Welcome, and thank you for joining us for a deep dive on procurement. I'm Agatha Donnelly, Head of Investor Relations and Corporate Communications. Our procurement model is a key competitive advantage and is critical to our growth. Over the years, we have been investing in systems and in talent, and now employ more than a thousand people globally in this area alone. As most of you know, Foodbuy U.S. is our most advanced group purchasing organization.
As well as sourcing for Compass, Foodbuy actively partners with third-party members. Together, we leverage collective scale to source the best quality products at the most competitive prices. We're replicating the successful blueprint in other markets and now have established Foodbuy GPOs in the U.K., Canada, and Australia. Today, you'll be hearing from leaders across Compass, followed by an opportunity for Q&A.
Before we begin, let me introduce you to our panel: Dennis Hogan, CEO of Foodbuy US; Chef Chris Ivens-Brown, Chief Culinary Officer; Karl Atkins, CEO of Foodbuy UK; and Claire Joiner, Chief Procurement Officer for our EMEA region. I'll now hand over to Dennis Hogan to tell you more about Foodbuy in the US.
Thanks, Agatha. Hi, I'm Dennis Hogan. I've been at Compass for almost 30 years. I've been in my current role since 2018. I'm excited to share the Foodbuy story with you. It has created significant value for Compass and its shareholders over the past 25 years. We acquired Foodbuy back in 2000. It was included as part of the deal when we bought Morrison, one of our healthcare businesses.
Little did we know back then that it would grow into the largest food service GPO in North America. Today, we procure over $32 billion of food and beverages each year. Nearly 40% of that is for Compass, with the other 60% for our third-party clients. We partner with members at more than 160,000 locations and have over 3,000 contracted suppliers buying over 750,000 SKUs.
Over the years, we've invested significantly in systems and bolt-on acquisitions to enhance our capabilities and further embed our competitive advantages. So Foodbuy is a substantial business in its own right. Put simply, its success has been based on a virtuous circle of growth. The more Compass and our members grow, the more scale we have.
This gives us greater leverage with suppliers to be more competitive, helping Compass win new business and retain clients, feeding back into higher volumes for Foodbuy. Our partners are typically organizations that buy a significant amount of food and beverages, such as restaurants, hotels, leisure facilities, and self-operated education or healthcare GPOs. We typically provide double-digit savings on their procurement costs, so it's a very appealing proposition. This has been particularly important in recent years, during which we have seen elevated food inflation.
We've leveraged savings from Foodbuy to help mitigate cost pressures for both Compass and our partners. For example, we recently switched suppliers in a material category, saved 25% on costs, and protected Compass and partner members from price increases for two years despite rising inflation. Let me take you through how Foodbuy works and its competitive advantages. Foodbuy is a procurement services business.
We understand how to maximize procurement benefits, and we share those with our members. We're structured around three core functions: sourcing, category development, and distribution. Our sourcing team is responsible for tendering key categories and finding new suppliers. They also track macroeconomic and market trends to understand the optimum time to secure the best commercial deals. When a new supplier is onboarded, our category team begins nurturing a long-term strategic relationship with them to maximize the extensive resources and expertise they bring.
The team also works closely with our chefs, operators, and members to secure the very best quality products, driving innovation and generating ongoing efficiencies. Finally, our distribution team works hard to ensure the smooth running of supply chain logistics, with products being delivered on time and in full. It might be helpful to pause here and explain how distributors work with us . Firstly, we order a significant proportion of our products through large distributors who have inventory on hand.
These are large wholesalers, and the logistics are priced in. And secondly, we contract individually with manufacturers, suppliers, farmers, and growers, and secure logistics separately through the strategic relationships we have with distributors. The beauty of this model is that most products arrive on one order, reducing food miles and operational costs. We have multiple logistics partners who deliver to Compass units and member locations.
We are distributor agnostic and help clients to choose from a vast network while also allowing them to retain elements of their supply chain if that's what they prefer. This causes less disruption and makes members more comfortable to switch to Foodbuy. We believe this flexibility is a key differentiator in the marketplace.... Our expertise and strong relationships enable us to access alternative supply chains when needed to ensure operations continue to run smoothly.
This was tested in the aftermath of the pandemic, when, despite escalating inflation and supply chain pressure, we secured product availability and minimized shortages. Our scale also provides us with diversification and resilience. With some of our categories being so large, we can split volumes between different suppliers without diluting our savings. This also encourages competition between vendors, which drives additional efficiencies. I'd like to spend a minute talking about compliance, a critical KPI for us.
Put simply, compliance is the proportion of total spend on preferred products and suppliers. It's where we get the best commercial value from the long-term strategic relationships we have with our closest suppliers. Compliance for Compass in the United States is excellent at over 90%. What this means is the vast majority of Compass' total spend is from core suppliers who provide us with the best quality products at the best prices.
This hasn't been easy, though. It's a culture and discipline built over many years. For Compass, we monitor compliance at a sector and unit level through our performance culture. More on that later from Chef Chris. The other key factor is member compliance. It's an important KPI, which has improved significantly, but we're always working on it. We encourage third-party members to switch to our preferred products and suppliers to ensure they access the best commercial deals.
We do this using a tool called Empower. This quantifies potential savings and demonstrates how they can optimize their own purchasing. It's definitely a win-win scenario. Members enjoy lower prices, thanks to our increased scale, and as we grow, our suppliers grow too. So as you can see, the effectiveness of a GPO should be measured on compliance as well as the absolute dollar of managed spend. Compass is Foodbuy's largest and most strategic client.
It's our reason to exist, innovate, and grow, and to do this, we need a deep understanding and connection with the business. Most of you are already aware of Compass' sectorized approach to the market. This enables it to better provide a tailored food offering to clients. Foodbuy has mirrored this approach in procurement to best serve Compass and our members by providing sector-specific insight and expertise.
This structure, enabled by our scale, is unique to Foodbuy and is a significant competitive advantage. Data acquisition, management, and analysis are the foundations of great purchasing. We are a truly data-driven business. Our teams use data insights to inform every aspect of our approach. We have long recognized the importance of investing in the right systems and now have access to the most comprehensive purchasing data in the industry.
We use data to better understand our supplier relationships and compare our deals to the market so we can prioritize the best opportunities to drive better value. It also helps us to analyze why a category has seen so much growth and what we should do about it. We're also increasingly using data to analyze the environmental impacts of the products we are buying, so we can help our clients on their sustainability journey.
And internally, our unit managers and operators use data to help them optimize their merchandising strategies, but there's always more we can do and learn. Given our long history, we have quality data that leads to actionable insights and informed decision making. This is not easily replicated, and it provides us with a huge opportunity for the future. Foodbuy has the same disciplined performance culture as Compass, which we've refined over the last twenty years.
Key to that is structure and cross-functional collaboration. For example, any changes to a supplier's agreement, such as pricing or term extensions, are brought to an internal approval forum, which brings together category, sourcing, sector, and finance teams. Any change needs agreement from all parties.
There is clear prioritization and alignment across all functions and sectors, with managing directors and finance directors meeting on a monthly and quarterly basis to review KPIs along with their culinary leads. It's the best way to connect our frontline operations, appreciate their challenges, and adapt our procurement approach. So how do the financials work? All members are charged a fee, either flat rate or linked to volumes.
The amount may also depend on the partner's compliance rate. The higher the compliance, the lower the fee. Volume-based allowances are generally shared between Foodbuy and our members, depending on the deal structure. They also act as an incentive for Foodbuy and our partners to drive volumes toward preferred suppliers, thus increasing compliance. While we have huge expertise in data and procurement, our culinarians are the closest to our clients and consumers.
It's no good if we're negotiating great deals on food items that our chefs just don't want. Close alignment and collaboration with our culinary community is therefore key.... All right, at this point, I think I'm gonna hand things over to Chris, and he's gonna tell you just what Foodbuy means to our chefs.
Thanks, Dennis. Hi, I'm Chris Ivens-Brown. I joined Group back in 1987, yes, 37 years ago, rising from kitchen apprentice to the boardroom, and I'm now the Chief Culinary Officer for Compass Group in North America. First, a few observations. Procurement is something we all have accountability for. Whilst Foodbuy sources products, it's our chefs and our unit managers that use them.
Therefore, culinary needs to be weaved into every element of the decision-making process. I like to think of Foodbuy as our in-house expert brokers. They listen to our needs and then use their commercial expertise, systems, and data to identify sourcing opportunities. We ensure the products they're buying and listing on our approved product list aren't just commercially good deals, but they also meet our chefs' highest standards.
When a chef is asked to switch to a new supplier or buy a new product, they know it is fully endorsed by our culinary leaders. As chefs, we can better appreciate the nuances in product mix across our different sectors and, importantly, also the common denominators. Products like flour, eggs, sugar, condiments, bacon, and many, many more are like for like across our business. It's here where we can work together to pool volumes, to use Foodbuy to negotiate improved pricing and drive better quality.
In the post-COVID period, Foodbuy was invaluable in helping us evolve menus to help mitigate and manage inflation while maintaining our high standards. We worked together closely to switch ingredients in response to rising food costs. For example, trout has replaced salmon in many occasions and on many menus with no compromise to flavor.
Foodbuy also collaborates with our dieticians, nutritionalists, and sustainability experts, who play an integral role in approving switches or changes to the supply chain. And thanks to our scale, we can often work directly with suppliers to make changes to their product specifications to better meet the needs of our business. Another great example is the Rule of Five, created by our Morrison Healthcare business. This means that before we buy an ingredient, we must be able to use it in at least five dishes.
It's a simple but effective way to challenging our chefs to drive volume into a smaller number of products while also minimizing food waste, which is so important. We've scaled this best practice across North America and globally around the group. Foodbuy gives us other advantages, including their due diligence and approach to quality assurance and safety. As chefs, this is our number one priority.
Transparency across the supply chain and knowing the origin of our ingredients is vitally important. Every vendor must meet our high sourcing standards, managed by a specialist team who conduct a thorough assurance process with regular checks and audits, with external risk assessments in some cases. And now over to Karl to tell you all about Foodbuy in the UK.
Thanks, Chris. I'm Karl Atkins, CEO of Foodbuy UK. As well as spending 12 years at Compass, I've also been on the other side of the procurement fence in commercial roles for key suppliers like Coca-Cola and Britvic. Foodbuy UK was created in 2016 following the acquisition of Acquire Services, a specialist food procurement business with market-leading systems capability, which was then merged into Compass' own purchasing function.
At the time, our combined managed spend was around GBP 750 million. Whilst the majority was from Compass, we had a clear plan to grow third-party revenue. To take Foodbuy to the next stage of its journey, and following in the footsteps of our U.S. colleagues, we're accelerating our growth.
Our goal is to grow Foodbuy UK to GBP 3 billion within the next few years as we grow our core business and increase third-party business. The acquisition of CH&Co will also boost our scale, adding around GBP 180 million to our spend. We've also acquired excellent expertise through the acquisition of three independent GPOs over the past two years:
Regency Purchasing, Equinox Solutions, and EF Group. As well as scale, we've benefited from their technology and systems, helping to build on our competitive advantages in key sectors like hospitality, senior living, and education. They've also provided us with an excellent source of talent, bringing high-quality management teams into our business, which we've been pleased to retain. Whilst Compass is our largest client, we've been building scale through third-party volumes, which now account for over 40% of total spend.
We're replicating the U.S. sectorized model to further accelerate growth as the industry expert in each of our respective sectors. Our recent acquisitions are helping us achieve this, but we need to continue to grow our channel presence, either organically by building our sub-brands or through M&A, where we have a great track record. In terms of the financials, our model is very similar to the U.S. Our primary goal is to leverage our combined scale to reduce purchasing costs for Compass and our members.
As Dennis mentioned, the use of digital and data is hugely important and a clear area of focus for us. Again, we're following the U.S. blueprint here, investing significantly in systems and digital technologies. As an example of this, let me explain how we're using AI in the U.K. Negotiating with tail suppliers, of which there are several hundred, can be complex and time-consuming.
Even though they only account for about 20% of our spend, there's a huge opportunity to strike better deals. So we're currently trialing an AI negotiating platform with 200 tail suppliers. The early signs are extremely promising. We now plan to scale this technology to the remainder of our tail spend. The three acquisitions that we've made have also accelerated our tech capabilities.
We're now able to offer clients leading-edge procurement management technology to optimize their entire supply chain operation, from menu management to allergen control, to logistics and inventory capabilities. To bring some of this to life and to help you understand how we work, here's a short clip from one of our largest Foodbuy members in the UK.
Foodbuy's support in managing our supply chains is of fundamental importance to us. Their wealth of knowledge allows us to take one step back, allowing them to manage our suppliers in a far more appropriate manner. Category management for the six framework agreements we have is supported fundamentally by the category management team, giving us insights to market movements, into price increases, into supply and demand issues, which has been really fundamental, particularly during the period of COVID.
Working closely with Foodbuy and account directors is really important to us. Working closely in collaboration with all the units in Cambridge allows us to build up a really good relationship across all sectors of the business. Looking at inflation on a monthly basis against the cost delivered from our suppliers allows Foodbuy to analyze the cost effectiveness of the supply chains. Foodbuy's understanding allows us to all operate in the manner that we need to, offering us the service that we expect.
So that's Foodbuy in the U.K. I'll now hand over to Claire, who will tell you more about how we approach procurement in Europe.
My name's Claire Joiner, and I'm Chief Procurement Officer for Continental Europe and the Middle East, and I've been with Compass for fifteen years. The first eleven of those, I worked for Foodbuy in the USA across a number of category development and sourcing leadership roles. In my current role, I've assembled a team of former Foodbuy US and UK colleagues, and together, we're using our collective experience to transform purchasing in Europe.
First, it's worth reminding you that while we talk about Europe as one region, we operate in eighteen countries that are very different in terms of language, culture, systems, data, and supply chain structures. Most of our purchasing is therefore managed within country and is likely to remain so. We believe there's a great runway of opportunity in the region.
We've upweighted the importance of procurement and embedded a new mindset to position it more strategically within the business, and we're starting to see real benefits from the investments we've made in talent, systems, and processes. What's important is that we're replicating a proven blueprint that began in the U.S. and was then repeated in the U.K., Canada, and Australia, and from this experience, we've developed a procurement roadmap.
This helps us set priorities for each country, depending on their position on the maturity curve. We're still very much on a journey, with countries at different stages of purchasing excellence. Today, the most advanced are France, Germany, Spain, Türkiye, and the Nordics. Our strategic pillars are simple and mirror those of Compass Group: talent, data and systems, best practice sharing, and collaboration.
Across all markets, we're focusing on refining the fundamentals, working with the right suppliers, and establishing systematic collaboration with operations and culinary. By consolidating product ranges and ensuring we create menus from approved product lists, we're delivering real commercial advantage, and as a result, most countries are now highly compliant. Like the U.S. and the U.K., another crucial aspect of procurement is how we collate and use data.
And while we've got good data from our suppliers on purchasing, it isn't always easy to provide the advanced data analytics that we have in the U.S. This is a key area of focus, and we're currently improving systems to enhance our capabilities. Looking ahead, we often get asked whether our Foodbuy model is appropriate for Europe. As I mentioned, the significant differences between countries means it would be difficult to replicate the same U.S. model on a pan-European basis.
But as countries mature and grow, both organically and inorganically, the added scale enables us to work strategically with suppliers to drive value for clients and consumers. Over time, it's possible for the Foodbuy model to operate in our larger markets in Europe and potentially some in Asia, too. In fact, some European countries have responded tactically to market opportunities and already established small buying groups, which are country and sector specific.
And while they don't currently operate in the same way as Foodbuy, they have the potential to be building blocks. Crucially, we already have a best practice blueprint, and we're leveraging the purchasing knowledge that already exists within the group to drive further success in Europe. Thank you, and I'll now hand back to Agatha.
Thank you, Claire. As well as providing significant commercial benefits, procurement is integral to our sustainability strategy. In addition to our efforts to reduce carbon emissions, our Foodbuy teams are building partnerships with smaller, minority-owned suppliers across our entire supply chain, giving them support and access to the wider business to enable their growth. As part of this, we've launched a group-wide framework aimed at helping our procurement teams to better support these suppliers.
In 2023, we spent more than $1.7 billion globally with diverse local and social enterprises. As you've heard, Foodbuy is a significant competitive advantage for Compass, contributing to a virtuous circle of growth. It helps us win new business, retain existing clients, and attract new members, resulting in greater scale and generating better commercial outcomes. And of course, our suppliers benefit from that growth, too.
Beyond scale benefits, the investments we have made in systems and processes are driving higher compliance rates, whilst the data insights help us to be more effective in spotting opportunities to renegotiate and consolidate spend across categories. The Foodbuy US model is being replicated in the UK, Canada, and Australia, and we have a clear roadmap for our other large countries as they move along the maturity curve. Thank you for tuning in, and we'll now turn to Q&A.
Please stand by. The Q&A session will begin at 2:30 P.M. UK or 9:30 A.M. Eastern. Please note you must be connected to the conference call phone line to ask a question. Thank you. Hello, and welcome to Compass Group's Procurement Deep Dive Question and Answer session.
This call is being recorded. In order to ask a question, please press star one on your touch tone keypad. Again, that is star one if you wish to ask a question. Please note, you must be connected to the conference call phone line to ask a question. I'd like to turn the call over to your host today, Ms. Agatha Donnelly, Head of Investor Relations and Corporate Communications. Please go ahead.
Thank you, George. Welcome, everyone. It's great to have so many of you on the call today. I'm here with the presenting team, and we ask that you limit your questions to the procurement topics discussed today. And with that, let's move to the first question.
Yes, ma'am. And again, I'll just like to remind the audience once again if you wish to ask a question, please press star one. Today's first question is coming from Vicki Stern, calling from Barclays. Please go ahead. Your line is open.
Yeah, hi there. I've got a few questions, please. Just firstly, on the compliance rate. So you gave the Compass compliance rate in North America of 95%, but can you give us a sense of the sort of ballpark number for the third-party members, what that compliance looks like, and anything you can share also for the U.K., both Compass and third parties?
... Second one was around just how does the business decide how much of the purchasing benefit you hold on to, you know, as better margin for Compass versus how much you're ending up passing on to clients, better prices, which can help you drive, obviously, better contract wins or retention? Or to put it another way, I suppose, how much do your North America margins get boosted by this sort of scale purchasing advantage there?
And the final one was just about sort of M&A or potential future M&A across Europe and some of the other regions where you're growing procurement businesses. Is there much sort of left to buy, and how do you decide really what sort of should be done organically versus buying in some potential scale?
Great. Thanks, Vicki. Thank you for your questions. I'll hand over to Dennis to explain the compliance, and over to Karl to talk about the U.K. compliance, and also, the margin impact or the purchasing benefits that we see. And finally, Claire will cover M&A in Europe. Over to you, Dennis.
Thanks, Vicki. So in terms of compliance for members, as you noted that, you know, as Compass is our biggest member, it's 90% plus, and really, the rest of our members are kind of on a continuum, depending on their model and their spend. And much of our effort in that space is really geared towards driving conversions.
We have technology tools you heard earlier in the video, our MPower tool, which helps identify if they convert their spend to our preferred suppliers, and that, of course, will increase their compliance. And we have culinarians that get involved and go out and meet with them, and we do cutting so that they can see that the quality and of the products that we've contracted are of a standard that meet their needs. So I can't really give you a specific number.
Just think of it more as a continuum where they're consistently moving along a curve of higher compliance rates. You did also ask about purchasing benefits, so I'll pause on that first, and we can come back if you, if you'd like. I'm going to go over to Karl, and Karl, you can talk about maybe your compliance within your member space.
Yeah. Thanks. Thanks, Dennis. Thanks for the question, Vicki. I think very similar to the U.S., I mean, for the Compass side of the business, in certain sectors, we'll be seeing north of 90% compliance, which is effectively the, you know, the amount of spend going through preferred contracts where we've got the strongest deals. In other sectors, we've got more opportunity.
On our member side, you know, we've made acquisitions over the past few years, and there's a big opportunity to drive compliance, and drive more competitive advantage for our members. So as Dennis said, a constant journey, really, but one of opportunity.
I guess we can answer the purchasing benefits question as well, Dennis?
Sure. So, you know, Vicki, on that, I think first and foremost, I think the way to think about the benefit that we get from our member business is it's that scale and growth and its ability to help lower Compass's costs and help us drive growth. You know, fundamentally, the most important spend that we have is compliance spend.
And again, we talked about Compass being 90% compliant. And so as we add more member spend, and especially when it's compliant, we tend to further lower Compass costs and get that sort of virtuous circle of growth. Specifically around the fees and the income that we generate from our third-party members, you know, typically, we break it down. We either collect a fee or we keep a portion of the rebates, and the majority of that income gets reinvested in the business.
So you heard me talk about technology and Empower. We have Q&A, we have resources that we dedicate to these third-party members to help them manage their own supply chain. So again, the primary benefit is just reinvesting or improving Compass's lower costs or driving lower costs, and then just reinvesting in technology and resources from the income that we do generate out of that third party. Karl, anything you want to add from your lens?
No, I think you've covered it, Dennis.
I think the only other thing I would say, Vicki, is the indirect benefits obviously manifest themselves in higher growth, so higher new business wins and higher retention, which obviously is hard to quantify, but that's the other way to think about it as well, so I'll hand over at this point to Claire on M&A.
Yeah, sure. Hello. I think you heard in the presentation how targeted M&A has really helped progress Foodbuy in the U.K., and that it hasn't just been about volume, but it's about, you know, access to technology, talent, new sectors. And that's also been the case with the M&A's that we've made with Foodbuy in the U.S. historically.
So, you know, I think, when we think about the opportunity in Europe, I think as a region, it's still relatively immature, when it comes to the GPO industry, certainly compared to the U.S. and the U.K. And obviously, as a business, you know, you've seen us make these moves before. We're open to this as an approach, and Europe is sort of no exception to that.
I'd also add, that, you know, as you've heard, we've been progressing and advancing purchasing in Europe, for some time. We're seeing some real benefits from this, but the main value of Foodbuy is the incremental scale that it brings to Compass. And our priority, obviously, is to grow Compass, at a country level. And, you know, we have a huge market, that we're going after there.
So, you know, Foodbuy is additive to that, and we know that it works best where third-party spend really aligns with Compass spend and is compliant, which is why, as I said, we make very targeted acquisitions. But Karl, anything you'd like to add?
Yeah, I think as said in the video, we've done a number of acquisitions to build our GPO business in the UK. We feel we're very, very good about the quality of the businesses that we've acquired. We're currently looking at further M&A. I think there may be some smaller opportunities for us, but we're probably largely organic growth now as we accelerate forward. So I think that's the state in the UK.
Great, thanks very much.
Thank you, Vicki.
Thank you, ma'am. Our next question will be coming from Jamie Rollo, calling from Morgan Stanley. Please go ahead.
Thanks. Hello, everyone. I've just got a few questions just about the competitive landscape. When you held a similar sort of seminar in the U.S. in twenty eighteen, and it was focused then on Foodbuy, it was twice as big as your two main competitors, Entegra, and Avendra. And then since then, those two have grown, it's fair to say, probably at a higher pace in terms of their purchasing scale. And Entegra took, I think, that big Dining Alliance contract off you, and they came to a similar size as Foodbuy in North America.
I'm just really wondering, is the industry getting more competitive? Do you feel, and are there any sort of large GPO partners, Foodbuy users, which could sort of jump ship in a similar way to Dining Alliance or indeed come back to you? Thank you.
Over to you, Dennis.
Sure. Yeah, Jamie, it's a really good question, and I feel very comfortable and confident that the gap that exists in our competitiveness is equal to, if not better than, where we were, you know, back in 2018, as you referenced, right? I think the first thing to realize is that we've. In the US or North America, we're double the size, more than double the size of our two competitors.
And the interesting thing is that is all anchored in very compliant spend. I think some of the growth we've seen and some of the volumes that you see for the member side have much less of an impact than what we get from the very highly compliant Compass spend.
In fact, some of the advantages we're starting to explore now are we're doing dual sourcing in a category, which, if you think about it, what we can offer a supplier at half of our volume is exactly or is even more than what our competitors can offer if they give the whole thing. So we're not diluting our savings. We're creating competition within that category. We really think that compliance strength is really anchoring, you know, our competitive gap. Recently, we took a significant third-party member in healthcare off of the competition, and then we just recently renewed it, and this was significant spend.
And the businesses, as I said, in healthcare that looked at this, they were a long-standing partner with one of our competitors, and the only way they'd be willing to make that conversion was if there was material savings, and they did their own analysis and their own market baskets. And most recently, they just extended that contract with us without even bothering to take it to RFP.
So we do feel. And I guess lastly, I would say, Jamie, kind of proof in the pudding, and you heard Agatha reference this earlier, our ability to continue to grow Compass, its market share, is very much driven by our cost advantages. And, you know, you've seen that the gap between us, you've seen our growth since coming out of pandemic.
We've widened that margin with the two competitors, and very much fueling that is our cost advantages on the product cost side. And I think that proof in the pudding is illustrative of the competitive gap that we are sustaining, if not improving.
Thank you, Dennis. Karl, would you like? Sorry. Sorry, Jamie, go on.
No, sorry. Back to you.
I was gonna say, Karl, do you have anything to add?
I guess just to build on Dennis's point, I think the benefit we have is the North American business and Foodbuy business, which is 25 years old, and it's gathered lots of experience and insights for us all across the group. And I think if we look at our value proposition now, you know, the fundamentals of our GPO business, as Dennis said, is competitive scale.
That's right, right at the center of what we offer. But what we've been able to do is build layers to that value proposition. So we've invested heavily in systems and technologies for our member business. We've invested in culinary resources to help them with menu development, and we can take clients and members on a sustainability journey.
If you look at the components of our value proposition that we've built over several years now, we feel very confident, not complacent. We're always thinking about how we innovate it, but we feel confident that it can underpin our sustainable growth.
And Agatha, if I can chip in on to that piece as well. I think, Jamie, the other area where I think we're having an advantage, and I'm gonna let Chris talk to this, is the qualitative side that we are now bringing to our clients. So what do I mean by that? We're very much engaged in partnering with our key suppliers and doing a lot of culinary innovation, and I think it's giving us a quality and a differentiation that is setting us apart. Chris, you've been a big part of that.
Yeah, Jamie, I think, you know, Foodbuy managing our cost for us. You know, our, our goal from a culinary standpoint at Compass is drive profitability, to drive margin. And to do that, we need innovation, and we need quality. Obviously, there's a balance there. But with, you know, Foodbuy helping us mitigate inflation, you know, we bring that value back to our consumers and back to our clients so we can continue to provide a high-quality program for them, hence driving our margin.
And as we grow, as Compass grew exponentially, you know, on our path, looking ahead over the next five to six years, hence Foodbuy grows organically as well. So it's been an exciting journey over the last 10 years, and it's a great forecast ahead, so.
Thank you very much. Just to come back on the comment about you being twice as big as the other two. I appreciate we shouldn't focus too much on purchasing scale, but were you talking about purchasing there or about the actual contract catering business, where, of course, you are twice as big? Because Entegra quotes something like $36 billion of purchasing, but maybe they include non-food and beverage in that as well.
Yeah, no, I was sorry, just for clarity, Jamie, I was specifically talking about Compass as our key, you know, key client in North America, where, as you know, we are double the size. I might just to comment on the total volume, and you see those numbers and so forth. You know, I think when a significant portion of that is, you know, Vicki asked earlier about the levels of compliance or contract utilization.
When a significant portion of that is not bringing growth to a supplier, it might be business they already have in a restaurant channel, things like that, it's just not of the same value as what we see in that core Compass growth or in some of our highly compliant members. All of that factors into where the, you know, the relative leverage and profitability impact we can have.
Thank you very much.
Thank you, sir. We now move to Jaafar Mestiri calling from BNP Paribas. Please go ahead.
Hi, good afternoon. I've got three if that's all right. The first one is just I'm gonna try again on member compliance. It doesn't sound like you have a blended percentage number for us today, but perhaps if we could have some color on the range there. Do you have longstanding members that are very similar to Compass, 90% plus, and then how low are the newer recruits?
What's the long-term upside there? Then on other countries, are there any where you're ready to go? Maybe today it doesn't quite make sense to go full GPO, but I remember that. I think exact year you acquired PSL in the UK. You also acquired Xandrion in the Netherlands. So I assume that's ready to go if you felt that the market was maturing tomorrow morning. So how's that curve there? Are there other countries, I mean, in France, centrale d'achat is seeing other countries where you would actually switch on the GPO under certain conditions.
And lastly, just in terms of Foodbuy versus Compass Foodservice, your U.K. client's testimony is a university client. Obviously, colleges are very fragmented and independent. They're not one university client, but what are those clients destined to become? Are they gonna stay members of Foodbuy because they're fragmented and smaller, and they absolutely want to stay in-house? Or do you have examples of client journeys like that, we do procurement for you, and then at some point, we actually cross-sell or upsell food service, or are they completely separate?
Thank you, Jafar. I'll hand over the first question on the member compliance to Dennis. The second about the country's maturity curve to Claire, and the final one to Karl.
Jafar, sure. Yeah, just to give you a little bit more color on the range and so forth of our members in terms of contract utilization. So, I talked about healthcare, especially in the acute care side, where we bring in large partners, they may be GPOs themselves. They tend to mirror the, you know, the managed order guides and the menus and the recipes that we would offer with Compass and, you know, either Medirest or Morrison in the U.S.
Then when we bring in self-operated partners in that space, the contract utilization is very similar and very close to what we achieve by Compass. If I were to go in the complete opposite direction, there might be. Let's take just a regional restaurant chain, where there's a lot of growth there. I can tell you that the majority of what a restaurant chain would be buying is a couple of things. Probably, they're buying a lot of private label from their local wholesaler or distributor, and they might, let's say, it's a concept that's got some unique SKU.
Maybe it's chicken wings or whatever. They probably have their own direct deal on that, and the majority of their spend is gonna sit with their own direct deals. And they might use us for, you know, non-food items, you know, maybe some of the paper or plastic items, things like that, where we can bring economic advantage. So just by its very nature, you get a range of contract utilization.
But fundamentally, as I referenced Vicki's answer, or Vicki, my answer to Vicki's question, we consistently see opportunities to drive improvement in that utilization. Our Empower tool basically provides data that has the net price or the list price and the volume allowance on our deals. They can go online, and they can figure out.
They can self-serve. They go, "Wow, if I convert this from my supplier to this supplier, I'm going to save X amount of money. I'm gonna get that benefit." And then, of course, our supplier partners win. And so that's why we're just constantly reinvesting in data, technology, and tools to help drive that compliance so that every business that partners with us is moving up that continuum on the contract utilization curve. I think now that I know we have the other countries ready for GPO, so that was going, I think, to, the-
To Claire.
Yeah, Claire.
Before Claire says anything, I think the only other thing is, maybe to bring Chef Chris in to talk about how he can demonstrate with the culinary skills what we can do with various items, and how we can drive compliance, and saving clients a lot of money. So Chef Chris, would you like to say anything on that?
Yeah, obviously, this has been, you know, this has been a journey for us, and we've created an incredible process that benefits our clients from a procurement standpoint, driving quality where, you know, if we as those twenty-seven sectors we are, can all agree on certain products, that then gives Foodbuy the ability to lower our costs and increase our quality, which some of our sectors might not be able to do.
We create recipes of that around these programs to drive into our business, and then this is all shared with our members. The work and due diligence we do then gets passed over to all of our members to be able to benefit, so it's a huge opportunity for them to kind of back off of what we've been doing from a procurement. That goes to food and non-food and equipment and uniform and chemicals and everything that we touch in our business, in our portfolio, our member group.
Thank you, Chris. Now over to Claire.
Thank you. Thanks, Jafar. I think the question for me was about other countries and where we might be ready to go with a Foodbuy model, and you referenced yes, a couple of small sort of buying groups that we've got established, so perhaps to give a bit of context on that and then to explain how we're thinking about, you know, the future, so, you know, we've seen the last few years, some of our countries in
Europe, and remember, we have 18, all very different, but some of our countries have responded tactically to market opportunities, and they've established some small buying groups, and you mentioned Xandrion. We have Xandrion in Belgium and the Netherlands. We have Optima , who services senior living for us in France.
Another example might be Norway, where we have a very well-established consortium type partnership with two large hotel groups. So, you know, we've got these small businesses, small in relative terms, but we have the potential to grow. I think we don't, we haven't branded these businesses Foodbuy. For us, Foodbuy is a multi-sector, full-service, advanced procurement organization, and these that I've described are typically more channel specific, simpler, and smaller, with perhaps more limited service offerings at the moment.
So we do think there's really good potential for a Foodbuy model to operate, and particularly in our larger markets in Europe. We're not putting a time frame on it right now. We're doing lots of other things, as you're aware, to improve our purchasing.
We are expanding our capabilities, we're taking that best practices and the blueprint from North America, and we're also leveraging the growth that we're seeing in the European region to unlock those benefits for us. So, you know, we're doing that. We're reinvesting in talent, in data, in systems, and really just trying to ensure that we build those very, very strong foundations that will be so important for us in the future.
Thank you, Claire. And finally, Karl, on the last question.
Yeah, and on the last one about the, I guess, the Foodbuy model versus the fully managed service opportunity, I think it's fair to say, I think the market opportunity for both, you know, the managed service and our Foodbuy business is significant. Certainly for some members, I think coming to Foodbuy is the first step of a journey, potentially towards a managed service.
But in other instances, you know, members are really only seeking supply chain and procurement support, and there isn't that sort of desire to outsource. So that's the way we look at it. And I think that applies across the group, actually. And Dennis, is there anything to build on from the US?
Yeah, I think you handled that well. I'd say a couple of things. There are several, you know, channels or sectors that we have, like gaming, the restaurant channel and so forth, that are never going to naturally be conversions to the managed service side because that's not what we do. I think sometimes when we find the self-op are looking for investment, they want,
you know, they want to upgrade their facilities and so forth, that's when they tend to say, "We don't just want supply chain, we want to go fully managed so that we can make a more, you know, complete investment in the partnership." And when we do see that, we've had some successful conversions to the managed side.
Thank you very much, all.
Thank you, Jafar.
Thank you for your question, sir. Our next question will be coming from Karl Green, calling from RBC. Please go ahead.
Yeah, thanks very much. Just two remaining questions. Just in terms of, you as a very large buying customer, are there any kind of limits with, some suppliers, perhaps regionally or even nationally, where they're going to start feeling uncomfortable about how much buying power you've got? Or are you still kind of miles away from that potential limit?
And then the second question, just going back to the point about where you're, going direct to growers or food manufacturers, just how much visibility do you have over those, supplier economics in terms of your ability to sort of push back? I'm just thinking here in terms of some of the, complaints that we're seeing in the UK from various farming, organizations saying that, you know, big markets in particular are being very, very aggressive. You know, just, is the group more broadly kind of at risk of getting in political crosshairs at some point for this seemingly putting growers, you know, in a really tough spot? Thank you.
Thanks, Karl. I'll hand over the first question to Dennis, please, on the limits to that growth.
Yeah, I'm actually, and if I don't fully answer the question, Agatha, you can steer me a little bit. But when I look at the runway we have in North America with the size and scale that we had, are we starting to hit limits and so forth? I'm actually quite bullish on things as we move forward. I think I mentioned with our size and scale now, having the ability to dual source in category, in certain categories, and the economic value that that's bringing us. And I would say there's, as we grow, we're able to go back to our supplier partners.
If you think about the marketplace today, where retail is softening a little bit, our growth is really valuable to them, and they're willing to continue to invest, add resources, and continue to align with us. And then other areas where we see, you know, further on we're unlocking further value. As we get bigger, some of the small categories, and Chris knows this, historically, that we didn't have enough volume necessarily to contract, are big enough now where we can do regional or national deals, and we're unlocking a lot of value there.
And then finally, I'd say on the member space, you know, significant opportunities to grow, whether it's that improved contract utilization on existing members or, new members that we bring in, especially when they're bringing in, compliance spend.
That's great. Thank you, Dennis. I'll now hand over to Karl on the direct relationships with the farmers.
Yeah. I mean, wherever possible, we will go as far upstream as we can to source, and in particular, growers and food producers. You know, we pride ourselves on long-term, sustainable supply relationships. I mean, the point of sourcing, we'll really understand the economics of that supplier, and we'll make sure clearly that we contract it competitively.
But we're very focused on making sure there's a sustainable supply chain to behind it. You know, as an example, in the UK, we've worked with the same milk supplier for well over 15 years, and we've got mutual investments in that operation to make sure there's a sustainable supply chain. Yeah, in addition to that, I think there's a number of different initiatives across the group.
We're very focused on small, medium enterprises, social value organizations, and making sure that we can help scale those organizations across the country. So very focused on making sure that we create that long-term neutrality to the relationship.
Great. Thank you.
Thank you, Karl.
Sorry to interrupt you, ma'am, and now we'll take our last question. It'll be coming from Leo Carrington of Citi. Please go ahead.
Thank you. If I could just start on the definition of GPO compliance. Is this the compliance by the Compass chef or the client decision maker? The reason I ask is, how do you handle the areas of ambiguity where perhaps a client is pushing for a locally sourced option of equivalent quality or and price versus a GPO's SKU? And then secondly, for third parties using the GPO, in terms of maximizing the compliance, what incentive is there for the chef or the manager to buy through the GPO aside from cost? Or is it does it really boil down to a cost benefit for those third parties? Thank you.
Thanks, Leo. I'll hand over to Dennis and Chef Chris as well, who can bring in some color around what the culinarians are doing around compliance levels as well.
Yeah, I think, Leo, I think there were a couple of aspects to your question. And really, one was, you know, who is making that decision and locally? And it's really interesting, you know, what we try to instill, certainly with Compass, but with our third-party members, is this culture of compliance. And one of the mechanisms that we use to achieve that is we agree on what we call a managed order guide, and so that would be culinary driven and then, you know, Foodbuy or procurement supported.
And then where we can get very compliant is it will lock down that order guide. So the chef manager, they may have some flexibility within there, but primarily they're going to be ordering off of an order guide that consists of products that we've contracted. And so, you know, that really makes a difference.
Now, the client, whether it's a Compass client or a third-party client, you know, there may be elements they want to infuse. They want to include more locally sourced. You know, you talked to Karl about some of the growers. We utilize some minority-based or BIPOC growers, things like that, and we try to leave flexibility for those elements. Chris, you have experience in that realm.
Yeah, I mean, you know, we understand we're a large company, but we operate at a local level. You know, the local piece is so important to us, and diversity and minority of companies. Our local farmers are important to us and our clients. Now, that all funnels up to our categories across our very diverse, you know, sectors and all the culinarians that, you know, work on picking those products.
But for me in Compass, it's about chain of custody, and we need to make sure that we know, and I've said this in the video, where our product comes from. If it comes through down to our produce house, to a local farmer or from a local bakery, that chain of custody from a quality assurance standpoint on that ingredient is so vital.
So, you know, we have all those resources, and that's, you know, one of the biggest benefits of our Foodbuy team and what they do for us from a culinary standpoint. So they protect us, they protect our consumers, and also, you know, we help some of these smaller companies grow, you know, exponentially throughout, you know, North America, where they've never been able to kind of break that ceiling before.
So, you know, all of our products and ingredients are all tied into recipes and programming, and so, you know, we have to make sure we protect our customers from allergens and, you know, making sure that the farmers and meat houses have metal detectors. This is all things that people may not think about, but have tools that we then pass over to, again, to the GPO group.
Agatha, do you want us to pick up on the second-
Yep.
Fourth question?
Oh, sorry, did you want to speak about maximizing incentives for third parties?
Yeah, and yeah, I think the question there was, is, you know, there's a lot of that decision-making on the third party. Is it more of a black-and-white, you know, financially driven decision, or is it broader than that? And I think, hopefully, you're getting a sense that it's a bit of both, really.
I mean, certainly, the economics are a driver, and that's gonna get everyone's attention, but some of the other areas that are important are quality, availability, sustainability, quality assurance, all those elements. And I think when we, you know, when we bring product availability or new deals to our third-party members, we really try to represent it, not just the economics, but in a holistic way. K arl, you guys face similar elements of trying to bring a holistic view to conversions in the UK.
Yeah, I think it's very similar, Dennis, as you say.
Thank you very much.
Thank you, Leo. I believe that was our last question?
Yes, ma'am.
Wonderful. Well, thank you very much for joining us today. We hope that you found this session informative. We look forward to connecting with you again at full year, which is on the twenty-sixth of November. Thank you very much.