Aramark Corporation Business Information, Profile, and History

Company Perspectives:

Because we value relationships, we treat customers as long-term partners, and each other with candor and respect. Because we succeed through performance, we encourage the entrepreneur in each of us, and work always to improve our service. Because we thrive on growth, we seek new markets and new opportunities, and we innovate to get and keep customers. And because we're ARAMARK, we do everything with integrity.

History of Aramark Corporation

ARAMARK Corporation is a diversified service company whose operations include the ARAMARK Food and Support Services Group, the ARAMARK Uniforms and Career Apparel Group, and the ARAMARK Educational Resources Group. Its food service and support operations provide food, refreshments, facilities, and various other services to corporations, health care systems, schools, colleges, convention centers, national parks, sporting venues, and correctional institutions. ARAMARK's uniform operations--the second largest in the United States&mdash′ovide workplace clothing services through ARAMARK Uniform Services, WearGuard-Crest, and Gall's Inc. The firm's educational services provide child care and education programs through its Children's World Learning Centers. The division also provides private education programs. In 2000, ARAMARK--owned mainly by its employee managers--was ranked as one of the top 100 'Most Admired Companies' by Fortune magazine.

Company Origins

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. (ARA), and earned $24 million in its first year.

A Period of Expansion: 1959--69

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 Company, 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 (FTC) required ARA to divest itself of a number of vending companies, worth about $7.6 million in annual sales. The company complied, selling one-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.

Problems Arise: 1970s through the early 1980s

In 1972, the FTC again charged ARA with anticompetitive 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 largest 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 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.

New Management: Mid-1980s

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 buyout, 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.

Success Under a New Corporate Identity: The 1990s

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, ARA developed a new logo and changed its name to ARAMARK Corporation in 1994, reflecting the changes that it had undergone during its 36-year history.

Organized under a new corporate identity, ARAMARK experienced success and growth in the mid-1990s. The company continued its tradition of serving Olympic athletes in Atlanta, Georgia, during the 1996 Summer Games, having served all but one of the events in the last 28 years. The firm also teamed up with renowned chef Charlie Trotter to design menus and wine lists, and to implement chef training programs for its executive and corporate dining division. Under the leadership of Neubauer, the company's focus remained on securing strong and strategic relationships with its customers. By 1997, ARAMARK recorded $6 billion in sales.

As the firm's food service business prospered, the company's other business segments continued to grow as well. Its child care business, through its Children's World Learning Centers, was second behind Kinder-Care in terms of students in 1997, and served over 80,000 children. The firm's uniform business also fared well with large customers like McDonald's Corp. Along with strengthening business operations, management also sought to solidify its ownership in the company and announced a $440 million stock buy-back plan of its entitled 'Share 100' in 1997. According to ARAMARK management, the buy-back of the 20 percent owned by outside investors was necessary to thwart any future takeover attempts. CEO Neubauer was quoted in an Amusement Business article stating, 'This marks the successful conclusion of a buy-out process that started in 1984. Over the past 13 years, we've proven we can generate enough cash to fuel continuing growth and increase our ownership of the company.'

In 1998, ARAMARK secured a ten-year contract with Sprint Corp. to manage food service operations at its world headquarters. The company also continued developing its PanGeos and Fresh World Flavors food concepts, debuting those as well as new ideas at the Goldman, Sachs' Manhattan headquarters cafeteria. With nearly 65 percent of company revenue's stemming from its food services and support services division, management continued to focus heavily on that area. In early 1999, the firm announced plans to acquire the Restaura dining operations of Viad Corp. The deal was anticipated to boost corporate food service revenues by 18 percent. By continuing to land new customers, ARAMARK secured $750 million in revenues from new business in 1999.

Continued Growth in the New Millennium

ARAMARK's growth strategy continued into the new millennium. While facing increased competition, tight labor markets, and rising costs, the company continued to look for strategic partnerships and alliances. In March 2000, the firm acquired the food and concession services of the Ogden Corp., which would make it the largest sports and entertainment concessions provider in the United States. ARAMARK also contracted with Boeing Corp. to provide food services to its locations across the country. The $700 million deal was the largest competitively-bid contract for food service in the industry. Other contracts for the year included deals with Wal-Mart and CitiGroup. The company also partnered with Einstein/Noah Bagel Corp. and Ben & Jerry's Homemade Inc. to open licensed stores on college campuses. ARAMARK expanded globally as well with a joint venture with Campbell Bewley Group, the largest food service company in Ireland.

According to the Outsourcing Institute, U.S.-based companies spent over $200 billion in outsourcing noncore operations and were predicted to spend over $300 billion in 2001. ARAMARK continued to focus on being the first choice among these businesses for providing managed services in its core areas of operation. By serving 15 million people on a daily basis at 500,000 locations in 15 countries, ARAMARK was poised to remain an industry leader in the years to come.

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

Principal Competitors: Cintas Corp.; Compass Group; Sodexho Marriott Services Inc.

Chronology

• Key Dates:

• 1959: Automatic Retailers of America, Inc. (ARA) is established.
• 1961: ARA acquires the Slater Company, the largest food service business in the United States.
• 1964: Revenues exceed $200 million.
• 1968: ARA acquires the District News Company.
• 1972: ARA faces FTC charges due to its monopolistic control of the vending machine market.
• 1977: The company divests nearly all of its vending machine operations.
• 1981: A federal grand jury begins investigating the company's student transport division; sales begin to drop off.
• 1984: The company restructures and executes a leveraged management buyout.
• 1992: ARA provides international food service at the 1992 Barcelona Olympics.
• 1994: The company changes its name to ARAMARK Corporation.
• 1997: ARAMARK enters the hospital food services market.
• 1999: ARAMARK acquires the Restaura dining operations from Viad Corp.
• 2000: ARAMARK purchases Odgen Corp.'s Entertainment division and secures a $700 million food service contract with Boeing Company.