Aramark (ARMK) Earnings Call Transcript & Summary

Well, good afternoon, ladies and gentlemen, and welcome to the 1:30 a.m. session of the European SDC. I'm Rich Clarke. I'm the Global Catering Measure analyst here at Bernstein. I'm absolutely delighted to have John Zillmer, CEO of Aramark joining us today. A quick reminder. If you'd like to ask any questions, getting questions included in my question list, there should be a Q&A button on your screen. There's also, I noticed, some questions are already populated in there. So if there's any of those particularly ones prioritized, then please let me know. But John, thanks very much for joining us today. And I guess maybe if I can just sort of kick off with a question, a broad question, over in the US, your kind of core market, what are you -- what is the sort of reopening position that we're seeing today? Is education largely back to normal? Where are you on your sort of sports attendances? We've had Compasses pre-closed this week. And they talked to some of the very positive trends in the sports, but B&I is still being a little bit restricted. Would you mirror some of the comments that they made? Thanks, John.

Yeah. Terrific. Thanks, Richard. And I'm happy to be here. Yes, we are experiencing a significant improvement in the quarterly revenue growth as we see the higher ed business for training, and we see strong participation in board plans at very high levels at the end. So schools K-12, higher ed, all very robust, and exports and entertainment, very high levels of attendance in Major League Baseball, which, of course, we've got a very strong position in. And in the NFL, full stadiums and significant attendance levels. So, yeah, the American public is eager and, again, is attending those events. So, we're seeing very high per capita spending. We're seeing very high attendance levels and so very strong revenue growth. And as a general rule, really, the only business that continues to be affected significantly by COVID is business [timing]. And it's really growing around where we expected it to. We anticipate that business will have a longer recovery. So, I would say our trends are very similar to what Compass disclosed yesterday. And we'll be talking about here in just a couple of weeks as we close our fiscal year.

That's good to hear, John. Maybe just what, if any impact, have you seen from Delta variants? We've heard a few corporates pushing back their reopening time lines. Is there anything that's kind of changed your outlook that's come from the latest wave?

Yes. I would say nothing that's really changed our longer-term outlook about the business recovery. I think it's pushed. In the corporate world, some reopenings have been pushed by a matter of a few weeks. Some have moved from what was a September 7 or post Labor Day reopening to an October reopening. So, we see that being pushed out by a few weeks, but really nothing that impacts the long term either potential for the business or the long-term expectations for the business. And really in the other areas, healthcare, corrections, facilities, all have returned back to pre-COVID levels and are operating at very high -- at high capacity. And so we're very pleased. There are a couple of subsegments that continue to have a drag. Things like convention centers haven't rebooked businesses yet. That calendarization or those events will take longer to get back to full. But otherwise, very robust activity from the vast majority of the businesses, [Technical Difficulty] from Delta.

Okay. That's good. That's very good to hear. I guess one of the messages we got from Compass was a sort of modicum of caution going into the winter months. They were highlighting the sports calendar moves from outdoor events to indoor events. They were suggesting there will be some potential risk around healthcare if we begin to see sort of flu seasons or anything like that. Would you mirror those comments that we should maybe be a little bit more cautious as we approach the winter months?

Well, I think there is an open question as to what attendance levels will look like in hockey and the NBA for us. We expect to be operating at strong levels and the leagues intend to have full stadiums. So, I think it's probably appropriate to be somewhat cautious in terms of the expectations to see what the actual take-up rates and the actual attendance levels are. But we're optimistic that they'll be strong, given the strong participation in the environments today like concerts and other activities. We think that, that will -- that should be good for us. Healthcare may have -- if there are higher infection rates, healthcare may have some impact on the retail side of the business. But other than that, we expect healthcare to produce strong revenues as well.

So appreciating, there is no crystal ball out there, but if we're sort of seeing the reopening of offices maybe coming in the early months of 2022, sports is looking pretty resilient. Education is kind of back. Can we be looking towards being in the normal environment by the spring next year? Or is that a little bit too optimistic?

I think it's certainly possible, adding more and more employers. The plans to reopen are much more concrete. They may be delayed a few weeks, but I think people really are -- companies are really focused on returning to work strategies and getting people back into the office and into their environments. So, I think it's highly likely we'll be in a much more normalized environment [considering] in the B&I sector as well, with the other businesses doing well all along through the year.

Good to hear. And then if we think about last time we connected, we talked a bit about your National Park business and the strength you were seeing there and you kind of said, look, you're seeing some real strength in some markets, but up in Alaska, it's a little bit weak because of the cruise restrictions. Maybe you can just give us a little update of how the National Park business is sort of playing out today? Are you benefiting from some of the pent-up demand? Or is it still a bit of a mixed [pitch]?

Yes. It's still -- it's still very high levels of room rates and reservations like [indiscernible], like our older -- the boat rentals throughout the season were sold out, very strong attendance levels. Even despite the weather challenges in the West and then the drought, Lake Powell performed extraordinarily well. We did have some minor impacts from the fires in California. We had a campground in -- like with the Lake Tahoe area that was impacted for a few days with closures, things like that. The businesses performed very, very well. And Denali continues to be lower than prior year levels based on the lack of cruise ship attendance, although some cruise ships did begin to feed into the environment and the local traffic has been stronger than our expectation. So actually, even Denali has performed above our level of expectation, but not nearly the level of 2019. But we expect that next year, it will come roaring back.

So maybe moving on from that sort of initial reopening phase and talking a little bit about customer behavior. What you're seeing as your contracts reopen? Are you seeing much difference in terms of cost behavior? Your take-up rate is up, per capita spend is up, you're seeing greater use of technology. And things are different kind of post-COVID in your business.

Yes. In some markets, yes. We aren't seeing an increased use of technology, particularly in terms of payment systems, both in sports and entertainment. And we're seeing it in B&I as well, the elimination of the need for cashiers, the application of technology to the automated checkout in convenience stores. So, there is a technology aspect that's affected the business going forward. And we think we'll actually derive benefit from it for the long term. For capital spending, very significantly higher in sports and entertainment as a result of those touchless payment systems. Customer behavior is kind of an interesting question. I think people are still eating [Technical Difficulty] and we're not seeing radical changes in customer, either preferences or the product that they're eating, but we're seeing it come in different forms, more takeout, more delivery and customers buying larger quantities, higher check averages. But by and large, they're eating what they've always eaten. And for us, that is both a good thing because we have this menu diversity that we're able to offer. And for the consumer, they still have -- we are still getting them a very broad range of choices. We're not limiting them in any way, and we're trying to serve them wherever they need to be served and meet the needs that they've identified. So for us, that's very positive.

And maybe just the broader behavioral question a little bit. This is sort of a sixty-four-thousand-dollar question. But based on what you've seen so far, any updates on your view of what working from home may impact your business? Elior were here yesterday, they were talking about maybe going from one day a week being average to two days a week being the average. Is that roughly what you're seeing as well?

It's different by environment. Certainly, on the manufacturing side, it's five days a week. People are there in the manufacturing environment. We're seeing it across the country and in other parts of the world as well. So, I think the hybrid model definitely does impact the East Coast and the West Coast for the United States of technology companies. But on the East Coast and the finance community, people are really talking about an aggressive return to work strategy and potentially some modification to maybe one day a week from home. But I think it will in large part because we'll end up with higher attendance levels, higher per capita spending. I think the business will absorb that change very nicely and really the only business that's affected by that change is business dining.

Thanks for that. Makes sense. So, I've got a question on the audience here that fits into what my next topic was going to be anyway, which is around kind of your contract structure. And the question they've asked is what percent of your business is P&L versus cost plus? And how much has that changed through COVID? And then I was going to ask how easy is it to negotiate back to the terms you had pre-COVID?

Yes. I would say, all the businesses other than B&I have returned to their normal contract structures. But predominantly higher education is P&L and sports and entertainment is P&L. Really the only business that's still significantly cost plus is business dining where we transition those contracts in order to minimize the risk and to continue to serve those customers with reduced employment levels. So that business is still predominantly a management fee and we anticipate that over the course of the next year, more and more contracts will transition as employees return back to their work environment, but they'll transition back to P&L. But there hasn't been a significant rush by our customers or our clients to go ahead and return to P&Ls as they're working through their strategies, they are being [Technical Difficulty]. And frankly, some are adopting different approaches to dining. You're seeing many more customers consider the new, I think, foodservice as an employee benefit and continuing to want to keep the cost low for their employees as they return to work to making a much more attractive return to work environment for them. So no rush to convert, I would say, B&I is still probably predominantly 85% to 90% management fee and we'll probably continue throughout this year largely in that way and in transition as employees return to work.

And does that have any margin impact? Does that management fee contract tend to be a lower margin business than if you run that as a P&L?

The margins between the two contract types are very, very close. Where you end up -- where you end up getting higher margin capacity or higher earning capacity in D&I is on the catering side of the business when you switch back to a P&L contract. And so the core dining margins are very similar. It's the extra event spending and the catering spending that drives an enhanced profitability. And that catering functions are still lagging in B&I as people return to work. They're not putting on big catered events inside their buildings. And so I think, ultimately, you want to transition back to P&L, so you can take advantage of that. But the core margins on the actual dining services themselves, the core function there are very similar between P&L. We're very happy. In the management free environment, the risk mitigation is very much appropriate as we kind of stage this recovery. So, we're not driving these back to P&L and our customers, frankly, aren't really pushing us to get there. But we anticipate, obviously, that over time, we will return to that kind of contract type.

Okay. That makes a lot of sense. And then we've got a question from the audience about cross-selling non-food services. Are you seeing more ability to do that at the moment? Is that something you're actively pushing?

Yes, absolutely. We're seeing -- in fact, our facilities businesses had extraordinary net new business this year derived from significant cross-selling activity in a range of our businesses, both in healthcare and facilities -- sorry, in healthcare and higher education and even in business and industry where we're providing multiple services to those clients. And so, yes, cross-selling continues to represent a great opportunity for us, both from a facilities perspective as well as uniforms, refreshment services in the other lines of business that we can bring to bear in those core markets.

And maybe moving on to the kind of second major topic that we've kind of briefly touched on before we started today, which is sort of labor shortages and inflation. Obviously, a very sort of hot topic I presented at an inflation panel yesterday and showed a chart that about one in 10 jobs in the hospitality seems to be vacant in the US at the moment. Is this something you're actively suffering from? Or is -- are you able to sort of keep the operations going despite that shortage?

Well, we are being affected just like every other hospitality company in the States and frankly, around the world. It is much more difficult to staff fully, but it's very location specific. By way of example, here in Philadelphia, we operate multiple universities. And in Downtown Philadelphia, we have 100% staffing. About 40 miles away in a more urban environment, we've got employee shortages. For more rural environment, I should say, we've got staffing shortages. So it's very geographically oriented. And so I would tell you that it's something that we're experiencing, but we've got great mobilization teams. We have a fantastic talent acquisition team and process in place. And our people are working very hard. But I think we're being affected just like every other company. And it's both on the product supply side as well as the actual operating side. We are seeing significant employment shortages in our suppliers and manufacturers that's affecting fill rates of product being delivered to our locations. So, there is dislocation as a result of this labor market that's impacting us not only from our employees, but our supplier partners as well.

So do you think this is just a fleeting issue? Do you think as sort of -- we've had Marriott saying in the last week or so, they think as family situations renormalize and benefits roll off, they'll hope to kind of get more restart. Is that your view? Or do you think this is more of a sort of a structural shift away from hospitality?

Well, we haven't seen an uptick in the labor pool as a result of the expiration of the federal supplemental benefit. We're seeing that in several markets. So the labor pool has increased over the last several weeks, and so we're seeing some improvement there. I think Marriott probably called it right that there is -- the situation will normalize. And as more employees return to the labor pool, we'll have the opportunity to recruit and retain them. Our strategies are really aligned around being the best employer that we can be and being a very highly attractive opportunity for people. And so we're -- we've implemented a number of things over the last several years that make us even more attractive, including our employee stock ownership program, something that really gives the opportunity for people to participate in the wealth creation of Aramark as an engine for them as well. And so I do believe that the situation will normalize and that we'll be able to meet our [indiscernible]. And we are seeing that. The impact for us, as you can anticipate, we've got several businesses that are running full speed all the time. But we have the seasonal impacts from higher education and sports and entertainment as they ramp up. So that ramp-up is where we end up with the staffing difficulty as we're ramping those buildings back to full participation. And once they're back up and operating, it's back to a more normal environment.

So when I sort of [Technical Difficulty] seeing across my hotel coverage, we've had -- Hilton have mentioned that, actually, what they've seen is, yes, they've got labor shortages, but they're learning to kind of work a bit with less labor, lower the service proposition, but that's what the customers have to accept. And they're actually making -- the hotels are making kind of super profits. Can you benefit from that? Or do you have to share this with your customers? If you're employing less people, you've kind of got to pass that through?

Well, our contract structures in the P&L certainly allow us to drive the benefit from reduced labor costs. And so we want to be able to optimize the service level for our customers because for us, selling the product and getting customers in the door is what's most important. And we'll work at the margin to reduce labor costs in order to optimize the profitability. But our primary focus is offering that high level of service and the high level of customization. So, I want to be careful not to focus on taking advantage of tight labor market, ending up with profitability in the short term, but then having customer dissatisfaction. So for us, it's always a balancing game. But there are some permanent changes coming as a result of technology implementation. We are seeing the need for fewer cashiers, fewer cash-handling personnel. When I think of a stadium, for example, where you're collecting $1 million in cash overnight, well, now that cash has been converted to electronic payments. So, I no longer have to have a counting room of people counting cash, bring trucks, people moving money around. It does result in some structural savings for a site that certainly will take advantage of it.

So, obviously, you talked about these regional differences here. So, I presume you've got some markets where you are kind of actually lower labor cost and then other places probably where you're seeing slightly higher labor cost because we know that, obviously, wages have been going up as well. Are you -- is your ability to pass that higher labor cost on, is that undiminished? Or is there any sort of challenge timing-wise or longer term in passing what inflation you suffer on to clients?

Yes. And I would say it's undiminished. We still have that flexibility. It is always the last number we pull. We're always working to optimize from an operating perspective to make sure we're providing that level of service and that level of quality to our customers and to our clients. So, I would say that passing along price increases, passing along inflation is certainly structurally possible, and it's certainly within our rights from a contractual perspective. But it's the last thing we want to do. So it's the last lever we want to pull in terms of getting the equation right. We think longer term that's better for the company than just merely passing along the costs as they occur. I would tell you that, again, higher labor rates, it's very micro-geographic. And frankly, we're actually not seeing a lot of impact from rising wages. Sorry, make sure I'm clear on this. Raising the wages hasn't necessarily improved our ability to recruit in a given market. So even offering higher salaries hasn't necessarily been the driver of our ability to recruit. It's been other elements around it in terms of scheduling and attractiveness as an employer and other elements. So, we're not seeing super high wage inflation as a result of this tight labor market. We're seeing it harder to find people. But when we find them, we're very competitive.

And, obviously, you sort of said you're not maybe necessarily seeing that much of inflation, but I just got one question from the audience here. Do you see any -- is there any difference in your ability to pass any inflationary pressures on in uniforms, facilities and food? Is it sort of fairly similar in each of them?

No. I would say it's very similar in each. I think the pricing environment in uniforms is very robust, and we're seeing our competitors create price to recover costs and particularly the labor rate inflation there is running probably a little bit higher. You're dealing with drivers, [CBNO] drivers, which -- there's a significant shortage of those across the country and the economy in the US in particular. So -- but we are seeing a very strong ability to pass along those cost increases in the uniform rental market. Again, those invoices are generally so small in most of those customers that even passing along that cost doesn't dramatically change the cost on an average weekly rental. So it's actually fairly easy to pass along cost there.

Okay. Good to hear. And then I had a question about sort of -- you mentioned this and you've seen some product shortages as well. How helpful is the Avendra GPO being in through this process? Does that help you offset any of that food weakness? Or does it make harder because you are having to buy bigger quantities? How has that kind of been assistance through this?

Yes. I think it's been terrific. And first of all, the pool of suppliers that a vendor uses to serve their customers is somewhat different from the pool of suppliers that we use on the contract side. So as you know, we've got Cisco that serves us on the contract side, foodservice on the Avendra side serve those customers. So what it's done is it's given us the greater degree of ability to interchange between those two suppliers when it's necessary. When one supplier has a tight market, we're able to transition to another. So, I would say the broader pool of suppliers and manufacturers have been very helpful for us. And frankly, just the combination of the spend in common areas has given us the flexibility to go ahead and negotiate better terms with the manufacturers. And so I would say it's been very helpful to have those two operations working together to serve the needs of our clients and customers.

So, you mentioned -- obviously, there you've got two different sort of logistics partners on that side. Is there still further integration to go with Avendra? Or is that going to become one at some point? Is there more kind of product alignment that needs to be done between Aramark and the Avendra side?

No. The product alignment and the integration of the functions is complete. There's -- but there will always be somewhat different sets of suppliers providing services across the enterprise. And so it actually works to our advantage to have those multiple suppliers to create that creative tension between the people providing service. So product specification, all that work, all the supplier integration that we wanted to achieve, that's all been done. The organization really does function as one supply chain with multiple tenants, if you will, and serves the customers.

And I know one of the ambitions with Avendra was to go and sign up for new third-party companies to come on to that. How is that process going? Is that being disrupted by COVID? Or is that an ongoing process?

That process continues. In fact, they've had record new account acquisition this year, new clients that they're being served. And that will be part of our fourth quarter disclosure as we talk about the net new impact of the company, the new account sales activity. We'll highlight that as well for Avendra, and it's been very good. So, we're pleased.

Okay.

Yes. It's been a great net growth year for the company, and we're excited to share that news with all of our investors and looking forward to that disclosure at the end of the fourth quarter.

So, I guess you can't give us any numbers now. But you're going to not break out Avendra as a separate segment, but just kind of give us the buying scale, is that what you're sort of talking about?

Yes. We'll talk about the new account wins. Specifically, I might not necessarily name the dollars that, that account represents but we'll identify those new customers. And that's -- the growth story for the company is very exciting. And just by the way of an example, in higher education, we've had a record number of new higher ed wins this year, more than 3x our normal average of wins over the last five years. And so it's -- the net new story is going to be very, very strong and so we're excited to share.

Okay. Great. So actually, I was going to come on to net new wins next. So, I suppose it's worthwhile doing that. Is that -- when you talk about winning that much contract, is that -- what's leading to that? Is that -- is this COVID pricing and contracts away from self-op? Is these inflation prices in contracts from self-op? Or is this Aramark's own efforts getting new market share? What would you kind of break down the factors of seeing that acceleration as well?

Yes. I think we're seeing acceleration across all the businesses. They are all showing very significant improvement over their net new from prior years. And I think, you think about in higher education specifically, it's really a result of the absence that we've taken over the last few years, the new leadership change, the new sales leadership, the reintroduction of the line of business strategy. We are experiencing a higher rate of self-op conversion this year than we have in the past. About 50% of our wins are from self-op conversion, and that's impacting multiple businesses. It's not just higher education. It's B&I, it's facilities, it's healthcare. So, there is a higher rate of self-op conversion, about 50%, which is running about 15% higher than our normal 35% on an annualized basis. So, there are more companies that are considering it across that range of businesses. And so that's provided some tailwind, if you will. But mostly, I think it's the reenergized focus on growth. It's really the realignment of the organization, the sales incentives, the alignment of sales leadership. It's just a number of actions we've taken over the last 18 months that have driven that success. And we're seeing higher closure rates. We're seeing a much more robust pipeline. And that's not -- and that's all the businesses. So, yes, we're very excited by it.

So, you're fairly confident we're not just seeing a sort of short-term post-COVID acceleration in this, this is the beginning of a faster structural growth for Aramark going forward?

Yes, agreed. No, this is, I think, very little of this is COVID impact. I think it really is a refocusing strategy and alignment of the organization. As we've talked about before, we've aligned the entire company around net new growth. We now have 40% of the incentive compensation of this company is devoted towards net new. And so we're seeing significant impacts on both new accounts sales and on retention. And we're running at very high historical retention rates as well. So all in all, it's just a great change to the growth culture of the organization.

Okay. That makes sense. And that leads nicely into what do you kind of see your post-COVID growth metric looking like? I think in the past, you've talked about wanting to certainly get to at least mid-single digits. Is that sort of the ambition you would see on or above that? What do you kind of see as your ambitions on net new wins?

Yes. We talked about mid-single-digit growth rates for the company, and we certainly believe that we're able to achieve that and do even better. So the organization continues to accelerate its growth activities. And we are continuing to invest in new sales managers and adding sales people to Aramark uniform services, are continuing to invest in sales resources across -- around the globe. We see continued improvements in that. And it's certainly -- it's absolutely doable. I think we'll demonstrate that. And I think we are demonstrating it and it's going to continue to get stronger. Our goals and objectives are to really shift this narrative from a cost-focused, margin-focused business to being a growth-focused enterprise because that's the real engine of profitability and the real engine of earnings growth for us going forward.

So maybe moving on to the margin story. You've mentioned -- do you expect margins to be higher post-COVID? What is the -- what are the key drivers of that? Is that efficiencies? Or is it just you are expecting to be a bigger top line base as we kind of come out of the other side?

Yes. I think there is a lot of leverage in this business. As we continue to grow, there's SG&A leverage. We don't have to add significant resources as we sell new business. So that growth engine, if you will, create significant leverage for us, both on the supply chain side as well as on the overhead side. Even if you held unit margins constant, just the fact that you're growing, I think, call it, 6% a year, creates significant lever from earnings perspective and [Technical Difficulty] perspective. So, we expect the transition to a permanent growth structure to significantly improve margins for the company going forward as well. And that's the way our models work. Again, I think we'll see that demonstrated here over the course of the next year as the business recovers more rapidly through COVID and we see the transitory impacts from supply chain work through the system.

And does going to that kind of higher profile necessarily mean more CapEx? Or can you do it without hugely increasing the CapEx constraint to business?

Yes. I think the -- any increase in CapEx would just be relative to the size of the organization. I think the rate of expenditure would be very consistent with our historical expense. We will pursue additional opportunities. But really only one or two businesses require CapEx to really drive the growth and that would be higher education and sports and entertainment again. So, I see those businesses would continue to need capital as we grow them, but not at a higher rate than we generally invest.

So, you're not saying -- one of your competitors has said in the past, they're beginning to see CapEx needs coming a little bit into healthcare. Are you seeing that healthcare clients asking for CapEx?

Not dramatically, but we're always willing to go ahead and invest, particularly if you have a systems conversion, large self-op conversion, there may be investment required for technology upgrades, generally [Technical Difficulty] upgrades and generally, the hospitals are well equipped and capable of doing whatever they need to do. There might be some at the margin, but we're not seeing significant requirements to that different from what we've historically done.

I've got an interesting question. There is no one here. [Indiscernible], my client, the other day just asking about the kind of acceleration in infrastructure set in the US that's expected to come and whether that would benefit the catering industry. Do you see opportunities that could come out of that for you to service some of that additional infrastructure spend?

Yes. That's a good question. And it really depends on the form of the spending. And if the spending is coming through in, what I would characterize as social infrastructure, then it certainly does create an opportunity for us across a range of businesses. When it's true infrastructure and you're talking about building roads, there probably is some transitory impact as we serve companies that manufacture heavy equipment and other things. On the manufacturing side, there's likely to be higher levels of employment as a result of infrastructure investment that would improve our operations there. But the real impact would be from some massive social infrastructure spending, and it's hard to predict where that would take place. But I think it's likely that we would benefit. We would certainly look for the opportunities to benefit from that kind of spending.

Okay. Makes sense. So let's move on maybe to capital allocation. What is your -- it's probably a sign that we're moving enough beyond COVID that we can talk about things like capital allocation. But what are your priorities? Is there any need to pay down more debt? Would you like to start thinking about buying back shares at any time soon? Is there M&A out there? Do you believe it could be accretive to you?

Yes. There's -- I think our primary strategy hasn't really changed. We'll continue to be very focused on paying down the debt. We'd like to get to a level of sub 3.5x leverage over a period of time. We're very comfortable with the debt. But we do understand that it creates a drag for some investors in terms of the way they think about the company. And so that's something that I think we'll be very focused on. But our primary use of capital will be first to sell new accounts, as we've always done. Secondarily, then to pay down the debt, then make small accretive kind of tuck-in acquisitions. And we think there are some opportunities out there, both in the US and around the globe to make small acquisitions that will be value enhancing and earnings enhancing. We're not looking for some transitional or some huge innovation acquisition. We're thinking about what can we really do that's additive and accretive to the core business. And so we will do those kinds of transactions similar to next level. Yes, we think that was a terrific acquisition and continues to impress us with their speed of revenue growth and earnings growth. So -- and then post paying down debt is to continue a return to shareholders around dividend, and we will always consider share buybacks when appropriate. But [first] [Technical Difficulty] new accounts; second, small tuck-in acquisitions and then third, paying down the debt. So nothing's really changed with that strategy.

And then what about maybe the flip side of that, the -- I guess, since you've joined, you've not really kind of done any -- you've not sold anything. Is there anything you would think about that is not central, not core to the business that could streamline it down, I guess? That leads to the question of how committed are you to the uniforms business? But is there anything smaller than that, that you think could be trending at some point?

Yes. I think I like our portfolio. I don't think there's really anything that is a glaring misfit, if you will. I think we're in the markets we want to operate in. I think we're in the businesses that we want to be in. We're always looking. But I would say there's really nothing that I would sell tomorrow. If I could find a buyer, it's -- we're just not in that kind of position. And with respect to uniform services, we're always evaluating what the optimal strategy is for our shareholders. We're very excited about the prospects for uniform services, the earnings improvement that we see coming from it, as the ABS implementation wraps up and the optimization takes place in that business. So, I see it halfway towards enhanced margin in that business that will dramatically improve returns for our shareholders. And so there are multiple pathways there, and we're always evaluating what's the option.

Okay. That makes sense. So, you mentioned a little bit about sort of technology coming into this sector, cashless and [contactless], how much is this really changing? How much are some employees going to be surprised about having teched-up, the catering experiences when they return to office? Are we seeing some real meaningful changes in the level of innovation?

Yes. I think, particularly in the B&I sector as customers return to work, they'll see significant differences in the way they can either order or receive product. They'd be able to use the app on their iPhone or whatever device they may have to order and have it delivered to their desk or to a distribution point. So, they have multiple ways that they'll be able to interact with us as their supplier and as their dining company. So, I think that will be different for people. And I think the accelerated payment capability will make the ease of service dramatically different as well. And I think that will lead to higher capture rates and higher participation rates in locations, because it will be just easy for me. I can walk down to capture it in my phone and click and be out of there. I don't have to worry about leaving the building and/or ordering from a third-party or having it delivered by a third-party. I think that creates a much cleaner, safer environment for people in general. And I think we'll take advantage -- we will be able to take advantage of that.

Is customer data a real opportunity here? Is this something that is always kind of cashless and ad-based payment gives you some greater insight into your customers?

Yes. The application of that data that we actually have a team that is working on how to monetize that data gathering, if you will. And if you think about the markets we serve, having the consumer data around higher education and what young people are doing is very valuable. Their spending patterns, their purchase habits, the causes they invest in, the things that they do will have a lifetime benefit for organizations. And so that's an area we're exploring very significantly. The same is true on the sports and entertainment side. Having that consumer data coming out of sports and entertainment will be very valuable as well. So, I think as other companies and other industries have been more advanced in terms of what they do with that data, we're taking learnings from retail organizations and incorporating it into what we understand about our customers and making decisions about how that can affect the services we provide and value we can provide to those customers and then, ultimately, driving value from the data itself.

And do you consider Aramark to be kind of ahead of the pack on innovation at this stage or ahead of the in-house operation ahead of the big players? What's the sort of advantage you got in this area?

Yes. I think our rate of adoption has dramatically increased over the last 18 months. The pandemic has certainly pushed us to adopt a number of these systems much more aggressively than we would have done without it. And so, I would say we are definitely ahead of the self-ops and the independent operators. It's hard to say where we are with respect to where Sodexo and Compass are. I'm sure they have very robust technology strategies that they're working through as well. But I would say, we are -- we have a very significant focus on it. We think we're in a very advantageous position and we're pushing to adopt very, very rapidly.

Okay. Just as a last topic. I just want to touch on ESG, and then I'll finish with a couple of broad thought questions. I've got one question. I don't definitely want to finishing on anything too negative, but I'll ask this one first. How much does your private prison business drag on the rest of your portfolio? Is this an ESG hotspot? Could you consider divesting this? It's a question we've got from the audience.

Yes. Well, we're not in the private prison business. We serve state and local institutions. We are not in the private prison business. So that segment of that industry is not a drag on us at all. We do extraordinarily good work in the corrections sector and get very strong feedback from our customers and the communities we serve about the work that we do and the return to work strategy, the return to work programming and training and development we provide are being [persuaded] is very well recognized. And frankly, we're getting a lot of very positive feedback from the community, including organizations that are very much ESG focused. So for us, it's really about telling the story about the good work that we do, the impact we're trying to have on people's lives and the opportunity for us to really make a difference for that -- for those individuals. And so telling that story, I think, is very important, and we're going to be -- we're going to continue in the business because it's both mission-based as well as a very good profitable business for us. So -- but we are -- I want to be clear, we are not in the private prison business.

Okay. That's very clear. Thanks for clearing that. And then just while on ESG, you talked about consumers are not -- COVID is not changing what people are eating in your business. But over the longer term, are you seeing some meaningful changes in business? I noticed a couple of months ago, I think you won Sacramento State contract and that was because the previous incumbent couldn't deal with the changes in -- towards kind of veganism and gluten-free food. So is this something that's really happening? Is it happening in the US? Often we can think it's a European trend, but is it happening in the US? Is this a tailwind to you?

It's absolutely happening. Customer preferences are continuing to evolve, and we are working very hard to make sure that we're adapting our menus and structures to go ahead and meet those changing desires and tastes. And frankly, we're also doing it because we think it's -- from a health perspective, it's a very important element of our -- what we can bring to customers. That Be Well. Do Well. ESG initiatives for us, the heart-healthy campaigns, the partnership with the American Heart Association are very real commitments on our part to do what's right for the consumer and to provide them with healthy choices. No, I can't leave the customer to make that choice, but I can give them those opportunities and really -- a really create an environment where they can make those choices for themselves. So, we'll always have a range of product availability. But we want to be able to give them that scope and that range of services that really does mean they're changing desires and behaviors.

Okay. I think we're almost out of time. So, I'm just going to ask you one more question because I ask this yesterday to Elior's CEO. When you look back over the 18 months, do you think, ultimately, this crisis has been beneficial to Aramark? And actually, there's been a necessary shakeup of the catering and wider outsourcing industry?

I think [in the longer run], it's absolutely beneficial to the company. I think from a cultural perspective, the company has really pulled together to meet the challenge. I see it every day as I meet with managers and the senior leadership team and talk to our customers. I actually think it's created closer engagement with our clients. There's no question that some of the relationships that we've developed over the last 18 months have gotten stronger. A number of our relationships have gotten stronger. By the way, we reacted and solved problems for our customers and clients. So, I think in the end, it's a benefit. It's been a struggle. But I think it's made us a stronger organization giving us enhanced capabilities. And culturally, it brought us all together much more rapidly than without it. So, I think, ultimately, it's been beneficial.

Great. Well, with that positive note, John, thanks so much for your time today. As ever, if there's any follow-ups, I'm sure myself and the team, they would be happy to. But John, thanks so much for your time today.

Thank you. Take care.