Coffee supply deal cuts Compass costs

COMPASS, the catering group, has struck a ground-breaking global supply deal to source all the coffee it buys from one supplier, slashing its purchasing costs.

Compass is to buy all its coffee from Kraft Jacob Suchard, the chocolate and food group which is part of the Philip Morris empire. Financial details have not been fixed, but analysts expect the deal to cut Compass's coffee costs by 35 per cent, saving about pounds 5m a year.

The agreement is Compass's first major step towards exploiting economies of scale in purchasing. Francis Mackay, the group's chief executive, hopes to bring the group's entire $2.5bn (pounds 1.5bn) purchasing into similar arrangements.

The initial agreement with Kraft covers Compass's European operations, which buy 2,500 tonnes of coffee a year. However, a further 5,000 tonnes from the group's US operations are likely to be added to the deal when existing supply contracts end.

Didier Coutee, Compass's purchasing director, said Compass previously bought 150 blends of coffee from 50 suppliers. But the company decided that it only needed eight blends to serve all customers.

Kraft Jacob Suchard was selected from a line-up of eight competing suppliers.

The deal is likely to provide a template for other agreements. "Coffee is one of the most difficult products, as it is very sensitive to different tastes. But this will improve the consistency of our coffee," Mr Coutee said.

Coffee is one of the largest bulk items Compass buys. Apart from serving corporate customers such as Philips and GEC through large catering contracts, the company also operates almost 700 Cafe Select and Cafe Ritazza coffee bars.

Compass is siting its outlets in railway stations, airport concourses and shopping malls, as well as setting them up inside the office canteens of its corporate customers.