Institutional Channels in the US

Steady economic recovery a boon to institutional channels in the US

Economic growth in the US has steadily accelerated over the past few years after the economy posted tepid growth rates in the immediate aftermath of the 2008 economic recession. This overall recovery has been a boon to institutional channels in the US, with the number of establishments and employees in the US steadily increasing during 2015 and 2016. Seven years removed from the 2008 stock market collapse, prospective entrepreneurs in the US are gaining greater access to capital to start their businesses, and existing operators are looking to expand their businesses as well. This makes the institutional channels in the US attractive as suppliers and distributors are being called upon to meet the growing business-to-business (B2B) demand. The country’s steady economic growth distinguishes its institutional space from other regions such as Latin America and Western Europe whose economies have posted sluggish - and even declining - growth rates.

Institutions prioritise nutrition as contract foodservice grows

Educational institutions and hospitals in the US are increasingly prioritising nutrition when selecting contract foodservice providers. According to a recent study by the US Center for Disease Control (CDC), there has been a sharp decrease over 2006-2014 in the percentage of primary schools in the US that offer unhealthy food items such as French fries and high-fat milks. The CDC study also saw a rapid increase over the same time period in the number of primary schools that offer healthy food items such as whole grains, vegetables and salad bars. In a similar vein, 29 hospitals in Massachusetts took a pledge in March 2016 to serve at least one meat item that is free of antibiotics, and the Partnership for a Healthier America-led “Hospital Healthier Food Initiative,” which began in 2012, now includes over 700 participants nationwide and sets guidelines for hospitals to encourage healthier food purchasing. Despite these efforts, challenges remain as many hospitals are locked into agreements with major contract foodservice operators and thus do not have much flexibility in their ability to purchase healthy foods. Overall, however, educational institutions and hospitals in the US have made a concerted effort to provide students, staff, patients and visitors with healthier food options, a trend that echoes a broader cultural shift in the US whereby consumers actively seek out foods with fresher and healthier ingredients.

Suppliers and distributors grow through acquisitions

Though the market for both contract foodservice and cleaning is highly fragmented, the bigger players are capturing an increasing share of the market through acquisitions. The aim is to grow both vertically and horizontally so as to be present nationwide with a local presence as well as be present in all channels and routes. Acquisitions though are changing focus. Bigger players are aiming for smaller, independent players in order to capture the local audience that has a clear preference for a more local offering. Interesting examples include Compass Group that acquired CulinAart Group. CulinArt is a major independent contract management firm operating primarily in the business and industry, college and private school segments. This acquisition will expand the sectoral as well as the local reach of Compass. The company will continue to operate under its own name per a philosophy Compass has maintained through a series of acquisitions of prominent formerly independent contract firms since its entry into the North American market in 1994. Another representative example is that of Elior Group, the French parent company of US foodservice management firm TrustHouse Services Group which announced the acquisition of ABL Management, a Louisiana-based provider of dining services to the correctional and higher education segments. This acquisition will provide TrustHouse with an additional portfolio of nearly 200 corrections and higher education clients. Following suit and in order to put aside the failed merger of US Foods and Sysco, US Foods acquired Dierks Waukesha, a family-owned distributor with 3,500 customers in the upper Midwest as well as Cara Donna, a family-owned company with 1,300 customers in New England. Sysco, on the other hand, acquired North Star Seafood, which gives the company access to relationships with seafood suppliers and access to Florida’s local market. The company also acquired European distributor Brakes Group in an effort to grow its presence at an international level.

Minimum wage hikes spur concerns for contract cleaners

Many institutional operators in the US rely on unskilled and low-skilled labour, especially those within the contract cleaning space. Concerns have grown - and will continue to heighten - for these operators as local, state and federal governments pass legislation raising the minimum wage. In April 2016, New York Governor Andrew Cuomo signed a bill that raised the minimum wage, which will reach US$15 at the end of 2018 after annual increases of US$2. California Governor Jerry Brown signed a similar bill in 2016 as well. In addition to New York and California, legislative bodies across the country have passed or are considering bills that would raise the minimum wage. Within the institutional channels context, contract cleaning services and other operators have relied upon low-skilled labour, and the increases in minimum wages across the country have reverberated in this space as well, forcing operators to adjust their labour force to meet these requirements.

Institutional channels through 2021: Residential care facilities and business services post strong growth

Institutional channels in the US are expected to grow through 2021 as the economy continues to rebound. This growth is expected to be particularly strong in spaces such as residential care as the “Baby Boomer” generation begins to retire and ultimately transitions into assisted living facilities. Furthermore, government-run institutional channels such as the military are likely to decline over the forecast period, primarily due to the US federal government’s continued paralysis and unwillingness to collect additional tax revenue to fund these bureaucracies. In the private sector, business services in the US are expected to grow in the forecast period because of the country’s transition to a services-orientated economy as opposed to one which is primarily based on natural resource extraction and manufacturing.

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