The leisure industry covers more than a dozen sectors from hotels and restaurants to travel, tourism, and health and fitness. In the UK alone, there are almost 150,000 leisure establishments, two-thirds of which are pubs, bars and restaurants. The sector is dominated by small businesses, which account for three out of four companies. Employers with more than 250 staff account for only 1 per cent of all enterprises but almost a half of the sector’s workforce.
This highly fragmented structure has led to some interesting and unusual characteristics, and as with all things unusual, there is often something that other sectors can learn from it. In particular, compared with say, retail, where business is dominated by a few large players, the leisure sector’s supply chains have had to remain largely wholesale-based and been forced to modernise and mature in this environment.
But it’s not only ownership that drives the need for flexibility. The customer’s hunger for individuality is still very strong, and this makes the traditional buyer’s habits of rationalising and standardising much more difficult. And the sector is packed with staff who are specialists, all of whom have strong views on what their customers require. Chefs, sommeliers, housekeepers, cocktail barmen and women, spa managers, banqueting managers, maintenance directors, IT chiefs and restaurant managers all add to the complexity of getting an accurate measure of, first, what the customer really needs, and second, making sure that supply arrangements stick.
So what can the rest of the purchasing world learn from all of this? Some say not much. I have heard plenty of cynical comment from buyers from other sectors who knock this disparate sector, saying that it is immature and unsophisticated. But these are the places where I would say the leisure sector has a great deal to teach the rest of the buying world.
1 | Collaboration works
Probably the most interesting of all of the things that make the sector different is the way it overcomes its absence of scale through collaboration with its competitors. Most catering businesses are simply not large enough to reach past the wholesale distribution world and create relationships with manufacturers, processors and growers. So the more sophisticated ones have clubbed together with their apparent rivals and created sufficient scale to do this effectively.
They have done this in two ways. The first has been by the creation of sector-based collaborative groups – there is one in existence today in the hotel sector, one in private hospitals and one among restaurant businesses. They agree between them a target group of categories, pool their volumes and point their business to market in a concerted way. In doing so, they benefit from the improved volume available but they also take advantage of the specification rationalisation improvements also available. The next logical step will be to tackle distribution, and it will only be a matter of time.
The other way they exploit scale is by joining a sector-wide club that enables them to buy commodities in a single agreement. Categories such as cooking oil, fries and eggs are all pretty much specification-insensitive, at least as far as supplier selection is concerned. This enables businesses to lump their volume together and exploit a common lower price.
Many retailers, and indeed suppliers, would claim the leisure sector is immature and unsophisticated in its supply chain. But to say that is to massively simplify the issue. The leisure sector is an enormous part of our economy, and one that has outgrown most others over the past 20 years. Its reality is that it is highly fragmented in terms of ownership, and will probably always be a place that attracts both large and small-scale entrepreneurs alike. Its buying community has had to adapt to that reality, and in doing so it may not be able to create the kind of sophisticated and efficient world that the retailers live in, but there is much to learn from the way it has adapted.
2 | The customer is king
Like the world of retail, leisure has learned that being in touch with the customer and being flexible is key to success. For example, in recent times customers have started paying attention to the source and provenance of food. No longer happy to accept the likes of Italian Cheddar, the diner now cares about how far the food on their plate has travelled, how it has been grown and processed and how this has affected its quality.
The industry’s supply chain was on a fast-track journey towards hub-and-spoke homogenisation, and there has been some incredibly nimble footwork by many wholesalers to set up supply of regional and local foods with the right level of provenance and quality. And buyers have not been afraid to forgo the cost savings of rationalised distribution in favour of direct delivery from local producers, often at higher price but with a quality pay-off in return that has been happily paid for by the consumer.
3 | Distribution is the key to success
Most leisure businesses are small in terms of drop size, and geographically spread. The table below shows how three different businesses were able to exploit the benefits available from controlling their own distribution and accessing producers direct.
In the case of the small hotel group, it was buying purely from wholesale markets, and using its limited scale to drive price with its supplier. The hospital group, meanwhile, was large enough to have the product as a nominated line with their wholesaler, which enabled it to contract individually with the producer, reducing the wholesale margin.
But it is in the third example – the pub group – where the combination of direct contracting and the full consolidation of all distribution into one drop per site (on a per case basis) enabled a big step change in the net delivered cost of the product. Caterers are increasingly of the understanding that direct sourcing and maximising drop size has a massive effect on cost. They are also realising that not only is distribution into their business a key cost driver, but so is the use of trucks departing the premises. Backhauling, particularly of waste and recyclables, is becoming an increasingly common feature of the leisure supply chain.
4 | Internal stakeholders are critical
Well, of course they are – everyone knows that! But what procurement directors in the leisure sector have done is to recognise the need to take stakeholder management to another level. The reason for this is the complexity of the business.
It’s one thing if you are running the supply chain in a large and totally standardised fast food business, where it’s possible to create a model that closely resembles that of a retailer. Here there are a limited number of stakeholders driven either by customer and market feedback or those responsible for the technical performance and safety of ingredients. But it’s entirely another where the internal audience is composed of a highly skilled group of individuals, all talking to their extremely discerning customers daily and with well-developed opinions each of their own.
In this world, buyers have to learn the critical things that make the business successful and not trot out standard solutions. Most of all, they learn the kind of essential change management skills that I see much more rarely in many other sectors. Among them is the skill to recognise the fact that each stakeholder is an individual capable of making intelligent decisions about sourcing strategy, and that they have to be sufficiently vested in the process to accept any change from the status quo.
5 | Ranging and specification drive value
Every retailer knows this – it’s in their DNA, but to apply this in the leisure environment is much more of a challenge. The key has been to acknowledge the obvious advantages of minimising the number of suppliers, simplifying the range of products purchased, and maximising the specification of both product and packaging alike; but applying these in an intelligent and thoughtful way so that the end result is not compromised.
For example I know of a large restaurant group that run three brands, all with separate market positioning and customer demands. There was a massive temptation to simplify supply and standardise product over the whole estate, and nowhere was this more tempting than in the area of milk and cream. But the business was smart, recognising that one of the three divisions would need to retain not only its organic milk supply, but also its single farm provenance. The buyers were clever enough to build a supply chain that exploited the efficiency of the group, but still left this essential point of difference of one of its divisions intact.
