Canteen Corp.: largest Compass division dispenses high returns as nation's leading vendor

Nation's Restaurant News, March 2, 1998 by Paul King

Canteen Corp. may operate these days as a vending division under the umbrella of Compass Group USA, but that doesn't mean the Canteen name has lost any clout.

In the foodservice industry the nearly 70-year-old Canteen is still synonymous with machine-dispensed foods and beverages. At $900 million in annual revenue, Canteen is the largest Compass Group division, $50 million larger than Eurest Dining Services.

It has a staggering 17,000 clients and 6,000 employees and controls more than 80 percent of Compass Group's fleet of 5,000 vehicles.

For all that, Canteen still has a bit of a split personality, according to division president Anthony Gagliardi.

"Usually, vending is that last thing people think about in the contract environment when it comes to operations and planning," Gagliardi says. "But it's the first thing they think about when it comes to financial returns. A well-run vending service can drive the profitability of the entire foodservice program."

Gagliardi's charge, then, is to educate clients and potential clients about the changes that have taken place within Canteen and in the industry over the last five to 10 years.

On that front Gagliardi has plenty of ammunition. Through acquisitions and consolidation Canteen has emerged as the predominant player in the vending industry. With the purchase of Service America's vending accounts in 1996, Canteen has become three times larger than its closest competitor and virtually the only national player.

The other major contract companies -- Aramark, Marriott and Sodexho -- handle some vending as part of their in-house dining programs, but none has a division dedicated to vending.

Not that Canteen is only a vending concern these days. Although 85 percent of its business comes from machines, the division slowly is making inroads into several other areas.

After spending more than 20 years in the foodservice industry, this erstwhile scientist -- Gagliardi has a degree in biology with a minor in chemistry from the University of Nevada at Reno -- has acquired the experience to make those inroads successful. His term of service has included eight years with Saga Corp., another couple of years with Szabo Corp., four more years with Aramark after the market leader purchased Szabo in the 1980s and finally a stint as president of Wometco Food Services.

When Gagliardi was hired by Wometco, he turned a company that derived 90 percent of its revenue from vending into a more diversified entity that relied on vending for only 65 percent of its sales.

Gagliardi became head of Canteen Vending when Canteen bought Wometco in May 1993, mere months before Canteen was in turn acquired by Compass. Now his charge is the same: to grow the vending business and make it more diverse.

Chief among the current nonmachine foodservice Canteen operates are office coffee service, primarily in Chicago and the Baltimore-Washington area, and the stocking of prison commissaries. In that venue Canteen's largest account is Los Angeles County Department of Corrections.

"We are selling ourselves to this market on the fact that we have the warehousing, we have the management, and we have the computer system and distribution system," explains Gagliardi in a voice that, despite all the positions he has held all over the country, still retains some of the accent from his home state of Michigan.

"We also have a concept called Service Express, which we inherited through the Service America acquisition," he adds. "We have 71 of those locations, which I would compare to a convenience store, in which we augment vending with, say, a sandwich kiosk, milk, cards and magazines."

Gagliardi says the concept has been enhanced and refined by borrowing from Compass Group's U. K. version, called Stop Gap.

"And we also have a lot of manual foodservice, about 300 small cafeterias that are combined with vending."

It is that diversity, he notes, that makes running Canteen so exciting.

"Quite frankly, running a big, diversified, decentralized company is a challenge, and the challenge is not much different from running a large foodservice operation," he says. "They are very similar. Yes, vending is very capital-intensive, but in manual foodservice the commitment to labor, equipment and real estate can also be high, leading to a subsidized operation. In vending there is a solid return on investment that can help bring down the percentage of subsidy in a foodservice department."

Frequent vending customers have noticed how much vending machines have changed over the years, in terms of the variety of products that can be vended. Perhaps the biggest change, according to Gagliardi, is the advent of frozen entrees that customers can reheat in a nearby microwave oven.

"In addition, the beverage machines have undergone a tremendous evolution," he adds. "We've gone from cups to cans to bottles -- both glass and plastic. You can get 10-ounce cans, 12-ounce cans, 16- and 20-ounce bottles. We've gone from offering just regular coffee to vending flavored coffees, espressos and cappuccinos."