A review of the Foodservice supply chain for the PRC

Ian Finlayson, Practical Solutions International Ltd

09 March 2004

Objectives
Study the different distribution flows and determine the proportion of sales value/ volume via the different food sectors in the UK Understand the product flows from field to plate for the different sectors, and identify potential points at which the product could be sampled Investigate alternative sampling methods for different sectors Design an ideal world sampling programme Highlight any potential changes in purchasing patterns or distribution in the industry The primary focus of the report is fruit and vegetables, but also identifies if the distribution routes of other products are different.

Background
The current PRC survey tests c.4000 products. It is largely a shopping basket survey with samples collected at retail and wholesale level. The survey collects samples from 24 cities throughout the UK, but often these are supplied from common distribution centres and as such the overall coverage of the survey is not enhanced. Some recent changes have involved sampling from distribution centres and ports (using the HMI), potato processors (using PHI) and take-away restaurants e.g. the survey of fish and chips. However, the survey still largely concentrates on purchases of food from multiple retailers with up to 95% of samples from this origin in recent surveys. (The market share of multiples for fresh produce is 57%)1. The PRCs objective is to monitor the whole of the nations food supply for pesticide residues, and as such should include all major supply routes including foodservice.

Method
To gain a good overview of the sector and establish an accurate picture, interviews were conducted with foodservice providers, industry associations, academic institutions and government. These are listed in appendix 1. There is no single source of accurate data for the foodservice sector encompassing the full range of providers. There is also inconsistency in definition, for example, when a pub becomes a restaurant or how to define food sold at a retailer at their in-store caf. A range of data sources are used in this report and they give similar although not identical results.

Structure of the foodservice sector

The foodservice sector is split into Profit sectors ie restaurants, takeaways, pubs, hotels, leisure Cost sectors ie staff catering, health care, education and other services.

Examples of major companies within each foodservice sector Table 1

Restaurants FF/Cafs/Takeaways Hotels City Centre Restaurants, Conran, Pizza Hut, Pizza Express, Whitbread, Tragus Holdings McDonalds's, Burger King, KFC, Wimpy, Starbucks Whitbread, Thistle, Queens Moat House, Greene King, Greenalls, Ramada, Hilton, InterContinental Hotels Group, Macdonald Hotels, Best Western Hotels Mitchells and Butlers, Punch Group, Pubmaster, Nomura, Spirit Group and Laurel P&O, Servair, Alpha First Leisure, Six Continents, Sodexho, Luminar Compass, Aramark, Sodexho National Health Service, Compass, Sodexho Compass, Sodexho Compass, Aramark, Sodexho

Pubs Travel Leisure Staff Catering Health Care Education Services/Welfare

UK foodservice market overview, IGD 8/02 (updated for this report) Examples of large companies in the UK in the profit sector are: Whitbread (which includes Beefeater, Brewers Fayre, Brewsters, Costa, TGI Friday, Pizza Hut, Marriott, Travel Inn, David Lloyd Leisure), Yum! Brands (which include KFC, Pizza Hut), McDonalds, Burger King, Tragus Holdings (which include Cafe Rouge, Bella Pasta, Mamma Amalfi, Abbaye, Leadenhall Wine Bar and Oriel brands) The four largest cost sector foodservice companies in the UK are: Compass Group (includes companies like Eurest, Quadrant, Leith's, Scolarest, Medirest, Moto, RailGourmet) Sodexho, Aramark UK and Avenance (part of the Elior Group).

The relative proportion of numbers of meals sold in the different sectors Diagram 1
Relative proportion of food service meals

3% 14%

8%

Restaurants Quick Service 23% Pubs Hotels Leisure Staff Catering Health Care

12%

13% 6% 8%

13%

Education Services

UK foodservice market overview, IGD 8/02 This diagram shows the significant proportion of quick service (take-away) meals eaten in this country. If the intention is to sample for residues at the point of consumption, this information could be used to assign relative proportions. The characteristics of each sector are different and relevant when considering questions of sampling-- the profit sector in general has higher mark-up and uses more costly foods, and the cost sector as the name suggests will tend to be the reverse. The table below illustrates the volume vs. value differences well.

Market segments and their value 2001 Table 2

No. of Outlets Million Meals
% of the total meals sold

Food Purchase m 1,327.50

% of total food purchase

Food Sales m 4,557.30

% of total food sales

Restaurants Quick Service Pubs Hotels Leisure Staff Catering Health Care Education Services TOTAL

25,474 29,050 51,595 48,276 18,725 20,874 30,682 34,515 3,064 262,255

680.4 8% 1,873.60 1,061.50 653.9 537.8 1,080.10 1,042.00 12% 1,196.10 227.8 8,353.30 14% 3% 22% 13% 8% 6% 13%

16% 1,954.10 1,104.50 1,270.20 569.9 927.2 596.4 7% 609.6 150.3 8,509.80 7% 2% 609.6 150.3 22,890.80 23% 13% 15% 7% 11% 596.4 6,029.70 3,186.30 4,761.80 2,072.10 927.2

20% 26% 14% 21% 9% 4% 3% 3% 1%

UK foodservice market overview, IGD 8/02 (percentages included for this report) The restaurant sector represents 8% of meals sold, but 20% of the food sales value. Taking the sales value in isolation does not give a true picture of the consumption of food via each sector. In developing a sampling regime for pesticide residues which takes account of consumer exposure to pesticides, the number of meals consumed appears to be the best indicator with the information available. These figures can be used for comparison between the different parts of the foodservice sector. Comparison of foodservice and retail sales It is necessary to understand the relative size of the foodservice sector to retail so that proportions can be assigned to a sampling plan. Unfortunately figures are not available for the number of meals sold via retail, and some food would be consumed as snacks. Comparison of sales and purchase values are available and shown in the table below. Comparison of sales and purchase values at different stages of the supply chain Table 3 Retail bn Foodservice Total % of value bn represented by foodservice At selling 49 25 74 34 prices At purchase 34 9 43 21 prices Factory/ farm 32 6 38 16 gate prices Trends and Statistics 2003 British Hospitality Association

Some of these differences can be explained by distribution costs and profit margins in different sectors. However, the very wide variation should be noted. From the perspective of consumption (or exposure to pesticide residues) purchase prices are likely to be the best indicator for comparison between sectors as these negate the effects of potentially lower prices paid by foodservice for raw materials, and are an approximate mid-point value. The DEFRA National Food Survey in 2000 is reasonably in agreement with these figures showing 29.4% of food consumed was eaten outside the home (by value). Comparison between retail and foodservice sales for fresh produce The picture for fresh produce is similar. At sales value levels 57% is sold via multiple retailers, 11% wholesale market, and 32% foodservice1. A proportion of the wholesale trade will be sold via independent retailers, and a proportion will be sold to delivered wholesalers for foodservice. A proportion of the foodservice sector would be sampled via the current sampling plan at wholesale market level.

Supply chain of food from field to plate

A simplified supply chain from the farmer to the plate would be as follows:
Farmer/ manufacturer

Foodservice supplier

Foodservice operator

Customer

Diagram 2 Examples of foodservice operators are listed above in table 1. The foodservice suppliers act as distributors, wholesalers and/or retailers. Some companies have an integrated supply chain operating at a manufacturing, distribution and foodservice operator level. This is an exception, but demonstrates there are many diverse routes from farmer/ manufacturer to the caterer. A breakdown of the foodservice suppliers is shown below:

Diagram 3
Food service suppliers 6% 19% 13%
Brakes

12%

3663 Delivered trade Cash n Carry Direct Other

8%

42%

UK foodservice market overview, IGD 8/02 (updated for this report) Brakes and 3663 are the two largest foodservice suppliers in the UK. Together they represent 25% of the supply side. Direct sales include direct from the manufacturer and contract distribution, and Other is comprised mainly of purchases from other retail outlets or wholesalers. The Cash and Carry sector (e.g. Booker, Makro, Bestway, and Batleys) is used extensively by small owner-manager restaurant businesses. The delivered trade operators (besides 3663 and Brakes) are other companies like Whitbread, Cearns and Brown, Glanbia Foodservice, DBC Foodservice, Woodward Foodservice, Watson and Philip. The foodservice supply chain in diagram 2 above is very much a simplified version. A more complete diagram is shown below:

The various routes of supply to foodservice

Source: IGD Supplier opportunities in Foodservice March 2003 This illustrates the complex distribution routes to the foodservice operator. The diagram includes retail which would be primarily be sales via multiples which may also have some role in supplying foodservice operators in a similar fashion to cash and carry companies. The contract distribution companies include 3663, Brakes, Wincanton, Hays and Gist. An ideal residue testing sampling plan The diagrams and tables above show the complexity of foodservice outlets from schools to airports, from restaurants to motorway services. Sampling at the point of sale, due to the number of outlets and the relatively small quantities which may be available, is not a feasible option. Sampling at the point of production, whether at farm or factory level, will require visits to numerous sites and will add complexity to the process. During the course of interviews, it was also established that the sources of supply are not always the same as that of multiple retailers. Therefore the current sampling plan will not include some sources of supply to UK consumers. Sampling is best completed at the foodservice supplier level where larger quantities of food are distributed across the UK. The depots of the wholesaler or contract distributor and at the cash and carry retail outlets provide ideal centres for collection of samples. At these points there will also be wider selection of products available. Foodservice represents 16% of UK food value at factory/ farm gate prices, 21% of UK food at purchase prices and 34% of UK food at selling prices (see table 3 above).

As suggested above, the mid-point figure of 21% of purchase value on balance reflects the proportion of the foodservice sector in the UK and should be used as the proportion of tests in the PRC programme. This would represent 840 samples from the foodservice sector (based on the current sample numbers of 4000). Twenty-one percent tests should be spread across the foodservice supply shown in diagram 3. Sampling methods for the different sectors Delivered trade is best sampled from their depots. Often certain depots are dedicated to fresh produce. Frozen and processed foods will be supplied through a larger number of depots. Cash and carry outlets can be sampled using the shoppers employed by the existing PRC survey. Direct delivery includes direct deliveries from manufacturer and also contract distribution. Sampling at manufacturers sites will be difficult to obtain due to their number and geographic spread. Contract distribution samples are likely to be available from their depots. In some cases these may be the same as those of the delivered trade (above) run by companies like Brakes and 3663. Other sector will be picked up by the current system of sampling of retail stores and wholesale markets. Sampling from Cash and carry outlets could start this year. Sampling from other outlets will be more complicated and will require more planning. The next steps would be: 1. Identify representative distribution depots for the sectors identified (could consider primary focus on fresh produce initially). Compass, Brakes and Avenance have one or two main depots for fresh/ prepared produce. 2. Discuss with EHOs the collection of samples from distribution depots and creation of an overall plan. Trends in the foodservice sector The latest market figures show the foodservice sector growing at 4% per annum3. The profit sector represents a more discretionary spend, and is likely to be held back if any recession occurs. In specific sectors growth rates vary greatly with the company e.g. restaurants growth is between 3 and 9% per anum3. If the trends in the States are reflected in the UK the proportion of foodservice sales to retail sales will grow. In the States, more money is now spent in foodservice sectors than in retail. Based on UK figures if the sector shows consistent growth foodservice sales would equal retail sales in the year 2035 5. Other trends within the foodservice sector are a move to casual, all day snacking, and a decline in the number of plated meals with more snack meals replacing them4.

Summary Foodservice is a term which describes a very diverse and complex sector. Certain companies have an integrated supply chain capable of manufacturing, distributing and selling food to the consumer. This is quite rare, and the majority of companies operate in just one part of the chain. The easiest point in the supply chain to obtain samples for residue testing would be at the distribution depots, wholesale markets and cash and carry stores. Between them the majority of the foodservice sector can be tested in this way. Collection from distribution depot is likely to have to be by Environmental Health Officers. Wholesale markets samples can be collected by HMI and Cash and Carry stores by current retail shoppers. Based on the figures studied it is proposed the foodservice market is based on the purchase value it represents relative to retail. This represents 21% of food and this should be reflected in the number of pesticide residue tests completed by the PRC (equates to c.840/annum) Other considerations The findings of this report should be considered more widely for other surveys completed on food in the UK e.g. FSA Should the foodservice sector have a representative on the PRC?

Appendix 1 Associations British Hospitality Association Fresh Produce Association Institute of Grocery Distribution Food and Drink Federation Beer and Pub Association British Institute of Innkeeping Companies Brakes Compass Sodexho Avenance KFC Pizza Hut Redbridge Caterfresh Universities Imperial College London, Food Chain Research Centre Reading University Government DEFRA statistics branch Food Standards Agency Pesticide Safety Directorate Pesticide Residue Committee Bibliography 1. FPC handbook 2003 & FPC market review 2002. Peterborough, UK: FPC, 2003 2. UK foodservice market overview (IGD Fact sheet). Available on the website: IGD, August 2002 3. Supplier opportunities in Foodservice. London, UK: IGD, March 2003 4. Food and Service Management Survey 2003. London, UK: British Hospitality Association, 2003 5. British Hospitality Association- Trends and Statistics 2003. London, UK: BHA, August 2003