Cake and crisps crisis

[Metroland]

Britain's largest owner of railway food and beverage outlets is in talks with its bankers as falling passenger numbers expose weaknesses in a £1bn private-equity deal struck at the peak of the market.

Select Service Partners, which was previously owned by catering group Compass, has a business portfolio that includes brands such as Upper Crust, Millie's Cookies and Caffè Ritazza, as well as franchised brands like M&S Simply Food, Burger King and Starbucks.

However, the company met its lenders last week amid concerns that the company is over-leveraged and may breach its financial covenants.

SSP operates more than 1,800 catering and retail concessions at airports, train stations, motorway service stations and shopping centres in Europe, Asia and North America. In the UK and Ireland, it operates more than 610 outlets at 22 airports and 115 rail stations.

The news comes amid reports of falling train and air passenger numbers, which will directly impact the number of potential customers passing by SSP's sites. Transport for London confirmed today that a million fewer passengers travelled on the London Underground in January, causing it to shelve plans for network upgrades. The airline boom also seems to have come to an end, with the Civil Aviation Authority reporting that 4.6 million fewer passengers passed through Britain's airports in 2008. Retail spending has also fallen.

http://www.guardian.co.uk/business/2009/mar/31/select-service-partners-debt-private-equity

 

[PhilipW]

They could, of course, lower their prices to attract more custom !!

 

[Spaceflower]

Yeah, for sure.:roll:

 

[Dennis]

With the ongoing reduction of on train catering I'd have thought business would be picking up at station retail oulets.

But which ones better: booger king or a microwaved on train burger. There's only one way to find out....

 

[whoshotjimmi]

They could, of course, lower their prices to attract more custom !!

Looking at the news item, it appears that some of the high prices are required!

This all smacks a little bit of mismanagement. It is, sadly, a tale that is being retold over and over again at the moment. Businesses see the money making potential as they ride the crest of the wave and then struggle to cope when falling off the other side. It is general greed that is at the centre of the majority of current problems. Whilst I have absolutely no problem with people making as much money as possible when it is available, there has to be a significantly strong plan in place if, and when, said money making ability is suddenly reduced. A couple of years back, I pulled out of a business opportunity due to it being very high risk and leaving a very difficult situation in the event of downturn - which I also predicted.

The question in my mind is this:

Why, if a 23 (21 at the time) year old can make a simple costs vs profits analysis with the possible prospect of a downturn, is a large, multinational conglomerate, with years of business experience, unable to put together a business plan with a sufficiently strong exit strategy in case of 'recession'? It is incomprehensible that such organisations made such dangerously unstable deals that are not failsafe. There is money to be made from a risky strategy, I will concur and obviously this means that some will succeed and some will fail. But a company the size of SSP?! Surely there was no need for such gamble. As I said, sadly, this appears to be the way in which many large businesses have conducted themselves - ploughing forward with unrealistic increases in spending with no regard for a fluctuating economy.

 

[Metroland]

It was thought that boom and bust was cured. All that happened was business cycles were moved out by ever increasing leverage, mainly created out of nothing using the fractional banking reserve system and derivatives. It was always going to be a fools game. Capitalism is prone to speculation, over production, and short term investments, thus there are business cycles, especially when we pass through periods of innovation - the Schumpeter theory of creative destruction - this is effectively where you destroy old economic models and ways of production. That's exactly what the internet has brought on.

Schumpeter used the railways as an example of this: The “Railroadization” of the United States, as Schumpeter calls it, was an unprecedented engineering achievement, and a milestone in the development of both the American business system and the nation itself.

Of course Government control is even more inefficient, but the brand of corporatism and globalisation aided and abetted by the banks was deeply flawed as it has produced such inequities (where 2% of the world's population control 50% of assets, and 50% of the population are left with 1%) and hid all the debt in packages of finance that nobody had a clear audit trial to.

But you have to ask, considering the prices of some of these goods, and the likely footfalls just why such a business is so heavily indebted. It smacks very much of greed at some level.

 

[yorkie]

How many sandwiches do Upper Class throw away? I rarely see people buy them, yet they replenish them every 3 hours or so.

I suspect they only sell one in three and that's why they cost about £3.50!

 

[Railjet]

Why, if a 23 (21 at the time) year old can make a simple costs vs profits analysis with the possible prospect of a downturn, is a large, multinational conglomerate, with years of business experience, unable to put together a business plan with a sufficiently strong exit strategy in case of 'recession'?

Smart logic, but the reason is that business plans have to be presented to banks to get loans. And banks don't want to hear the word recession in any form. Any question of downside and they're out. It'll affect their bonuses, after all

 

[whoshotjimmi]

Smart logic, but the reason is that business plans have to be presented to banks to get loans. And banks don't want to hear the word recession in any form. Any question of downside and they're out. It'll affect their bonuses, after all

I don't think the term 'recession' would have to come in to it at all. Surely, a bank loan would be more forthcoming if the bank knew that a backup plan was in place. That is a much smarter business plan - certainly much safer and a better gamble for the bank at that. In my (albeit limited) experience, the "what if?" plan, or lack thereof, is very much what seals or breaks the deal.

But you have to ask, considering the prices of some of these goods, and the likely footfalls just why such a business is so heavily indebted. It smacks very much of greed at some level.

Agreed. Regardless of falling passenger numbers, potential business is still there. So why do they not sell enough? If they answer that question, I suspect they may find that they can pull themselves out of trouble.

 

[Railjet]

I don't think the term 'recession' would have to come in to it at all. Surely, a bank loan would be more forthcoming if the bank knew that a backup plan was in place. That is a much smarter business plan - certainly much safer and a better gamble for the bank at that. In my (albeit limited) experience, the "what if?" plan, or lack thereof, is very much what seals or breaks the deal.

Well, the very crisis we find ourselves in presently must imply that in a lot of cases such back-up plans didn't exist, or if they did, they were unrealistic.

 

[BlythPower]

Well, the very crisis we find ourselves in presently must imply that in a lot of cases such back-up plans didn't exist, or if they did, they were unrealistic.

For most British businesses the 'back-up plan' seems to consist of the directors siphoning as much cash as possible into their back pockets before the company goes belly up...

 

[Metroland]

And banks don't want to hear the word recession in any form.

Isn't that the problem, its all growth at any cost, and sod the workers rights, animal rights, pollution, use of finite resources, as long as the people at the top are making lots of money.

If you are right wing, you believe in market forces, and you are the best person to spend your money. Which is great if you have any, or the opportunities. If you are left wing, you believe in putting money into a big pot and letting the government run things, if you are very left wing, to such an extend the government actually plans production of all goods and services. Not so great if you like earning money yourself, and controlling your own destiny.

The fact is either on its own is totally disastrous. Neither markets, on their own, or governments (because of political pressures) can be trusted and are crap at creating wealth. Which is why all main stream parties now believe in mixed economies, here and in most western states.

While there is no perfect system (because humans are imperfect), my own belief is there needs to be a combination of markets and government (without the corporate welfare of new labour and control freakery), with a heavy emphasis on personal and social responsibility, sustainability and ethics. Which is where the education system, badly, badly fails for the most part. There's far too much 'grab and consume what I can or can't be bothered' and is the basic cause of all economic and social problems.

 

[shinkansen09]

Select Service Partners, which was previously owned by catering group Compass, has a business portfolio that includes brands such as Upper Crust, Millie's Cookies and Caffè Ritazza, as well as franchised brands like M&S Simply Food, Burger King and Starbucks.

Before the start of the re-vamp at Kings Cross, if I remember correctly were there not the following outlets?:
Burger King
Millies Cookies
Cafe Ritazza
M&S Simply food
Upper Crust
These retail outlets listed above covered just about every shop for food and drink sales in the station. So two things come to mind, firstly they basically had a monopoly in the station for anyone who was hungry/thirsty. Secondly their rental cost for these outlets must have been astronomical. Did the cost of the combined rent help to kill the business as they would all be accounted as seperate businesses?, not able to off-set costs between each other.
Why was this not flagged up to the monopolies and mergers commission? No wonder they could charge exthorsionate prices for a cheese and pickle baguette, because if you were hungry they were going to get you in one shop or the other. I thought it was against the public interst to have a monopoly! :-x
If they have a captive market and still can`t make money they deserve to go bust
That`s capitalism for you :roll:

 

[bluenoxid]

It's mainly the takeovers that are causing the problems. They probably are making significant amounts of money but if you can't keep your finance costs down, they are going to suck up a lot of money (a common motto in my family is that the most expensive thing to buy is money).

And before you go on about rip off prices, I think you should take a look at how much of a share Network Rail (landowner) and the companies (WHSmiths, etc for the franchising rights) take. They used to say that many of the Airport branches of shops were loss makers but designed as flagships.