
- Compass Group → Foodbuy
- Aramark → Avendra
- Sodexo → Entegra
Manufacturers focused on non-commercial segments likely have tactics and historical ideas of how best to work with FSMs. In our experience, however, tactics have proven to be poor substitutes for a strategy. Here are some questions we urge companies to consider when evaluating the attractiveness of non-commercial segments rife with FSMs and GPOs:
- How do client accounts view FSMs?
- What are the benefits and drawbacks of contract management?
- What are the barriers to entry in heavily FSM penetrated segments – B&I and C&U?
- What are the positions and goals of the top FSMs? Is there a strategic fit?
- What individual segment dynamics exist with regard to foodservice management?
Looking for additional insights on Foodservice Management Firms and GPOs? We can help! Contact a FSIP consulting today.