As growth in its core catering business slows, Sodexo (SW) is helping oil rig workers stay fit and convicts get in touch with their inner artist as it seeks a bigger share of life outside the kitchen.
Better known for operating office canteens and cleaning college campuses, the world’s second-biggest caterer is expanding into prison management, office maintenance, and concierge services such as booking hair appointments.
Those initiatives are aimed at making up for slowing growth as the company last month reported a slide in first-half earnings and cut its full-year profit forecast, sending its shares down 10 percent.
“The business is evolving and clients are looking more and more for an end-to-end solution” that encompasses services beyond food, said Lindsay Tocher, chief operating officer of Sodexo’s offshore business unit, which assists energy companies.
Founded by Chairman Pierre Bellon as a catering and river cruise company in 1966, Sodexo last year generated revenue of $18.2 billion serving food and providing other services to clients such as the U.S. Marine Corps, the International Monetary Fund and Exxon Mobil Corp. (XOM:US)
Based in the Paris suburb of Issy-les-Moulineaux, Sodexo says slowing demand for traditional catering services across Europe means it needs to tap a greater share of what it sees as an 800 billion-euro ($1 trillion) global services market.
The shift away from catering goes far beyond related services like emptying waste bins or cleaning conference rooms. The company last year got 26 percent of revenue from teams that carry out hundreds of tasks ranging from sterilizing medical equipment to parking cars. That’s up from 18 percent in 2005 and compares with the 25 percent of sales that larger rival Compass Group Plc gets from “support and multi services.” About half of that amount is food-based, according to Compass.
Providing what Tocher calls a more “holistic” range of services has helped Sodexo win contracts with companies including Unilever, (UNA) for which it does things like maintaining printers, buying furniture and booking conference rooms in addition to catering and cleaning.
Still, Sodexo hasn’t entirely persuaded investors the strategy is worth buying into. Its shares have risen 17 percent in the past year, trailing Compass’s 45 percent gain.
“The market isn’t according any additional valuation premium for their expansion outside catering,” said James Wheatcroft, an analyst at Jefferies International.
Wheatcroft has a hold recommendation on Sodexo’s shares, noting that Sodexo’s operating margin in the last fiscal year was 5.3 percent of sales, while Compass’s was 6.9 percent. The new services, he said, won’t likely change that since they tend to be less profitable than catering.
“The core of Sodexo’s business,” said Mike Gibbs, an analyst at JPMorgan Chase & Co. in London, “is still food service.” Gibbs has a neutral recommendation on Sodexo.
Offering new services, though, may offer greater growth, according to Richard Cope, a director at researcher Mintel.
“We’ve already got fewer boundaries between our private and working lives thanks to technology,” Cope said. “People are used to having work extend its tendrils into home time.”
At many of the 120 prisons in seven countries where it provides meals, Sodexo has added services such as health care and vocational training for inmates. Its Reflex program in the U.K. helps convicts learn to be more social, with art classes, plays and writing courses. It even helps some incarcerated artists sell their work online.
One unit, called Circles, provides personal concierge services for employees of client companies, such as booking hair appointments, hiring plumbers, and ordering flowers. Sodexo won’t say how much it charges for the service, but says its staffers can answer the phone and help with logistical minutiae of life to keep workers focused on the job.
Sodexo this year is adding a program named WellTrack, developed with client Dolphin Energy to help North Sea rig workers lead healthier lives. Employees can work with a personal trainer to set goals and exercise regimes, and log their progress online.
They’re given incentives to keep up the work both on the rig and at home with a special watch, which beeps to remind them when they should be hitting the treadmill even when they’re not sequestered miles offshore. Employees who hit their goals are rewarded with concierge services supplied by Circles.
“When you’ve gone to the effort to attract, hire and train someone, you don’t want to lose them over softer issues,” said John Breed, spokesman for offshore drilling contractor Noble Corp. (NE:US), a Sodexo customer. “If you’re on a rig, you can’t just get in your car and drive to the mall or the gym.”
WellTrack shows how Sodexo can gain business by using its prowess in one skill to suggest to clients they could be missing out on other areas of expertise. Giving workers on rigs rewards through its concierge unit, for instance, helps the company highlight the range of services it offers.
“There are more areas for cross-selling,” Tocher said by phone from a rig support base off the coast of Brazil where he was visiting clients. “Using concierge services in your day-to-day life is something not necessarily embedded in the psyche of people in the U.K. yet.”
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