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Aramark: From Soup To Schools To Nuts


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ARAMARK: FROM SOUP TO SCHOOLS TO NUTS

Joe Neubauer is stirring up the food-service giant

Joseph Neubauer didn't know which teams were playing in the Final Four college basketball matchup in March when he strode into a luxury box at New Jersey's Meadowlands arena. What he remembers, vividly, is that the fish sticks weren't hot--a point he made loudly both to his employees, who were handling the catering, and to prospective customers in the box. "I look at the condiments, the quality of the food, the display. Even when I have guests with me, that's what I do," says Neubauer, the longtime chief executive of Aramark Corp. "I'm just a stickler for details, and the business is built on details."

A bit obsessive? No doubt. But playing mother hen is paying off nicely these days for Neubauer. After sputtering in the early 1990s, Aramark, the Philadelphia-based food-service and outsourcing giant, is regaining the momentum that made it one of the more successful management-led leveraged buyouts of the 1980s. Mired for a few years in low single-digit gains, sales are now growing at close to double-digit rates and should total around $6 billion for the year ending in October. Profits are growing, too: In the six months ended in March, Aramark posted a 13.5% rise in net income, to $38.7 million, as sales rose 9.8%, to $3.01 billion. Aramark isn't publicly traded but reports its numbers because it has more than 500 shareholders and has publicly traded debt.

UNIFORMS FOR RENT. Still, Neubauer is far from satisfied. Hungry for higher growth rates than the core food-service business provides, he is pushing the company further into diverse areas, often by acquisition. Along with renting work uniforms, for instance, Aramark sells work clothes and uniforms by direct mail. It also provides doctors and medical support staff to prisons and hospital emergency rooms. Already the nation's No.3 provider of day care, Aramark is now running a couple of private elementary schools. But it has expanded into a few businesses--notably health care and day care--that produce low margins, say analysts, who think Aramark may divest them or sell chunks to the public. Aramark officials won't comment. Says Neubauer: "We are focused on growth."

With all that, Aramark still runs food concessions at some 70 pro sports arenas. And it will feed the athletes at the Summer Olympics, as it has at every Olympics since 1968, making no money but reaping marketing benefits.

Keeping atop Aramark's 14 separate businesses demands a certain compulsiveness, but even staffers find Neubauer's attention to detail remarkable. Duane Larson, president of the Children's World Learning Centers day-care unit, witnessed it when Neubauer visited him recently. The CEO boarded a mobile computer lab--a converted bus called the Dragon Wagon--that Larson is testing. Neubauer knew the coach's purpose and also that it was the third prototype. Says Larson: "I hadn't told him. I don't know where he got that."

FAST TRACK. Winning the top job at Aramark capped a rapid ascent through Corporate America for Neubauer, who was born in Tel Aviv 54 years ago. The son of German refugees who struggled to make ends meet in Israel, Neubauer sailed alone to New York at 14. Barely able to speak English, he traveled to the Boston suburb of Danvers to live with an aunt. "I had my first cup of brewed coffee, my first piece of toast," he recalls, a hint of an accent marking his speech.

Education Americanized him. He attended public high school and did well enough to get into Tufts University. Working his way through as a fraternity waiter, he earned a degree in chemical engineering in 1963. He then went to the University of Chicago's business school on full scholarship for his MBA.

Joining Chase Manhattan Bank as a trainee, he became a vice-president at 27. "It was obvious way the hell back then, in 1965, that he was just one of the fastest analytical minds I ever met," says Anthony P. Terracciano, a Chase colleague who today heads the First Union North unit of First Union Corp., a bank company where Neubauer is a director. Recruited by PepsiCo Inc. as an assistant treasurer in 1971, Neubauer was named treasurer at 30. In 1976, he became senior vice-president and general manager of PepsiCo's Wilson Sporting Goods unit. In 1979, after he was passed over for Wilson's top job, he moved to Aramark, then known as ARA Group Inc., as chief financial officer. Says PepsiCo Chairman Wayne Calloway: "We lost a hell of a good guy."

At ARA, Neubauer again rose rapidly, becoming CEO in 1983. Soon after, the company was threatened by a takeover attempt. In 1984, Neubauer took the company private, leading his top 60 managers through one of the first major LBOs. Each manager put up a hefty amount--most borrowed--to buy stock at $350 a share. Institutional holders joined in. Although he won't say how much he borrowed, Neubauer says that he would have spent the rest of his life in debt if ARA failed.

For Neubauer and the insiders, though, the rewards have been stunning. Aramark's net income has grown from about $6 million on $3.5 billion in sales in 1984 to $100 million on $5.6 billion in sales last year. Its debt tips the scales at $1.3 billion--better than 80% of capital. But that's not a concern, says Neubauer, as long as the company grows and its internal stock values rise. So far that hasn't been a problem. Aramark's internal stock, now spread among some 1,500 managers who together hold about 76% of the company, has split several times. A share worth $350 in 1984 would be worth $6,416 today. Neubauer says at least 100 managers have been made millionaires. His own 12% stake--about 5 million shares--is worth more than $80 million. With that, his $1.47 million salary is just gravy. Says Neubauer: "The board has been very fair with me."

GIVING BACK. America has been more than fair, says Neubauer, a citizen since 1966. "I appreciate everything this country is about," he says. To give back, he serves on numerous nonprofit boards, one of which cost him dearly: He was volunteer chairman of the Philadelphia Orchestra when it lost hundreds of thousands of dollars to the New Era charity fundraising scam. Neubauer pledged to donate up to $750,000 of his own money to keep the orchestra solvent--though he expects to pay less as funds are recovered from New Era in bankruptcy court. Personally, he lost another "couple hundred thousand dollars" investing with New Era to raise more charitable money.

Today at Aramark, Neubauer's challenge is to keep the gains coming. With global outfits such as Britain's Compass Group PLC and France's Sodexho on the march in the U.S., the job is getting tougher. Last year, Compass' Eurest unit won a $55 million-a-year employee-dining contract from IBM. Neubauer says Aramark found the deal "uneconomical" and opted not to bid. More recently, Compass wrested the contract to feed inmates in Kansas prisons from Aramark. Aramark has also taken business from Compass, including the $10 million-a-year Chase Manhattan Bank account.

After a dozen years in the top job, Neubauer seems in no hurry to leave Aramark. Asked if he plans to stay forever, he allows that "forever's a long time." Companies such as PepsiCo might be fun to run, he hints, diplomatically noting that Pepsi has a CEO. For now, as big contracts switch back and forth and margin pressure grows, keeping far-ranging Aramark on track seems job enough. A business, too, can grow cold if it's not closely tended.By Joseph Weber in PhiladelphiaReturn to top


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