Compass Group Marketing Strategy Case Research Proposal

Excerpt from Research Proposal :

There is also the threat that given the significant inefficiencies in Compass Group that the risks of currency fluctuations could become very significant over time, especially as the dollar loses value and yet suppliers and logistics networks must be paid in this currency. Simply put, the price of food and the costs of running a global supply chain in perishable goods is exorbitant when currency fluctuations are also taken into account (Buzalka 2005, 46,48). To date there does not appear to be any benchmarking of sourcing, procurement, labor or inventory carrying and obsolescence costs, all factors that are major threat to Compass Group operating throughout North America and in the UK. All of these risks are in addition to the acute financial condition the company finds itself in during this period, with Net Current Assets as a Percentage of Total Assets (Table 1) negative throughout the five-year periods. This is a strategic threat and one the company responds to by issuing more debt, with bonds payable in the 2009 and 2010, each year owing £600M. The company is borrowing from its future to gain funds to survive this period in their history.

Strategy Recommendations

In the North American, UK, Continental Europe and Rest of World (RoW) regions, there are specific strategies Compass can pursue to nurture and sustain customer retention yet also achieve organic growth. First and foremost the inefficiencies of the supply chain, sourcing, procurement and logistics need to be addressed through cost reduction strategies and thorough business process analysis to determine why, with 56 inventory turns a year, Compass Group is still delivering only a 1.59% Return on Assets (ROA) and very low liquidity. What is needed is a thorough evaluation of these centralized functions first, and second, a thorough cost reduction strategy to alleviate the liquidity drain on the company. These two steps, at the strategic level, are essential for the company to gain control over their viability. In conjunction with these measures, Compass Group must get in control over the logistics of their sectors as this could also be contributing to the exceptionally low levels of liquidity and financial strength of the company. After these steps are completed there needs to be a thorough knowledge management strategy put into place to capture the lessons learned

Teare, Rayner. 2002, 354-360). From this knowledgebase, best practices at the process level can be turned into a transferable competitive advantage that Compass can capitalize on for years to come. These steps of first determining where the wasted resources are in their supply chain and internal processes, making the appropriate reductions in overlapping processes and if necessary staff, and then capturing this knowledge is necessary for Compass to be able to execute on the following strategies by region.

Beginning with the North America market, the greatest potential is in the Defense, Offshore and Remote business, followed by Travel Concessions, then Sports & Leisure and healthcare. The catalyst of the growth strategy within the North American market must get centered back on contract catering and support services first by streamlining the supporting supply chain, procurement and sourcing strategies supporting this area of North American operations. The development of Contract Catering needs to be spearheaded with aggressive development of additional Defence Offshore and Remote contacts will working diligently to sustain and grow customer retention in this critical vertical. Likewise in the Sports & Leisure and Healthcare markets, there is significant growth potential in each of these sectors as well. First streamlining the underlying systems and processes that support these key sectors is critical, followed by targeted nurturing and business development strategies to gain the greatest potential increase in customer retention. The travel concession business, clearly unprofitable in Europe, needs to be evaluated in North America given its turnover in the past.

In the UK, the majority of customer retention is within the Defense Offshore & Remote sector, followed by the Business & Industry sector, the relatively low contributions of Travel Concessions make this business both in the UK and within Europe as a candidate for selling off. Intuitively speaking the inherent logistics in managing travel concessions make this an expensive business to sustain and grow, and given the supply chain inefficiencies uncovered through financial analysis, this specific business needs to be evaluated for selling off. What is most critical as a strategy for Compass in the UK is to strengthen its contract business in the vending, Defence, Offshore and Remote sectors is critical. Compass needs to consider making more competitive terms in their contracts, specifically concentrating on Service Level Agreements (SLAs) and the development of more transparency and visibility into their service and support processes for these critical customers. Organic growth needs to be driven through the offering of new services and the electronic enablement of its supply chain, again underscoring the need for creating a more efficient and cost-effective supply chain, procurement, sourcing and logistics function. All of these factors need to be taken into account to make Compass more agile, responsive and accountable to their most critical customer bases in the UK, to ensure they continue to earn their business.

In Continental Europe where Compass is facing significant challenges in its core businesses including Defence, offshore & Remote which has been troubled with a lack of new contracts and Business & Industry also having negative to flat growth, the priority needs to be on creating new contracts in Sports & Leisure and Healthcare. Travel Concessions has delivered a high turnover yet is a difficult business to operate given logistical challenges throughout Europe and is potentially one of the sectors taking an inordinately high level of financial resources to run. Sports and Leisure is the sector delivering the greatest turnover, yet it is by nature a cyclical and often unstable market. Additional business development strategies and programs need to be put into place to nurture and grow existing customer sales in this sector while looking at customer reference-based strategies for increasing new or organic growth.

In the Rest of the World (RoW) geography segment, healthcare is the sector with the highest turnover followed by Business & Industry with Defence, Offshore & Remote and Education having positive turnover as well. Travel Concessions in this geographic has been a costly business to operate, delivering negative turnover. This illustrates the point made earlier of Travel Concessions being an inordinate drain on the financial and operational sources of the organization. The strategy in the RoW geography needs to first build a vertical marketing organization that can penetrate the healthcare markets of specific nations and gain new business rapidly, as this sector is growing rapidly. Second, the Business & Industry sector needs to have a more concentrated focus on multicultural sales and business development teams to understand unmet needs and tailor contracts to fit the unique requirements of these markets. Third, the development of Defence, Offshore & Remote needs to be completed using reference accounts from North America and the UK, two geographies where Compass has a strong presence in. The use of customer referenceability is going to be powerful strategy in the RoW sector due to the credibility and expertise that will connote for Compass in gaining new accounts. There is also the need for defining SLAs that are applicable to the needs of new and existing customers in this geography.

While the strategies for Compass across all four regions vary significantly, there is are the critical strategic needs of getting a more efficient supply chain, procurement, purchasing and logistics system in place, alleviating duplicated processes and most likely, duplicated departments in the process. If executed well this could trim expenses and streamline processes far enough to ensure their viability without bond-based debt for the future. As Contract Catering and Support Services is a core functional area, Compass needs to invest more heavily in this area, looking restruct5ing this business to make it more agile and able of competing globally. Today given the financial analysis completed it is a reasonable assumption that Contract Catering and Support Services can be made significantly more efficient. Second, Compass needs to sell the European Travel Concessions business as it is not delivering an acceptable level of turnover in the period of this analysis. Over and above all these recommendations there is the urgent need for the strategic plan of the company to encompass all sectors strategies to alleviate the maverick behavior that led to the bribery at the UN. In addition, the company needs to create the role of Chief Governance Officer and initiate a governance, risk and compliance strategic plan that has an audit of ethics training for everyone in the organization. Ethics needs to be turned from a weakness to a strength as any more of these lapses could irreparably harm the core business model of the company, its contract business.


Table 1: Compass Group PLC Ratio Analysis

Profitability Ratios

ROA % (Net)

ROE % (Net)

ROI % (Operating)

EBITDA Margin %

Calculated Tax Rate %


Sources Used in Document:


Amanda Afiya 2005. Time for Compass to confront its demons. Caterer & Hotelkeeper, November 24, 5. (Accessed July 21, 2008).

Tom Bill 2005. Compass in UN probe over £35m contract. Caterer & Hotelkeeper, October 20, 14. (Accessed July 23, 2008).

Tom Bill 2005a. Compass division suspended by UN. Caterer & Hotelkeeper, October 27, 7. (Accessed July 20, 2008).

Mike Buzalka 2005. GLOBE TROTTING! Food Management, October 1, 46,48,50,52,54,92. (Accessed July 25, 2008).

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