Aramark Corporation Business Information, Profile, and History

History of Aramark Corporation

Aramark Corporation is a diversified service company with five major lines of business: food service, health care, child care, uniform services, and periodicals distribution. Its food service operations serve such diverse customers as Fortune 500 executives, prison inmates, college students, Olympic athletes, and tourists. Its Spectrum Health Care Services subsidiary offers emergency care, correctional medical services, primary care, and anesthesia services. Child care is provided through its Children's World Learning Centers subsidiary. Aramark's two uniform companies, WearGuard, a direct mail retailer, and Aramark Uniform Services, a producer of uniforms and work clothes, are the largest in the United States. Its Magazine and Book Services is also the largest wholesale distributor of periodicals in the United States, serving more than 18,000 retail locations. In 1994 the company's revenues topped $5 billion.

Aramark was founded by Davre Davidson and Bill Fishman, both owners of peanut-vending businesses. The two had never met when they started expanding the boundaries of the traditional vending industry in the early 1940s. In Los Angeles, Davidson began moving his machines from traditional outlets like drug stores, bowling alleys, and restaurants to factories and offices. In Chicago, Fishman was attempting to transform his vending operation from a "fringe benefit" into a bona fide food service operation. The two met when each won a contract to serve Douglas Aircraft plants in Santa Monica and Chicago. In the following years, they frequently discussed their desire to provide food service along with their vending operations. Finally, after a number of unsuccessful attempts to subcontract to catering companies, the two decided to merge their operations in 1959. Their company was incorporated under the name Automatic Retailers of America, Inc., and earned $24 million in its first year.

Almost immediately, the company began expanding through acquisitions. Between 1959 and 1964, ARA merged with or acquired more than 150 smaller vending companies. Its largest acquisition (and one that fulfilled a dream for both Fishman and Davidson) was the 1961 purchase of Slater Systems, Inc., the largest food service business in the United States, for $15 million. The purchase made ARA a diversified food service company, and gave it a strong foothold in institutional markets such as colleges and universities. During the early 1960s ARA led the trend among vending companies to expand into the food service industry. "We recognized that vending was moving into food service and that this more sophisticated business would require skills we couldn't attain individually," Davidson told Business Week in 1964. By 1964, ARA operated 95,000 vending machines, offering freshly brewed coffee, hot soup, sandwiches, and other items. It had 750 cafeterias or other "manual food service" outlets, and total revenues of $200.6 million.

The company's dominance of the vending industry grew so quickly that in 1964 the Federal Trade Commission required ARA to divest itself of a number of vending companies, worth about $7.6 million in annual sales. The company complied, selling a third of the required portion by 1965 and the remainder in the following year. Fishman and Davidson had other plans for their company's growth. "We're in the service business," ARA vice-president Harry Stephens told Business Week, "And food is only one of the services necessary to keep an institution operating. There's janitorial services, cleaning, lawn care, security, laundry, accounting, many things." This concept became the cornerstone of ARA's expansion. The company established a division to run resorts, sports parks, and amusement parks; acquired Air La Carte Inc., a private company that provided in-flight meals for more than 20 domestic and international airlines; and ventured into periodicals distribution, purchasing 39 local distributorships over a period of about four years.

In 1972 the FTC again charged ARA with anti-competitive practices. The first complaint stated that its recent purchase of 39 distributorships posed a potential monopolistic threat. The second charged the company (which by then had grown to be the nation's biggest vending machine company) with anticompetitive practices through the purchase of 97 separate vending companies. ARA vigorously defended itself against the charges, stating that "approximately 80 percent" of ARA's revenues were not earned by the segments under question. In 1973 the court ordered ARA to cease purchasing "certain types of wholesale operations in the paperback books and periodicals field" and to divest itself of a portion of its vending business. The company's image suffered again in 1973 when a federal grand jury indicted ARA, Western Vending, and AAV Cos. of Cleveland with colluding to fix prices and illegally control the customers and locations of cigarette vending machines. ARA filed a "no contest" plea, stating the that the charges dealt with a market segment that was too small to warrant the cost of defending them in court.

ARA's earnings grew at a compound annual rate of 10 percent from 1970 to 1975, fueled primarily by internal expansion. In addition to its food and distribution services, ARA had branched into student bus services, maintenance and housekeeping, and merchandising. The majority of the company's income, however, came from food service. According to analysts, its growth was remarkable given the rising foods costs that had adversely affected many companies in the food service industry. "We try to manage our services like an investment portfolio," Fishman told Financial World in 1975. "While one area may be down another is up. That's why we've been able to hold our margins." During this time, the company also ventured into the somewhat unpopular nursing home management field, purchasing National Living Centers in 1973 and Geriatrics Inc. in 1974. Although many in the investment community questioned the move (leading to a drop in stock prices), Fishman defended it, stating, "We've been in the medical market for over thirty years, so it was just a natural transition."

By 1977, the company had divested almost all of its vending operations. That year, the FTC asked the federal Justice Department to force ARA to further divest itself of four periodicals distribution companies in the South and Midwest, stating that the purchases were in violation of its 1973 order. ARA complied with the order, paid a $300,000 fine, and continued to grow through the purchase of several service-oriented companies, including Aratex Inc., a uniform laundry and delivery service, Daybridge Learning Centers, a chain of day care centers, Smith Transfer Corp., a trucking company, and Physicians Placement, a management support and physician service for hospital emergency rooms. As it had with its other operations, ARA expanded each new division by purchasing other small companies and consolidating them.

The company also continued to develop internally. By 1979 ARA operated more than 6,000 food service establishments in the United Kingdom, Belgium, France, and Germany. In Canada, ARA purchased VS Services, a food service operation which quickly grew to become the largest food service operation in that country. Its student transport division, which operated school bus fleets throughout the United States, also grew at a rapid rate during the last half of the 1970s, providing 9.5 percent of revenues by 1979. ARA president and chief operating officer Marvin Heaps attributed the company's success during difficult economic times to its effective management of three factors: food costs, energy costs, and labor costs. Sales for the first six months of 1979 topped $1 billion. Earnings per share rose to $2.80, ten cents below the hourly wage the company paid a large number of its employees.

ARA's reputation was tarnished once again in 1981, as a federal grand jury began investigating the company's student transport division to determine whether it engaged in a bid-rigging strategy designed to squeeze out local competition. ARA management maintained that the company was a victim of a "smear campaign" started by disgruntled former employees and local transport companies angry that ARA had won certain bids. ARA's earnings dropped from $63 million in 1980 to $39 million in 1982, and share prices steadily declined, although sales had risen to $3 billion by fiscal 1983. Many investors believed that "the company's many divisions had gotten out of control from too much growth too fast." Although profits in its geriatrics, health care, textile-service, and distribution divisions were strong, profits in its trucking and food service divisions were severely affected by recessions, and its European food service operations also posted heavy losses.

Led by the newly appointed president and chief executive Joseph Neubauer, ARA management responded to the company's uneven results by reorganizing its divisions by geography as well as type of operation. Its acquisition program slowed slightly, focusing on companies in profitable markets such as geriatrics and distribution. The company also embarked on a major public relations campaign, with two specific goals: to make ARA a respected household word, and to generate a sense of corporate identity among its 112,000 employees. "Originally the strategy was 'we are servants in other people's homes and ought to be invisible,"' Neubauer told the Wall Street Journal in 1984. "But now we are going to stand for something." Advertising expenditures jumped to around $2 million as the company took out ads in major weekly magazines such as Time and Newsweek. Employees began wearing company uniforms embroidered with the ARA logo, and managers began receiving incentives, worth up to 45 percent of their annual salaries, as rewards for work well done.

Perhaps the largest change that year was an unexpected, $850 million leveraged buy-out, which was orchestrated by ARA management in the surprisingly short time span of 99 days from start to finish. Deemed an "absolute necessity" by management to prevent undesired investors from bidding for control of the company (although the only known bid was for $720 million from former food service division president William Siegel), the buyout was financed by borrowing from Chemical Bank and Morgan Guaranty Trust Co. After the buyout, ARA neither cut its operating expenditures, nor (with the exception of its unprofitable Smith Transfer division) sold any major assets to pay down the debt. ARA actually acquired three companies within its first three years of going private, while paying $100 million on its debt.

In the early 1990s, the company began selling assets, including its Ground Services Inc., which cleaned aircraft and handled cargo and baggage at airports. And in 1992, ARA spun off a portion of its geriatrics division in an initial public offering that raised $112.7 million. ARA held a 10 percent interest in the new company, which took the name Living Centers of America, and used $76 million of the money raised in the IPO to pay "certain intercompany indebtedness." By 1992, ARA's annual revenues totaled $4.8 billion. Its image was greatly improved, especially in its food service and leisure service divisions, where "customized service" allowed the company to expand throughout Europe and into Japan, and even serve Olympic athletes their native foods at the 1992 Barcelona Olympics. Its day care division was growing more slowly than desired, as corporations and government cut back on expenditures, but the rest of its operations remained relatively healthy.

Having transformed itself from a collection of vending machines into a mature, $5 billion corporation, in 1994 ARA developed a new logo and changed its name to Aramark Corporation, reflecting the changes that it has undergone during its 36-year history.

Principal Subsidiaries: Aramark Business Dining Services; Aramark Correctional Services; Aramark Refreshment Services; Aramark Campus Services; Aramark School Nutrition Services; Aramark Health Care Support Services; GMARA; Aramark Leisure Services; Aramark International Services; Aramark Uniform Services; WearGuard; Spectrum Health Care Services; Children's World Learning Centers; Aramark Magazine and Book Services.