You could have heard a pin drop for months, until the buzz returned little by little. And anyone who orders his soup, salad or croquette sandwich in a canteen around noon today will have noticed: the crowds are back at many lunch spots.
Or will that remain the case everywhere? At the French caterer Sodexo (412,000 employees, 17.4 billion euros turnover) they are certainly not reassured. Yes, the recovery was considerable after the free price fall in 2020, but in the latest outlook that the multinational gave in its half-year results at the beginning of April, the corona specter resurfaced. In addition to the war in Ukraine and an earlier than expected contract with the British Ministry of Health, the company points to a “resurgence” in local corona outbreaks, which together creates a “climate full of uncertainties”.
That’s not the message investors like to hear right now. Investors in Sodexo lost all the necessary confidence due to the reluctant start of Sophie Bellon, the new top woman. She is the daughter of founder Pierre Bellon, who passed away at the end of January at the age of 92. “The new CEO and management team are not convincing enough,” said AlphaValue equity analyst Yi Zhong from Paris. “The market had expected more in the first trading update since the appointment of Sophie Bellon. But strategic plans and ambitions failed to materialize, as did messages about new contracts. The share price fell by 10 percent.”
Since its foundation in the 1960s, Sodexo, best known in the Netherlands for its company restaurants in offices, care centers and universities, has grown into one of the largest catering companies in the world behind the British Compass. That market leader has also seen its turnover decline sharply in recent years, from 31.7 billion dollars to 24.5 billion dollars (about 23 billion euros). It is indicative of the blow that the sector has received due to working from home and the many canceled events. In 2020, 800 of the 3,000 jobs in the Netherlands were cut.
Sodexo now offers a range of other services for companies and institutions. From cleaners, landscapers and fitness instructors, to technical administrators, postmen and waste processors: at Sodexo, the facilities management industry now accounts for a third of total turnover. That is twice as much as competitor Compass (15 percent).
“Working from home is still depressing volumes in this sector and will continue to do so,” said analyst Matthias Desmarais of Franco-German wealth bank Oddo BHF. “Three to four percent of the market is gone for good, I expect.” High volume in a particular region is important for companies like Sodexo so that they can take advantage of economies of scale. If not, profit margins will be lower and you will eventually see the company leave. For example, the number of countries in which Sodexo is active shrank to 55 this year, according to the latest half-year report.
Meanwhile, Sodexo faces two new challenges: the tight labor market and skyrocketing inflation. Although the company knows how to handle this well, according to analyst Desmarais. “In most countries, Sodexo manages to find sufficient staff. Although they clearly have to pay them more than before.” The figures show this: wage expenditure rose sharply in the first half of 2022: from 3.6 to more than 4 billion euros, compared to the same period last year.
And inflation is indexed in most customer contracts, Desmarais says. “Sodexo is a very flexible company, they are used to inflation and can pass on higher food prices to the customer. As long as that inflation does not get too high and continues for several quarters in a row.” Sodexo will present its third quarter figures on Friday.
A version of this article also appeared in the newspaper of June 27, 2022