Aramark (ARMK) Earnings Call Transcript & Summary

Great. Well, good morning to everyone in the U.S. Good afternoon to anyone who's joining us from Europe for the first virtual STD -- SDC, the second day of the first virtual Bernstein Strategic Decisions Conference. And we're absolutely delighted to have John Zillmer here for his first SDC, the CEO of Aramark, a stock that I launched on about 1.5 years ago and has been a fun ride, I think it's fair to say, but a stock I still very much like with plenty of upside. Before I get into asking John some questions, a little bit of housekeeping. If you want to submit questions, there should be a link on the left-hand side for Pigeonhole. And if you go on there, there's also already some questions that people have submitted. You can vote for those as well if there's ones you want pushed up the list. Equally, there should be a link on the left for Procensus which is our survey partner. So please, if you could, during the event or after the event ideally, click on that link and fill that in. But yes, Pigeonhole for the questions. But I'll launch him with a few questions, certainly try and put in the questions that other people have put in as well on this. So John, welcome. Thanks very much for joining us today.

I think obviously, we'll probably start with the obvious topic of COVID-19. Do you think it would be fair to say that we are through the trough, we're beginning to be in a sort of net opening state? Maybe you can talk us through where we are in terms of your key divisions, Education, B&I, Sports, Healthcare, in terms of the sort of switch off/switch on rate today and what you're seeing in terms of improvement?

Yes, absolutely. Happy to do it. And thank you for hosting us today. Yes, I absolutely think we're through the trough. We've begun to see significant activity in terms of reopening across a range of the businesses, obviously all at very different states but a significant level of activity particularly as it relates to the B&I sector as employers are beginning to reopen, although in a fairly linear fashion. Small numbers of people coming into buildings over a period of time, I think, will be the approach that most businesses take at least here in the United States and I'm sure around the world as well. But this weekend, we saw significant activity in the national parks business. Most of the parks opened over the weekend, and we saw, frankly, better-than-anticipated participation. One of the phenomenon that's occurring is that people are going on local vacations and driving vacations, and the national parks business is a perfect opportunity for them to take advantage of that. And so we saw significant activity. The rest of the businesses, Higher Education especially, we're seeing more and more proactive statements, some intention to go ahead and reopen in the fall. Major universities are making announcements like Notre Dame, NYU, Arizona State, University of Arizona, Purdue, making proactive statements about their intentions of being in the classroom in the fall, and we think that, that bodes very well for Higher Education. I would tell you that literally, day after day, the feedback related to business activity gets more positive. So I would say we're definitely through the trough and beginning to see the positive uptick across a range of the businesses. The one that's probably the most still uncertain is Sports, still a lot of decisions to be made with respect to the major sports leagues domestically. Even though you may have play, they still haven't determined when fans will be in stadiums, and so we're still dealing with that level of uncertainty. But I will tell you our discussions with the owners of the teams and with the leagues, with league officials, they want to get back to playing real games. Both the players and the owners want to get back to playing in front of fans. So we're hopeful that as infection rates continue to drop and as practices can be adopted to allow for safe and secure operations, that we'll be able to get to some sports here some time over the next couple of months.

That's great. And I guess, for the last few months, John, you've been running a business which hasn't had as much activity. What have you been spending your time doing? How have you put the kind of resources that Aramark's got available to work? Maybe highlighting some of the work you've done in the community over this time as well, I think, as an organization would be good to hear about.

Terrific. Yes, absolutely. We've been very busy. And obviously, we have businesses that are operating nearly at full throttle. In the facilities business, Healthcare, corrections and certain other businesses, the activity level has actually been quite high. And so we've been engaged in continuing to invest in the business. We're continuing to invest in sales organizations, growth culture. We haven't -- as we reduced the operating cost of the business and flexed the operating model, we have not changed our investment strategy with respect to growth. And so we've continued to engage a lot of sales activity, both domestically and internationally. In fact, in international, we've sold over $100 million worth of business during the COVID crisis. So it's been a terrific level of activity there. But as an organization, we've also been very committed to serving the communities that we operate in, in a range of ways. In the K-12 sector, for example, we're serving over 1 million meals a day to students throughout the United States in various forms. So in the City of Chicago, for example, students can come and pick up 3 meals per day. And they come to their school and pick them up. We're preparing and delivering them to them. And so that level of activity has gone on and will continue as the USDA has given us a waiver to provide meals on a continuing basis. And then in the Healthcare sector, there's been obviously an extraordinary amount of activity related to serving first responders and health care workers on the front lines. And we had the opportunity to partner with the Debra and Leon Black family in the city of New York, where we're providing 0.5 million packages, bags, if you will, of products, both grocery items, personal care items, over-the-counter medications to health care workers so that they don't have to make a stop on the way home. They're spending -- most of them are working 7 days a week and are working extraordinarily long shifts. So this was an opportunity for us to give back to the community in New York City and to engage in the distribution -- the collection and distribution of those packages to the health care community. So -- and we're really doing that in many different cities across the country and in other cities around the world. Our people are our heroes themselves kind of working in that environment, and that's what Aramark does extraordinarily well. Our people tend to run to fires. When there's crisis going on, our people tend to run to the crisis and get in and start to work hard because that's what we do. It's a hospitality company, it's a service company, it's a caring organization. And maybe the best example of that was in Wuhan, where we really had patient 0 in the Hubei province. Our people ran to that community to go ahead and provide service in those hospitals as the crisis was developing. And as a result of their response, we've actually been awarded multiple new hospital operations throughout China because our people were so aggressively responding to the crisis there. And so that's what we've done. We've worked very hard in the community to serve others, and we'll continue to do that throughout this time.

And then maybe if we just turn onto a financial question. Obviously, you kind of like to protect this revenue shortfall that you're certainly seeing in the sort of short, medium term. You've raised some money through bonds. You've drawn down on the revolver. Is that process now complete? Do you feel that you now have the liquidity to protect yourself against the worst-case scenarios?

Yes, absolutely. We took the proactive actions really as a defensive measure, as a proactive step to go ahead and put us in a very good position. And we feel like we're in great shape, both from a liquidity perspective as well as our ability to respond offensively as circumstances arise over the next period of time over the next few months and throughout this crisis, if you will. We want to be able to step in into new opportunities. We think there'll be an increased level of outsourcing that will give us opportunities in large institutions, in health care, in higher education, and we want to be able to be on the offensive during that time period. So yes, we feel very good about the actions that we took. We feel like we're in very good shape from a liquidity perspective, and we're well prepared.

And what about your clients, your discussions as you kind of reopen that situation with clients? Maybe, first of all, from a financial perspective, are you seeing any distress among your client base? Is that changing anyone's ability to pay the fees? And then maybe I'll move on to a more operational question.

Yes. Actually, we're not seeing any distress at this point. Our clients -- these relationships for us are very long term. And so in general, we've had very productive discussions with clients as they've asked us to either slow down our level of activity or ramp up to serve unique needs. We've been able to negotiate terms that are appropriate for the operation as it scaled at the present time, and we continue to do that. As operations ramp up, there will be a different level of activity for some period of time, and our contractual arrangements will adjust for that. But we're not seeing -- we haven't had any uptick in receivables. We haven't had any uptick in late payments. No indications of significant financial stress. On the Uniform business, we serve obviously a lot of small customers. And even there, our receivables are current and in very good shape, so not really seeing any indications of it yet.

That's good news. And then operationally, how different is Aramark's operations going to have to be coming out of this? How easy is it to you to engage in social distancing and the other protocols you might need to put in place to adhere to those standards?

Yes, absolutely. It will obviously be different by line of business. But I think what we've done is we've developed a very comprehensive set of protocols for use in our operations that include all the things that you would normally expect like appropriate PPE for all of our frontline workers. We'll be temperature checking all of our staff daily. They'll have to add -- have to answer a medical questionnaire before they come to work. And then the facilities themselves, most facilities are designed in such a way that we can create the spatial requirements or the spatial areas necessary to go ahead. And we can do that by slowing the pace of people coming into the operations. We can do that by separation. And so I think we're well prepared. We introduced a program called EverSafe just a few days ago, which was developed in partnership with Jefferson University Hospital. It really is a very comprehensive set of safety and security and health protocols that we can apply to all the businesses we operate so that our customers and our clients can feel assured that we have state-of-the-art practices. These were developed -- Jefferson has a great epidemiology organization. They've got a -- they were really on the front lines in Italy as this crisis was unfolding there. They've been great partners to work with as we developed this approach. And so we're confident that we can deliver the kind of service that our customers need. We can adapt and flex the service model to serve the needs as they ramp up. And there will be some modifications. If you think about higher ed, for example, the days of the potato bar and the salad bar and the self-serve stations will probably be over for a bit until there's a greater degree of clarity around the vaccine. But those are things that we can adjust to rather easily. We've got staffing in those operations to be able to serve customers. There'll be more single-serve kinds of products that are available as well. So that's the great thing about this business. It's a very flexible operating model, and our people are really good at adapting to those service changes.

So I'm going to go on to a couple of questions that we've got on the board here because they fit into the next topic, which is really the sort of fallout we're going to see from the COVID situation. I'm sure these are some questions you're used to answering. So I'll start with Education. And with rising tuition costs, universities now closed, do you think e-learning is a viable disruptor to the Higher Education segment of the business? And maybe you can just sort of preface that with how important is Higher Education to your total company as a sort of rough percentage.

Yes. It is a very significant part of the business. It's our largest business unit, and it is one of the most profitable. It is extraordinarily important to us, and we're the leader in that sector. I would tell you that our -- the conversations we've had with university leadership, with students, with focus groups would tell us that e-learning is not a practical long-term alternative, particularly in the higher education experience, the campus dining educational experience. People have adapted and utilized the technology, but it really has served as kind of an emergency stopgap measure, if you will, that students really want to have the on-campus experience. They're not willing to pay, frankly, the tuition rates for the online experience. They don't see the value in it. They want the online -- I'm sorry, they want the on-campus experience where they're engaged with other students, where they're seeing their professors up close and personal, where they're -- they feel like they're -- that it's a more effective learning environment. So online, they're willing to accept that in the short term, but not as a long-term alternative. And we're seeing that even in the K-12 sector. Students quickly adapted to being able to do it, but they don't feel comfortable and don't like it for the long term. I have a 22-year-old granddaughter who's a senior at Loyola in Chicago who's completing -- who completed the semester online who can't wait to get back to the university and get back into class. And that's the reaction that most students have. So will it be a supplemental part of the educational experience? I think so, but I don't think it will replace the on-campus opportunity.

And maybe a similar question but aimed at the B&I segment. I mean, I think mostly we accept that there will be some increased working from home that comes out of this. How much of your revenue do you think is potentially a threat from that? And how can you address it? Can you deliver to home? Do you expect offsets maybe like higher take-up rates within corporate canteens? Or is there anything proactive you can do to offset that challenge?

Yes. I think that business, we believe, will be the slowest to recover as employers take their time to bring employees back. I think there is a sense that there may be a longer-term trend that exists there, dependent on what kind of workers you have in the given facility. If it's a knowledge worker facility, primarily white collar, you may have a much higher opportunity -- much higher percentage of people have the opportunity to continue to work from home. So we think that, that will continue. It will impact, in particular, the knowledge sector base most significantly. Think of Google and Silicon Valley and the opportunity -- the Salesforce.com, those kinds of organizations that -- where people are used to working from that -- from home and have that kind of environment. Roughly 20% of our business is pure white collar, 20% is pure manufacturing, and the rest is kind of a blend. About 60% is a blend between white collar and manufacturing. And so we've got lots of facilities where we have a plant and a corporate office together. And so I think over time, you'll see a shift in terms of total population in those facilities, and we'll have to adapt to serve the lower population base and change styles of service and adapt to that new normal, if you will. I do believe, however, that human beings are social creatures. And as a company leader, it is very difficult to manage company culture from the front of a computer terminal. And I think in the end, companies are going to recognize that there's a loss of productivity, there's a loss of engagement, a loss of cultural engagement that I think will drive companies to really kind of come back to the environment where people can gather and be part of the organization. And so I think it will continue, but I don't think it's going to be as significant maybe as some of the prognosticators would indicate and that there will be more of a return to normal over maybe an extended period of time.

Okay. And then maybe feeding off that a little bit, and this is a question, I think, that is highly controversial in the space at the moment. But if you see sort of volumes diminished over the longer term, is it -- on a very simple level, is a smaller contract less profitable than a bigger contract? And if that's not the case, what is the sort of time frame to adopt -- adapt your cost structure to a potentially smaller volume over the longer term?

Yes. Actually, we can adapt our contract almost instantaneously to those lower volumes. So literally, we can change service approaches and style of operation almost overnight. So we're able to adapt to those different populations, if you will. And as a general rule, smaller contracts tend to be management fee-oriented and not P&L contract. So the margins on those businesses generally are more protected because you don't have enough participation in order to draw on a P&L, right? So we have a management fee, and the management fees in that -- in this industry, particularly in B&I, tend to run in the mid-single digits, call it, 5% to 8%, depending on the size of the operation. So we think we can manage through the changes in that environment. We think from a contractual perspective, it's highly likely that we can protect those levels of profitability. And there may be some transition from P&L to fee as operations maybe downsize a bit before they come back to full-scale operations.

Very clear. And then maybe we can move on to some of the positives rather than just focusing on all these sort of negative effects. But I think you mentioned in one of your answers to earlier questions, you do expect more outsourcing opportunities to arise from that. Why do you expect that to be the case? Why will there be a better opportunity for Aramark coming out of this?

Yes. I think historically, whenever there's been a significant business challenge, whether it's a serious recession, whether it was 9/11, whether it's this particular crisis now, companies are recognizing that they're not well equipped -- organizations are recognizing that they're not well equipped to deal with these kinds of situations. And we're already seeing a significantly higher level of activity with major institutions that are -- that have historically been self-operated and are talking about turning over this responsibility to us. And it's -- we have the resources we can bring to bear, we have the safety and security protocols, the hygiene protocols, we have resources that we can bring to bear against solving for this particular problem that companies just don't have. And so they're -- we believe it will affect both the Higher Education space and the Healthcare space pretty significantly. B&I, not so much. It's primarily already contracted. There is some self-op conversion opportunity there. But keep in mind that 50% of business around the world is still self-operated, and so it is a big pool of opportunity. We think that customers and client organizations recognize that this is not a core capability. And as I said, we're already seeing stepped up levels of activity. So we see it as a significant opportunity over the near term.

And then maybe, I guess, one can imagine there may be some more services that are possibly salable out of this. If I think on your facilities business, sort of testing staff, screening, is that possible? And then maybe we haven't touched much on your Uniforms business so far, but how much of an opportunity is actually the PPE, the protective equipment to that Uniforms business? Does that give you a new revenue stream in the short term and the longer term?

Yes, absolutely. We'll talk about uniforms first. And yes, that is a significant component of the business. I think most people probably weren't aware that we operate a clean room business within uniform services that was already supplying PPE, barrier gowns, face masks, respirators, all those kinds of things to the pharmaceutical and the chip industry. And so we were the #1 company in that sector. So we already had a supply chain for that kind of material, and we're easily able to flex that supply chain to go ahead and serve the needs of many of our customers who are looking for now the opportunity to get PPE where they never had before. We've recently converted manufacturing operations in Mexico to manufacture PPE, in particular barrier gowns and respirator masks, and we've ramped up that production. We're producing millions a week, and we are selling them as fast as we can manufacture that equipment -- that PPE, we're selling it. So it is a significant opportunity both during this crisis and we think it will continue to be going forward. The great thing about uniform services is it's a very adaptable business. As you know, we're already selling first aid, restaurant services, hygiene services off the same trucks as the uniform truck, and that is another business opportunity that we think will expand rather dramatically as companies recognize the need for that kind of service. Every single one of our uniform customers is a first -- can be a potential first aid customer as well. And we've had the opportunity to do things like set up pop-up grocery stores, pop-up refreshment centers. And those operations have gone into medical institutions and higher ed. And so we see that, that business, we think, will continue to grow. The home delivery business, I think, is a little bit different business model. But what we have that we think really serves a niche need is the Good Uncle acquisition we made not too long ago. We've begun to expand those capabilities into both B&I and Healthcare, so the delivery of meals that are ordered via an app on your iPhone to your specific location. And that's a segment that we think also has significant potential.

Maybe for those that don't -- those on the call that don't know, maybe you can just explain the Good Uncle business model and how that fits into Aramark.

Certainly. Good Uncle is an app-driven culinary-oriented food delivery program that operates on many campuses around the country. It was an acquisition we made a little over 1.5 years ago. And it's a terrific food product. It's prepared in an FDA-approved commissary. There's an app that a student or a customer can download on their phone. And if that area has the Good Uncle service, they literally just select from the menu, they select their pickup point, and the food is then delivered directly to that customer within a period of time, call it 10 minutes. And it's been very successful. It's an operation that we like a lot, and we feel very good about the long-term prospects for that business. The product itself is extraordinary. It was developed by culinarians so it is unique. The menus are unique, and it's a terrific product.

And then maybe just on the sort of last opportunity that one might talk about, is -- we had Elior reporting yesterday, and they highlighted that they were seeing some of their smaller competitors that would struggle to get back to work, they wouldn't have the ability to kind of restart operations. And there might be some opportunities to either win organically from them or even acquire some of those sort of smaller distressed players. Would you agree with that, that this can be a consolidation driver in the space? And is that something that Aramark would want to get involved in, in a sort of active way?

Yes. I think that that's a very real possibility that certainly there are some smaller players that don't have the financial wherewithal to withstand this, and it's possible that, that could happen. I think we would be very careful about acquiring businesses in a distressed mode. If they had a solid base of clients, we would certainly consider it. We would take a look at each opportunity on the basis of the merits of the quality of the business. And so yes, we would evaluate it. I think it's probably more likely that we would sell operations. As those clients work -- as those clients came to market, we would work aggressively to go ahead and sell those accounts as opposed to acquiring them. But under the right circumstances, we would certainly consider it.

Make sense. And then maybe just a sort of an overarching question we're asking all CEOs. As you think through and beyond the pandemic, how do you expect your priorities to shift, especially as they relate to cutting costs or increasing level of investment?

Yes. I think what we've maintained consistently throughout this time period has been our focus on organic growth and new business development. As Aramark was challenged from a growth perspective over the last couple of years, we've reinvigorated the growth culture, we've added sales resources, we've added capabilities and we're really focused on selling new accounts and adding good quality business. And so we'll continue to focus on that. We think that that's an extraordinarily important part of our culture. As a company, we were historically the fastest growing and then suffered for a few years where we kind of lost our focus on growth. And so we've reinvigorated that culture, and we really have, I think, a great team now focused on it. And that's going to be our priority. That's one of the reasons, as we've adapted our cost model over the course of the last couple of months, we have not touched sales resources or growth investments. We've continued to put money into those programs so that when we come out of this, we are accelerating growth and moving forward.

So I want to make sure I've got plenty of time to ask the questions I'm getting from the audience. So I'm getting quite a few questions on some of the competitive landscape. And maybe a nice scene-setting one that someone's asked here is, maybe you can just talk us through how competitive actually is the bidding process in the catering world. How many of your contracts are you winning? Are you up against Compass and Sodexo in a competitive bid portion? And how do you win? How does Aramark differentiate itself in winning from those major competitors? And any others you maybe would want to mention?

Yes. I think for most major accounts, generally, we're bidding against -- the big 3 are always competing, and there generally may be some smaller competitors in those opportunities as well. And I believe this industry is very rational in that we believe that we sell accounts on the basis of the relationships that we have with customers and clients and that we develop a unique set of proposals and service offerings based on that understanding of that client. And so we want to compete on the basis of quality, on the basis of customization, on the basis of innovation, not on the basis of price or capital investment. Those are the -- and that's why you've seen, over a period of time, the returns in this industry have actually increased because I think all 3 large companies do that. I think we're all focused on bringing innovation and quality to those customers. And if we sell on the basis of that relationship and on the basis of that unique customization set, it's how we can be profitable, it's how the customer is best served. And frankly, it's the best service delivery model. So it is competitive. I think we're -- all 3 of the major players are quality organizations. And in some circumstances, we have a better understanding of the customer than they do, and that's when we win. And sometimes, they have a better understanding of that customer and they win. So it really is a function of the quality of leadership, the quality of sales leadership. And what is most important is how long those relationships have been in place and how deep of an understanding you have about that particular client or customer regardless of the industry. It doesn't matter whether it's Sports & Entertainment or whether it's Healthcare or whether it's B&I. It's really the quality of that relationship that drives our sales success.

And then maybe as part of that sales process -- and there's probably a wider question that we can ask about this. So we've seen Compass raise equity, and they talked about wanting to have a strong deleveraged balance sheet that was operationally helpful to them. Do you see yourself at any disadvantage? Have you been at any disadvantage historically in that sales process because you carry more leverage than Compass? Or do you not think that comes into the discussion?

No, I've never seen it in the 30 years I've been in the industry. It really doesn't make any difference. Aramark, if you think back all the way to 1984 when the company went private, it was obviously very highly levered. Then we went through a period of 17 years as a private company where we experienced extraordinary growth and sold account after account after account and never once was our balance sheet the decision point. So I don't -- we are perfectly -- we're well capitalized. We're in a great position. We can compete in any given circumstance. I think the difference is really more a function of European companies being more averse to leverage than American companies. And I've always been comfortable with a levered balance sheet. And my former boss, Joe Neubauer, who led this company for so long, used to say -- and I can remember it like it was yesterday. He used to say debt never killed anybody, but unpredictable cash flows do. And that's the beauty of this industry. We have very predictable cash flows, very predictable earnings. And so we've been able to operate with leverage in many different ways over a period of time. So no, I don't see it as a competitive disadvantage. I think it's just a different approach to capital management, and our shareholders are very comfortable with the approach that we've taken over the years. If you look at our debt profile, we are a very highly rated credit. People feel very comfortable with our ability to pay.

Great. And then maybe, if not down to that leverage situation, I think it would be fair to say that there has been obviously a difference in performance between yourselves and Compass, particularly when we talk about North American organic growth. One suspects that's probably been one of the things you've been most tasked with trying to close a gap on, but feel free to correct me if we've got that wrong. But why would you say -- what has been a source of that difference in performance? And what are the key steps you're doing to try and close that gap?

Yes. I think the difference in performance over the last number of years has really been focus. So I think Compass had been extraordinarily focused on the marketplace. They've had those relationships in place, they've had leadership in place over a very long period of time that really had a high level of intimacy in their respective markets. They really understood the customers, and for a while, Aramark kind of lost that focus. And I would tell you it was a function of a couple of different things. It was a function of a change in leadership and maybe orientation. The company, Aramark, went through a lot of downsizing with respect to resources in the field. They took resources out of the field and created these centers of excellence, and then they cut the level of resources in an effort to drive earnings. And so I think that created an opportunity for Compass to really accelerate their growth because we weren't performing at the level that we needed to perform, and we didn't have the relationships in the sales organization any longer that we historically had. As resources were diminished, as we kind of pulled away from the business in that regard, it opened the door for Compass to really accelerate their growth, and they did a great job. They maintained those relationships over a period of time. That's -- so the thing that I think we've done over the last several months to bridge that gap is, first of all, to go ahead and reinvest in sales infrastructure, to bring new sales leadership into the organization, to add more sales managers. So we now have enough people on the street to go ahead and respond appropriately. So we're no longer responding to bids. We're out there developing relationships, and that's that key variable. And then we've also brought back some very skilled leadership into businesses that I think can have an impact, both from a cultural perspective and a growth perspective, very dynamic growth executives who will make a difference because, in the end, I think that's what it's all about. It's about quality of leadership and it's about quality of relationship. They outperformed us. They took advantage of the fact that we were somewhat unfocused. But I can tell you that we're back. We have the right people in place, and we have the right level of resources. And I think we can -- we are well positioned to compete in any new opportunity.

And presumably, the sales process at the moment is somewhat on hold. I presume there isn't much activity there, but as I say, feel free to correct me if that situation is wrong. But are there early green shoots of that, that you can point to of that process beginning to see an acceleration?

Yes, absolutely. There are -- we've got some very good wins in both B&I and Higher Education, and there is surprisingly a fairly high level of activity in the sales arena right now despite the COVID-19. Some of the processes have been elongated so decisions have been pushed out a little bit longer than were originally anticipated, but there is a significant level of activity in Higher Education and in Healthcare. And as I mentioned earlier, in the past couple of months, we've sold over $100 million worth of new accounts internationally even during this process. So the growth activity continues, and there will be some sectors that are somewhat affected. I think the K-12 sector, for example, you may be aware that the USDA in the United States granted a waiver so that the communities didn't have to put out to bid, which was -- there's an automatic rebid process required for K-12, but they had -- they were granted 1-year waiver and extension. So I think retention rates for everybody will be very high in K-12 this year, and there'll be a lower level of activity. But the process continues. And that's, again, one of the reasons why we have not made a single reduction of the sales organization or to resources focused on it.

And then maybe just on that sales process again. Just a question we've got in from the audience. But how have you historically incentivized your salespeople and business development teams? And how do you ensure that they don't lock you into unprofitable contracts going forward?

Yes. Well, first of all, the salespeople work in partnership with the operations team. So the operators are really the ones developing the performance for the operations, and the contract approval process requires a line of business President, the Chief Financial Officer -- depending on the size of the contract, it involves the corporate CFO and me as well. So we're all kind of in the boat together on the big contracts. And on the smaller contracts, the line of business President is held accountable for the quality of the contract and the long-term profitability. So the sales managers' incentive programs are designed around revenue and margin. They are paid out over a number of years. So there is -- so they end up having a bank of commissions, if you will. That's why you rarely see a sales executive move from one organization to another because their incentive comp is set up and their sales comp is set up in such a way that if they were to leave and go to another competitor, which frankly, they're contractually bound from doing, it would mean the loss of several years' worth of commissions that are banked up. So the average sales manager who's been in the job for a number of years has a significant flow of commissions from those opportunities they sold a year ago, 2 years ago, 3 years ago. And so it's a very significant kind of linkage to the company. But in terms of profitability overall, again, the entire team is responsible for the contract, and if there is a mistake made, we've all made it, not just the sales manager.

Okay. Fair enough. And then maybe just a nice sort of longer-term question that's been asked here. As you sort of think beyond coronavirus, what do you think about being the structural limit of operating margin and growth for Aramark? And how has maybe that changed since you were first within the company? Do you think differently about that limits?

Yes. Well first of all, I think on the growth side, I think there's really no reason why we can't grow as quickly as our #1 competitor. So my aspiration is to be in the high, mid-single-digits growth rate for the company over a period of time. I certainly believe that that's achievable. We should be able to grow as quickly as Compass has, and we believe that that's the goal that we have in mind. And so I think that is something that we can achieve over the next couple of years. So with respect to margins, it's really -- this industry has, over the last several years, actually grown margins in a very competitive environment. I think the companies are pretty rational. We all believe that we're providing an essential service. We've got pricing mechanisms in place to protect us on the downside. So I do believe that we can continue to improve our margins over a period of time incrementally so that we have -- in a normalized environment, that we have, call it, continuing margin improvement over the long term. Now for us, we also have significant margin potential -- margin improvement potential, excuse me, margin improvement potential on the Uniform business. We see significant opportunity there to move the margins up on uniforms. As a result of the AmeriPride acquisition, we've had those integration efforts underway. That's gone extraordinarily well. And their route accounting system that came with AmeriPride is one we're adopting or will adopt for all of Aramark uniform services. There's significant runway and margin improvement potential as a result of that optimization process and that route accounting system process replacing ours, which is basically decades-old and doesn't have the functionality that really allows us to optimize. So we've got significant margin improvement potential across the business. We think we can get incremental improvement on the food service side, and we think we can make significant improvement on the Uniform side going forward.

Maybe just an interesting question about one area where you've definitely been sort of best-in-class, I guess, through this recent time, seems to have been, in cost flexibility. You've talked about sort of 20% drop-through, where it's mostly been in the mid- to higher 20s. You've talked about a potential to go down to 15%. Maybe -- just maybe ask -- where are we on that process? Are you happy at 20% if you look at your visibility from here? And do you think, given that this has been a very unexpected shock to the system, that there will be any move to be even more flexible and have an even more flexible labor force to protect against any further shocks of this type?

Yes. I think that, first of all, we're -- yes, I think we have been able to flex the cost structure pretty significantly and pretty rapidly. And that's -- I think it's a testimony to the management of the organization. They've done a great job. And one of the things that we're attempting to do is to balance the ability to respond as the marketplace changes and having the appropriate level of staffing and management capable of responding when our clients come to us and say, "Okay, we want to open up next week or 2 weeks from now or next month." So we're trying to balance that need with the need to continually push the cost structure down and I want to have -- I want to be able to serve my customers extraordinarily well. And so from that respect, we're kind of 1 foot in, 1 foot out. Particularly if you think about major league baseball for example, we wanted to maintain the flexibility and the ability to respond if major league baseball was going to come back with fans. And if they make the decision not to, then we've got additional cost reductions that we can make inside of the Sports & Entertainment business that we haven't made yet because we wanted to maintain that flexibility. So in the meantime, we're working very hard on all the other variable costs. Anything that is unnecessary, we're not spending, whether it be programmatic expenses, whether it be consulting expenses, travel, all those things that you would normally put the damper on during times of crisis. So we're working very aggressively, but we want to maintain that ability to serve our customers when the time comes. And when they ask us to be there, we want to have that flexibility to do it. So we're probably happy at 20%. And as things ramp up, we'll be able to respond. If things don't ramp up as rapidly as we expect them to, then we'll be able to take additional costs out.

Very clear, very clear. And maybe just -- I noticed we're running a little bit out of time, but a couple of questions maybe on a couple of parts of the business maybe we haven't touched on quite yet. So Avendra, we mentioned -- you mentioned AmeriPride, you're very happy with the process that's going on there. How disruptive has this been to the Avendra integration? Obviously, you must be seeing a drop in the third-party volumes that -- there. How much does that change the economics of the GPO model? And then maybe how are you thinking about that opportunity to grow the GPO over the longer term?

Yes, absolutely. Well, first of all, we love the business. And we've got great people that came as a result of the acquisition of Avendra, and they're working very hard to minimize the cost on their side as well as they respond to the drop in revenue as a result of the lower usage. Really, they've been partnered with the hospitality community for a long time, right? So the hotel business, whether it's Marriott, whether it's Hyatt, whether it's others, is depressed. And as a result, they've got lower revenues and, as you'd expect, lower profitability. So it is -- they've done the same kinds of things we're doing in the core food service business. They've ramped employment down. They've furloughed. They've done the kinds of things to minimize cost structure as well. But we certainly believe in the long-term health of that business and the long-term impact it can have on the total organization. So we've continued to focus on making the behind-the-scenes investments in Avendra from a technology perspective, and we continue to look for opportunities to extend and to grow it. We continue to look at additional GPOs that we could bolt-on to it. So we like the business, and we think the long-term prospects are certainly there. And we think that when the time comes, that business will recover fairly rapidly, but it will be somewhat dependent upon travel. And one of the things, they do not serve a significant base of independent restaurant operators. So the small restaurant operators who may close their doors won't really impact Avendra the way it might impact other GPOs. So this business has been much more focused on large national accounts than on the small independent operator. And so from that perspective, we think when the time comes, it will ramp a little more quickly. But we love the business, and we are committed to it.

Well John, I think the bell is ringing. I need to let you go now, but that's been incredibly useful, great discussion. Thanks very much for joining us today. I know you've got a few meetings coming up after this so I'll give you a chance to get a cup of coffee. But thank you very much for your time. Just a reminder to everyone that's listening in, please fill out the Procensus survey. There should be a link on the left-hand side. So -- but thank you, John. Any final words?

Well thank you, Richard, for hosting. Happy to do it, and look forward to seeing you in London at some point here in the near future.

Absolutely. Well, the weather is perfect at the moment here. So we look forward to hosting you at some point in the future. Great. Well, thanks very much, everyone, for joining, and enjoy the rest of your day.