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Marriot Got A Smart Partner, And Succeeded

sodexhoVirtually overnight, Marriott Management Services and Sodexho USA went from an industry leader and a runner-up to the undisputed onsite giant. With 4,800 clients and 100,000 employees, the merged company is one of the country’s 50 largest employers and serves an unrivaled 4 million contract meals to North Americans every day. The company’s volume is such that its Gourmet Bean service, included in more than half its food accounts, is the fifth-largest coffee brand in the United States.

CHANGE ARTISTS

Having combined names, the company’s first task was to merge operations, which meant blending two sets of employees, two sets of accounts and two sets of operations ranging from purchasing to payroll.

Of the two companies, Marriott clearly was the power hitter, with $3.3 billion in sales compared to Sodexho USA’s $820 million. Marriott also brought to the table a robust hospitality brand and highly developed business systems such as procurement and R&D. With its French roots, Sodexho offered a strong global perspective and expertise in small accounts, as well as plum contracts such as Harvard Law School and Saks Fifth Avenue. What effect the merger would have at corporate offices and at the account level initially was unclear.

O’Dell, who had been president of Marriott Management Services, says one of his biggest goals was to reassure employees, especially the managers on the company’s front lines. “Change is the worst four-letter word people can imagine,” he says. He could hear the grumbling: “I liked my old accounting system. I convinced my client I liked my accounting system. Now I’ve got to convince my client this [new system] is a good thing.”

The company lost some accounts in the past year, posting a retention rate of about 95%. O’Dell sees turnover as a constant business challenge rather than a reflection on the merger. “We lost accounts before the merger and we’ll lose accounts after.” Nevertheless, he adds, “it’s unacceptable to lose 5% of your business a year.”

CULINARY AT THE CORE

Although the merger has forced change on both companies, food remains a top focus for Sodexho Marriott.

Marriott’s successful Crossroads Cuisines program, which features innovative menus that reflect current food trends, remains a core offering for foodservice clients even as it continues to evolve and expand. Since the merger, the company has rolled out Trend Trackers, a program that supports Crossroads promotions throughout the year with recipes, point-of-sale materials and marketing ideas. In January, the Asian cooking station “Pacific Traders” was highlighted, featuring bento box meals and noodle dishes. Mediterranean-influenced foods, such as the risotto shown on the cover (and Beyond the Cover, Page 4), take center stage this month. Concepts being developed include La Vincita pizza and Harvest Hill bakery.

With Crossroads’ emphasis on demonstration cooking and innovative flavors, Sodexho’s expertise that comes from operating in 67 countries will help the food stand out. Local chefs are encouraged to contribute ideas, says Chris O’Connor, director of signature brands. Other trends emerge through regional councils and by pooling research and development with food suppliers and other vendors.

Tracking food trends is but one part of the company’s culinary strategy, says Leo Farley, vice president of culinary research and development. “I envision it as a big set of gears” he says. “This is truly the best solution I’ve seen”

The solution links marketing (developing ideas); culinary (turning ideas into recipes); procurement (sourcing supplies); and distribution (delivering the results to accounts). The culinary area, which Farley calls “the glue,” required some adjustment with the merger of the two companies.

“The first few months we had to learn to play nicely with each other” he says. When combined, Sodexho Marriott ended up with 18,000 recipes, which are being pared to about 7,000. Meanwhile, the company will continue to focus on the cornerstones of its approach food and culinary innovation remains a core focus for the company. to food. Menus must be flexible enough to be made from scratch or, where labor is scarce, cooked in stages with help from such items as prepared sauces. Foods must be innovative and varied, yet consistent in quality. Lastly, customers have to be happy with it, as measured by marketing research and customer surveys.

Just as important, Sodexho Marriott must be quick on its feet. “We can’t just be this lumbering giant;” Farley says. Although food trends may be tracked a year before they appear on the serving line, the company could develop, test and release a recipe in two weeks if necessary.

MORE ACCOUNTS, MORE PEOPLE

Programs such as Crossroads Cuisines also enhance flexibility, which has become even more important since the merger, O’Connor says. Menus can be adapted to fit a factory cafeteria, a grade school lunchroom or a corporate dining room. Crossroads also keeps pricing and food costs on an even keel because “people generally want to pay the same amount at lunch every day” O’Connor says. The promotion even addresses the industry’s current labor crunch; standardized brands, recipes and procedures make it easier to move workers between sites or to train temporary employees.

Personnel issues also have figured prominently in the merger. With more employees than ever, Sodexho Marriott has rolled out an innovative manager orientation program that gives employees control over their progress. New hires sit down with supervisors and set a 90-day timetable for completing various training modules in areas such as human resources and safety. Employees can choose to learn in a workshop setting or independently, says Fran Szabo, director of learning systems.

QUIET STOCK

As enthusiastic as Sodexho Marriott is about its new identity, the excitement has yet to hit Wall Street. The company’s stock peaked last year at $33.37 and has been trading lately in the low $20s.

Yet Lehman Bros. analyst Mitchell Speiser says the company has plenty to celebrate on its first anniversary. For the first quarter of fiscal 1999 ended in November, Sodexho Marriott reported that net earnings increased 58%. Second-quarter results were scheduled to be released this month, with Speiser predicting earnings at 20 to 25 cents per share. (Lehman Bros. is a Sodexho Marriott client.)

“I’ve seen companies start off in a bumpy way, but this has been a very smooth transition,” Speiser says. “Of course, it takes time to merge the cultures.”

It might appear that Marriott has retained its dominance over the smaller Sodexho even in the combined company. The new headquarters is just a few miles from Marriott International’s base, and many of the top officers, including O’Dell, are former Marriott executives. But Speiser, referring to them as “seasoned veterans,” likes the long track record the Marriott leaders bring. Marriott, he adds, is the “gold standard in hospitality.” He also notes that Sodexho Alliance owns nearly half the company’s stock and Sodexho officials have a third of the seats on its board of directors.

The company’s huge debt load, more than $1 billion inherited from Marriott International, doesn’t worry Speiser, either. “It’s a big chunk, definitely,” he says, but adds that the company has enough cash flow to offset debt requirements.

Investors may be cool to Sodexho Marriott stock for several reasons, Speiser says. With nearly half its stock owned by a European company, there’s not as much domestic interest as there might be otherwise. In addition, U.S. investors seem to have overlooked the contractor industry. Aramark, the company’s closest competitor in sales volume, is privately held. And many other contractors are focused on specific segments, such as health care or recreation. “There really isn’t a comparable base. The lack of a defined category is hurting them,” Speiser says.

That anonymity may fade as the company starts expanding far beyond foodservice management, a strategy Speiser finds most attractive. “That’s their competitive edge” he says.

ON TO OUTSOURCING

O’Dell agrees. “Our intent is not to be a food company. It is to truly be an outsourcing company.”

According to this vision, companies would turn over all responsibilities unrelated to their actual business to Sodexho Marriott: cleaning laundry, running child-care centers, washing floors, heating and cooling offices and, yes, serving food.

The company estimates the potential for food contracting at $52 billion, but puts the potential for facilities management at $100 billion. “We have a minute portion of that,” O’Dell says.

Sodexho Marriott already has its foot in the door. The company’s 30 laundries serve 400 clients–including all Kaiser Permanente health-care facilities. Sodexho Marriott also offers engineering and physical-plant maintenance, grounds-keeping, even customer-service training. Fifteen percent of its sales currently are nonfood related, Speiser says. “It’s not like they’re taking their eye off the ball.”

Cooking From Scratch

Sodexho Marriott’s new kitchen is more than just a place to test recipes; it’s a learning laboratory. And getting it up and running was an experiment in design and engineering for Chape Whitman, senior design manager.

The construction style of the company’s new headquarters building relies on steel cables for support; floors and ceiling had to be X-rayed to avoid snapping cables during renovation.

Ventilation was a special challenge. Special air handlers were hauled up onto the roof with cranes, a spectacle that attracted several employees and their kids. To allow work areas to be rearranged, major appliances are plugged into numerous electrical outlets rather than being hardwired into the floor or walls.

The result is an open, flexible space that encourages communication among different work teams, which will include vendors as well as Sodexho Marriott employees. Already booked through July, the kitchen will feature training for chefs, idea sessions, recipe development and testing and even photo shoots.

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