Aramark (ARMK) Earnings Call Transcript & Summary

Hello, everyone, and thank you for joining us, this session of the Redburn CEO Conference. My name is Neil Tyler, and I'm delighted to welcome Thomas Ondrof, CFO of Aramark, to our conference today. Tom has very kindly stepped in at the last minute for John Zillmer, who's lost his voice. So obviously, we wish John a speedy recovery, and thank Tom very much for joining us. By way of background, Tom, for those of you that don't know, most of you probably do, but Tom joined Aramark at the beginning of 2020. And from Performance Food Group, where he'd been since 2015. And prior to that, Tom had worked in a number of board level roles at Compass Group. For today's session, we're expecting it to last about 50 minutes. And during the session, those of you following the event, if you would like to submit questions for Tom, you can do that by -- via the chat box below the video on your screen and then just hit submit. So please do feel free to send in questions, and I'll try and pass these on.

So Tom, thank you very much again for joining us. I'd like to start today by, I suppose, take a bit of a step back and to gain some perspective on your decision to join the group in 2020. I'm sure you didn't expect the first few months that you encountered. But what drew you back to the company? And is there anything that you've encountered since either in terms of culture, operations, commercial practices surprised you or being particularly unexpected.

Well, thanks and good morning Neil, and appreciate you having the B team in today, John sends his best wishes and we're sorry you can't be here today. I think we both -- John and I both shared a similar philosophy, reason to come back. I mean, John, obviously knew Aramark better than I did, but I did from a distance, competitively. And I think we both saw a company with great potential that just had sort of lost its way a bit, particularly when it came to its approach to the business in this industry. It is a margin through scale, a growth-led opportunity in the industry. It's how I grew up. It's how he grew up, early days of Aramark. And we knew that, that could be sort of reignited. And that was really the draw for both of us. We love this industry. We love the passion of the people in it. But as importantly, we love the opportunity that it provides to grow a business and not necessarily have to just fight for market share. If you do a good job, the opportunities are there and if you have the right approach, the opportunities are there. So that was the big draws for both of us.

And as I mentioned, I mean, obviously, the -- you wouldn't have expected that the trading conditions that quickly followed your arrival there. But I guess we've had a little bit of hindsight now. And would you -- with the benefit of that of hindsight, do you think that sort of shock to the system in any way, has it sort of hindered the turnaround efforts? Or do you think perhaps it may even have helped in terms of rebooting operating practices or renegotiating with your customers and those sorts of things?

Yes, it's a great question. And I think as we get a little further away from the hard work that had to go into -- through the pandemic and the changes, probably, it was a builder of the silver lining to your point. It gave us the opportunity to do some things, make some changes quicker just because of the environment and it sort of opened the door to anything. And what might have taken longer to convince people was the right path, I think we were able to move on with some speed. So I think that made things a little easier. It certainly made it harder in the more traditional sense of the uncertainty of what was next, especially in the first couple -- first few days and months of the pandemic and made it a little harder to say resolved to what we're trying to do because it was all about costs and making sure that we were circling the wagon, so to speak, in those early days. So the idea that we wanted to reinvest in the sales team, in particular, reinvest in some of the operating resources to help with service levels and retention, things that had all been cut out previous, that took a little bit of resolve, like I said, when cost was top of mind.

And then, I mean, we're about to learn some more in the near future, specifically about the Uniforms, post your announcement to spin that out. But in the context of that decision and on the sort of broader group structure, and I understand that the decision to spin was primarily motivated by valuation. But do you think the strategic success or growth of either side of the business might have been sort of impacted by being under the same roof?

I do. It was interesting from the outside looking in at Aramark all the years, there's always sort of this question mark as to why Uniforms was part of the group. And then when I got here, it was a little bit startling how separately they were run. I just didn't realize that. And when people talk about dis-synergies, I can, again, confirm that there just isn't a lot of overlap. Operationally, client base is shared, but it's arm's length to some degree. So I think it's been contemplated for quite a while. And I think I'm not sure Food and Facilities has been impacted, but I do think Uniforms has been. We've even seen it in the last year and a couple of months that Kim's been in place that the move to move to -- for this team to be reenergized by the quality of leader that Kim is and the team she's starting to surround herself with is really starting to sort of tick up the pace there. So I think they're definitely going to benefit -- Uniforms will, from this. And I think historically, while not [ having ] been here, I think that being part of a -- a small part of a larger group has probably weighed on their growth rates and their success a little bit.

That makes a lot of sense. So shifting focus now to perhaps some of the longer-term themes that have emerged from the disruption -- the recent disruption. In terms of market growth dynamics, obviously, first-time outsourcing has increased. We've heard that from yourselves and your major competitors. Has there been a specific increase in any single market? And has that sort of changed over time given different lead times from different markets? Because I think my impression at least was that the bigger opportunity lay in areas that were less outsourced, but that doesn't necessarily seem to mirror what I've heard. So if you could sort of shed a little bit of light and your insights into that, please?

Yes. Well, the self-op conversions have come from where you would think. I mean, obviously, the less outsource the market, the more the opportunity, and that's in essence where it's come from. So it's K-12, it's Healthcare, it's Facilities, a little bit of higher end in terms of the first-time outsourcing opportunity. But really, the growth has come -- and international, which is much less outsourced than the U.S. market. But the growth in total has come from a very broad-based sources across all lines of business, [ barring ] a couple -- I'll talk about those in a second as well as internationally. So obviously quite pleased with the quality of the business we've been winning, the size, everything from Merlin on down to our bread and butter, a couple of million dollar revenue accounts annually. And, geographically, a nice spread. So -- and then like we talked about coming from both self-op conversions, regional players as well as our other two main competitors. So I'm very pleased with the breadth and depth of the new business wins over the last 18 to 24 months. Two areas that are finally starting to pick back up, and we're excited about that from a new business opportunity standpoint that our Parks & Destinations Business and Sports & Entertainment, both have been relatively -- or have been very dormant for the last 2.5-plus years since the pandemic set. And so they're starting to open back up. And as we get into fiscal '23, some opportunities are emerging there that we're excited about. And that's also played a little bit as a tangential comment. That's played a little bit into our CapEx, the last couple of years being a bit below average. I think we spent 2.6% of revenues this past year. Typically, we're above 3%, 3.25%, in that range. Those 2 markets tend to have more investment, very long-term contracts, 15 and 20 years. And so as those come back online from an opportunity standpoint, hopefully, with the wins, we'll see that CapEx moving back up and into a more normal range, which we do like.

Okay. That's very clear. Helpful, Tom. And I suppose, does the current op -- the uptick in self-op conversions or uptick in first-time outsourcing, does it mirror anything that you've experienced in the industry in the past? When we try and think about how long this might last? Is there any sort of previous experience you can draw upon that informs that? And the second part to that question is, I suppose, as we try and size the market opportunity, are there any of those major markets where the ceiling of outsourcing opportunity is lower? Is there any reason they can't continue to, or wouldn't continue if that's international or education continue to -- continue to convert?

I don't think so. I mean in terms of -- I mean nothing compares to the last 2.5 years, so sort of tough to draw the parallels. But if you go back to sort of post 9/11, that was probably the closest if you can think back that far, you may not be old enough Neil, to the SARS outbreak that was -- that followed up 9/11. So I think that sort of 2001, '02, '03, '04 period, I think, was an area -- a time when outsourcing became -- we had a bit of a bump in first-time outsourcing because of complexities related to all that over those -- that few-year period. It wasn't like now, and it did trail off over time. And I think it will here, too. I don't know if it's going to last another couple -- 2, 3, 4 years. Certainly, there's a heightened level of complexity now that's a bit -- feels a bit more permanent, almost like when airport security changed after 9/11. So I think it will continue. And long may it live. But we've repeated -- both John and I repeatedly said, for us to sustain this 4% to 5% net growth algorithm that we laid out a year ago at our Analyst Day, we don't -- we can sort of fall back to that normal 1/3, 1/3, 1/3 from first-time outsourcing, regional players, the other major competitors and get in -- stay in that zone. We're just at the very top end right now given this bump in first-time outsourcing. In terms of the markets that can continue to provide first-time outsourcing, I think it's, again, the normal cast of characters, Healthcare, higher-ed, K-12 in the States, internationally, a bit of a holy grail. I mean, again, through my 30 years in the industry, we're always hoping that Europe, Canada, some of the Latam and Asia-Pac countries will continue to trend toward outsourcing. There's always been a bit of a resistance for that, particularly outside of business dining and Healthcare to a degree. And obviously, education move more that way. And sports, I guess, has made some good outsourcing -- first-line outsourcing moves over the last 5, 10, 15 years outside the States. So I think we continue to see opportunity on opportunity in all of our markets. And again, long may the bump in first-time outsourcing live, but we're not worried that that's driving our success right now.

Great. And just to be clear, I mean this -- your higher net new win rate or gross new win rate is more than just that trend. Can you distinguish sort of what's happened in terms of conversion rate of the opportunities you see as opposed to just sort of more opportunities?

Yes. So I mean, in the scale, going back to the algorithm from the Analyst Day, we talked about growing mid-single digits over the long term, 5% to 7%, which was made up of 4% to 5% net growth, new wins, net new wins and then a couple of percent pricing. Obviously, the pricing needs to be more right now given this inflationary environment, but the core 4% to 5% that growth holds. We're more towards, I think, right at 5%, just a bit short of 5% right now in a fairly short period of time over the last 2 years from 0 in fiscal '19 and '20 and really 0 for the previous 4, 5 years. To be at the top end of the range is obviously, it's a combination of the outsourcing boost. It's a combination of increasing closure rates, to your question directly, that we've started to see is the business has -- as we sort of put the sales organization back together, gotten some stability in the different markets, both within the States and internationally with those salespeople. Remember, it's a relationship sale. A lot of times, it can be a multiyear process from a limited contract. So if you're changing out salespeople all the time, it's really tough to get that traction. And we're starting to see some of that when it comes through in closure rates. We're getting more disciplined with what we bid and walking away from things early so that we can concentrate on things where we do have relationships and have clearly identified pain points and reasons a client might change. So I think all those things combined of -- better discipline in the sales organization, didn't even talk about a lot of the incentives we've changed within the business, but we're disciplined in the sales process, better stability with the sales folks, more sales folks than we had previously as well as this bump in first-time outsourcing have all sort of combined to get us to where we are right now. But even, to your point, as the first-time outsourcing might level off to more normal rates, these other influences are going to keep us elevated in that 4% to 5% range.

Got it. And just picking up on one of the points you mentioned there about only bidding on the business that you -- that you're really attracted to. Is there any -- are there any contracts in the legacy business that you're -- you'd be happy to say goodbye to? Any sort of, presumably not any meaningful amount, but -- and linked to that, you mentioned that this year had been a relatively above-average rebid year and sort of put a bit of pressure on the retention, therefore. So could you talk about that within the algorithm?

Yes. In terms of clients that we really would like to say goodbye to, no, that's not really -- John or I's mindset. Every client -- [ bar ] the huge, huge exception is worth continuing to work with and improve on and make better. Again, there is the rare occasion where either you've entered a bad contract or you've partnered with a bad client, but we're very comfortable with our portfolio now and moving on. So I don't think cancellations are part of the mix. Sorry, Neil, your -- second part of your question?

Well, it was the rebid rate. And this year, you said that this year had been a sort of slightly above average rebid rate.

Yes, it was a bit particularly in higher-ed in the U.S. and that's leveling off a bit. We're trying to get -- as we get more in front of the process, again, things coming to actual end of term is not where we want to be. We really want to do proactive extensions. So -- and that takes a little bit -- time and discipline as well ultimately. So we're getting better and better at that as the past couple of years have gone on, and we'll continue to get better at that. So we did have what felt like it was in reality, a more active retention year this past year, I expect that to be less in '23 and going forward.

And on that topic, should -- I mean it strikes me that -- I mean, a lot of us sort of view gross new wins, new business wins and retention as sort of separate components. But should those 2 metrics not really sort of play hand in glove with each other [indiscernible] and your broader reputation growth improves. Or are they still quite separate from each other?

No, no. I think you're absolutely right. I mean, obviously, reputation is one of the key points, references are one of the key points to any sales process. Rarely do you go through a process, particularly some of the bigger ones, where a client isn't checking multiple reference points. So I think they do go hand in glove, to your point. And that's another sort of upward trend is that as we are operating better, as we've reinvested in sort of the operating level, service levels, really taken John's immediate focus when he walked in to get back to a client-focused hospitality culture, that starts to make its way through the marketplace. And that reputation helps both from a retention standpoint and a new business standpoint.

And on the sort of topic of retention, I suppose, a proportion of that lost business is inevitable as customers either move elsewhere or go out of business. How does that tend -- as we look down the sort of the barrel of sort of tougher economic conditions, should we expect a sort of economic impact to the retention rate?

There can be. I mean we've seen it in '09, '10, that time frame within B&I after the economic crisis. I think it will be a bit muted this year if a recession is imminent. I think it will be a bit muted given that B&I hasn't fully worked its way back to its pre-pandemic levels. We talked a bit about the COVID recovery, another 3, 4 basis points or so in our guidance for fiscal '23. And some people have said, "Well, that feels a little conservative." We probably mislabeled that and shouldn't have called it COVID recovery, should've called it just base recovery because what we're starting to see is we really start to get 3 -- nearly 4 years past the pandemic is we're seeing other cross winds in that base recovery. So as the COVID -- and it's getting harder to identify what's what now. And so as the COVID base would recover, we may have some offsets as we get through '23 and into '24, to your question, on some recessionary impact within B&I. So they may net out a bit. We don't see it being too drastic. I think it was a couple of 2-, 3-basis-point hit to revenue in 2009 for the company from the recession. It would probably be less than that given where B&I is entering fiscal '23.

Got it. That's helpful. And just sort of going back to the sort of the potential resilience in the market. Can you -- I want to sort of switch tack a little bit and talk about technology and the employment of technology. And I suppose starting off with the question as to whether you think that may have actually expanded the addressable market in some areas by sort of lowering the volume threshold for unit profitability, for example, if you want to -- if you use shared kitchens, dark kitchens or delivery apps? And if you could talk a little bit about your offering there and the investments that you've made, please?

Yes. It's important. But like anything within the sales process, there's no one thing. I think sometimes the technology piece gets overplayed. It is a -- it's table stakes, and it's something that we've got to be able to offer both for the client or customer experience in unit, but also, to your point, from trying to be efficient from a cost standpoint. But ultimately, we would rarely win because we have the best technology, if ever, nor would our competition. I mean we win because we identify the best suite of solutions for our client given their pain points. And so that can be everything from technology to our GM candidate, to our ESG platform, to the capital investments and so on, culinary innovations, our design team, design and build team. So we have to package those up, technology being one of the pieces. But through the pandemic, we've obviously invested quite heavily in our facilities, in AIWX, and our ability to manage an account from a janitorial standpoint much more efficiently with much less labor, so better quality, lower costs. We're -- cashierless, given a lot of cash, basically all cash being taken out of our units, so cashierless checkout systems, which again help the customer experience but also take out cost, helps us with credit card processing and payments and whatnot. And then ABS in the -- on the Uniform side to draw that in, a lot of technology-base platform there, it's really updated and modernized. Their ability to run their business, everything from route -- dynamic route scheduling to being able to manage a client, its portfolio and be able to see what they're ordering on a daily, weekly process. So we've invested in technology, but we're -- one, where we're a plug-and-play sort of shop from a technology standpoint. We've got to continue to be able to have a wide breadth of offering from a technology standpoint and be able to move on from it when our clients move on from it and be able to host that in many different environments. So maybe not -- it's definitely not something that's going to be a sustainable competitive advantage, but certainly one that if we're not keeping up with it, it's not going to be helpful.

I see. That's helpful. I mean you touched on it earlier, John, but -- sorry, Tom, I have -- but...

Best complement I've had all day.

But I think it's -- I wanted to ask in terms of the changes you've made to incentivization to keep personnel, in terms of -- going back to your very, very initial comments around creating or sort of transforming the culture, which do you think has had the greatest impact and which might still have work to do?

I think two things. I think certainly, our sales commission plans, which were interestingly capped prior to John arriving, we scaled those a little differently and taken the caps off. So growth is our friend as opposed to our enemy prior to 2019. And so I think that's made a big difference, obviously, with our -- incentivizing our sales folks. From an operating standpoint, we really aligned ourselves to it by including growth in the management incentive bonus plan. So everybody on the operating side outside of sales, from John through to the unit managers are incentivized on growth. For the management teams, we've got 40% on net growth, 40% on AOI margin and 20% on cash flow. So we've kept balance. We talk every day about profitable growth, not just growth for growth's sake. We're only special when you can do both, not one or the other, and that's what we're striving for. So I think a combination of the revised sales commission plans as well as bringing everybody into the mix from a sales perspective by introducing that 40% MIB component for net growth has really made a difference.

Great. One of the questions that's just coming on the -- over the web is that a question about your new business growth in the international business relative to the U.S. and really just comparing the 2, and asking why there is sort of greater growth in the international side of the business at the moment?

Obviously, fiscal '22 is skewed by Merlin and the opening of that account, which was very much driven by the international team and the U.S. will benefit from it as well, but a great win for them. But I think, more basically, and it's tough having not been here prior to '19 to understand it. But -- for some reason, the international business was -- particularly from a sales perspective, was sort of left alone over that sort of 2014 to '19 period. And so it really demonstrates what happens when you have stability in your sales force and you have the same people in their markets able to work in an environment where there is these long hello to contract processes are allowed time to develop. So their stability is showing off right now, where the U.S. was on a bit of a roller coaster, they peaked out with salespeople in about 2016. It was cut 40% from '16 to '19, we've reinvested. And so their ability to have that continuity and that stability to develop the relationships in their markets is just starting to rebuild. So it's consistency in the end and stability versus inconsistency and instability of the U.S. It's not really any more complicated than that.

I see. Okay. And then again, something you sort of -- you mentioned earlier, but the -- could you help us reframe sort of next year's revenue guidance in the context of the, I suppose, the COVID index that you published at the beginning of the year, the $1.6 billion to $1.9 billion of revenue that were expected to be unrecovered by the end of '22. I guess you are running slightly ahead. So maybe that's the low end of that. But the 3% to 4% that you've guided to in volume growth, I think equates to about $600 million. So that -- and you mentioned sort of maybe a couple of percent volume risk from a recession, from employment, but not much more than that. So are we looking at sort of a longer recovery and more impaired end market? Or -- can you just sort of expand a little bit more on that particular topic, please, Tom?

Yes. I think it's a combination of all the things you just said. I think the round math is probably a bit better than the $1.6 billion on the low end of that range. It's one of the reasons we overperformed this year, expecting to be $1.75 billion, $1.8 billion and we ended up probably being closer to $1.5 billion. We said we were about 90% recovered, which would tell you, trying to close -- very close to rounding to 91% if we're going to be uber-precise. So sort of on $1.5 billion unrecovered, again, rounding another $600 million, $700 million of recovery gets you to that 95% recovered or $800 million unrecovered by the end of next year. And then yes, the cross wind of a couple of more percent from potentially recession, it might get you up to 97%, if you're really trying to bisect everything that's happening within the business. The balance is B&I. It's a little bit of the longer-term recovery in convention centers and conference centers, which are booking out through '23, '24 and '25 now as they recover. A couple of other pieces here and there within the parks business that sort of accumulate, but the B&I business will recover. I got asked that question not too long ago about it ultimately being beyond what its fiscal '19 level was. And we have every confidence it will. Will it come from the original base all recovering? Don't know, probably not, but the growth that we have the opportunity to win through new business, I think, will take us beyond the '19 levels over time.

Got it. That's helpful. And then the other area I wanted to sort of touch on initially was the balance sheet and more about capital allocation. You made some quite interesting sort of bolt-on acquisitions in the last couple of years. But obviously, the market is pretty focused on debt levels and particularly given the interest rate environment. So to what extent do you still feel there might be areas that you could benefit from enhancing inorganically? And to what extent do you feel slightly constrained by that given not necessarily internal metrics, but the way that the equity markets at least view your balance sheet?

Yes. I mean we're certainly cognizant of the leverage, and we've been very clear about our goals to get it down below 3.5x. We trended quite strongly this year to below 5.5x. We believe we'll be below 4.5x next year. So on that pace, as we laid out in the Analyst Day a year ago to get below 3.5x. We don't see anything -- I don't think we feel constrained mostly because I don't think there's anything we want to do of massive substance that we need to do that would put us off track from that leverage reduction. Certainly, we'll continue to look at the [ bolt plans ] as we have. Could we spend 0 this coming year? Possible. Could we spend a couple of hundred million? Possible. Neither of those are really going to change the trajectory of our leverage. And certainly, we're very focused on building capability within country. So quite tactical where we're looking at those, and there's a very specific reason why we would be doing the deals we're doing going forward, as you've seen and you just mentioned the last -- over the last couple of years. So I think, all told, don't feel too constrained about the leverage targets, but also don't feel like we've got anything really that we need to do that's of substance that will derail it.

Now, I guess, within your long-term targets, investors already seem to be a lot more comfortable than they were 12 months ago around the revenue trajectory. And consequently, I suppose the debates shifted to margin, which is a -- certainly, from my perspective, a much more difficult thing to try and bridge in the current -- with all the different moving parts. Starting with the topic of inflation, at the current sort of trajectory of prices and costs, should the net of those 2 things on operating profit be less negative in '23 than it was in the previous 12 months?

Well, it depends on what you think inflation will do. If it continues to accelerate or it reaccelerates, I think it will be the same -- a similar sort of pressure we saw in '22. Should it remained constant. I think it will certainly less so, a little less and if it decelerates, it will even be less so. So it really just depends on your opinion and your outlook on inflation rates. Are they accelerating, staying neutral or falling?

And I mean, certainly, the sort of -- the higher frequency data, food doesn't seem to have moved a great deal. But wage inflation, at least on the numbers I look at, looks like it sort of eased off quite considerably. You -- had that been any -- had that been an impediment to business at all in terms of staff availability? Or was that operating pressure actually quite helpful for you in terms of it being worse for potential competitors and customers?

Yes. Well, it certainly helped drive the outsourcing phenomenon that we've seen in the last 24 months or so. So in that way, I'll probably take that on balance versus the operating pressures we've experienced. We've sort of lucked out a bit on the labor front over the last 2 years once things started to reopen because of how it reopened. Our most competitive market for employees is in the business dining sector, both U.S. and abroad. Many of the others either didn't really shut down like Healthcare, or had a lot of seasonal employees anyway. So if you remember back, the pandemic in March, education came to a close for the year, almost like it normally did, and then started to reopen. So those seasonal employees didn't fall out of their rhythm. Same thing with a lot of the Sports & Entertainment, the Parks & Destinations. So we were able to sort of work almost in the normal cyclicality of the business the way the pandemic fell with labor. So it didn't become too much -- too difficult. If business dining had reopened quite quickly, I think we would have felt a lot of pressure. So in an odd way that it's reopened in a slower way, in a more linear way has helped us sort of manage through the labor pressures over the last couple of years.

Got it. And as we -- obviously, you're making -- you're taking quite sort of big bites out of the sort of trajectory to back to 2019 margins each time. But as we think about those -- that 2019 as a baseline, have the contractual terms being redrawn during the pandemic or thereafter or independent of that to raise that baseline and sort of away from the short-term switching to cost-plus that was -- that took place?

Yes. I mean, like you said, out of the gate, we really did flip basically 100% to cost-plus across the state. It has been working back. It's not fully back to the pre-'19 contractual terms state. It's driven by volume, and we're being very careful, again, given some of the other new macro environment issues that are bubbling up. We're being very careful about when we make that switch. So we continue to work it back. Certainly, and we've talked about this in the short term, the difference between cost-plus and P&L, particularly have not fully matured P&L contract. There's not really that much difference between the 2 contract types for us. But certainly, our cost-plus limits our upside. And so, over the long run, we certainly favor P&L contracts versus cost-plus. But I think, if your question is more about do we see, going forward, opportunities to drive the margin through favorable contractual terms, I do actually see that opportunity at the unit level to continue to enhance the business from a profitability standpoint because of the complexity that we -- that is in the marketplace. And whenever you convert self-ops, they tend to be very, very inefficient and you can bring a lot of savings to them and, in essence, keep some for yourselves. So I think there's an opportunity to continue to drive unit economics, but we need -- the volumes have to be there to really drive that in the P&L contract as a base for our business, which had been morphing for many, many decades. The business grew up as a cost-plus type contract business and has really been moving more to P&L for many, many years. That needs to continue to take advantage of that opportunity.

Yes. And as we -- that's very clear. And as we think about those, that sort of -- those immature P&L contracts, I guess, and there's a larger proportion of those through the accelerated new wins than you were initially anticipating, does the cost of mobilizing those new wins, I mean, presumably, it's still acting as a drag in '23 and does that greater success present a challenge to even reaching the bottom end of your '25 margin target, if this pace of net new continues?

Well, I think it's about getting -- hitting your stride, and we talked about cruising speed earlier around earnings and some of the follow-up calls. There's a point where -- and that's why we were very specific at Analyst Day to talk about getting into this 4% to 5% range. To get beyond that, for this number to continue to grow isn't the right strategy. Even though the market is there, to mobilize those accounts becomes more and more difficult, to circle back to one of your earlier points about credibility and reputation in the marketplace. If you try to win too much and open too much, especially in this environment with labor being what it is, you're going to fall, and you're not going to do a good job. And so your reputation might get damaged. And so to reach for too much might end up costing you in the long run. So we really want to hit a sweet spot, which we feel like we're about there at that sort of 4% to 5% of net growth against our prior year base. And then we got to continue that sort of hit that cruising speed and stay there. So, to your point, if we continue to push the envelope, it would be pressure on us in a number of ways, not just opening costs, but just reputational risk. Once we hit this cruising speed, and then we have to maintain it. So that means we're going to have to continue to grow the absolute dollar amount year after year after year, but that percentage stays pretty constant to make sure we have those quality openings and maintain our reputational integrity. And so those mobilization costs tend to sort of get lost as we just lap year after year. And that should happen as we get into '24 and certainly '25.

Got it. In conscious of the time, so a couple -- I'd still like to ask though, and sticking with the topic of margins. I think your GPO sort of flies a bit under the radar for a lot of us. Can you talk a little bit about the journey that's on what contribution it makes and what your ambitions for it are, again, within the context of margins, if that's the relevant context?

Yes. No, it's helpful. I mean the GPO is -- Avendra is very important to us, both in its ability to serve third-party clients as well as the volume that it brings in our negotiations with -- combined with our [ management ], services business to the market, to distributors and manufacturers. So -- we're excited about the opportunity and the trajectory it's on. It was acquired in early 2018. It was really focused on the integration for those sort of 18 to 20 months before the pandemic hit. So we really haven't tapped, I think, the opportunity that is within the GPO for us. And we're just -- as we're talking about piecing the supply chain back together slowly, but surely. So opportunities, again, to grow that business and add on to our third-party customers, grow our overall managed spend and then take that to the marketplace to help both our third-party customers and our in-house managed services business, and that's all in front of us. So again, very excited about that opportunity.

Fantastic. Well, I suppose just tying that up then, if we take -- if we sort of try and compare yourself to the industry leader in terms of margins, if we -- ex-Uniforms on an apples-to-apples basis, your '25 targets are still a good sort of way below the margins that for Food & Facilities only that, that company is achieving, is there anything structural that will prevent that gap from continuing to close?

No, not at all. I mean having been on that journey for the vast majority of my career, I know exactly what it takes. And that opportunity is here. It's a matter of scale and efficiency. And the other side is twice as big right now. So that's what's exciting to John and I is, if we were the same size business, we would maybe be a little worried, but we got a long way to go and a big market to capture and certainly nothing structural in there. The pieces and the components are in place, we just have to do our job.

Fantastic. Well, we're running up against our time limit, Tom. So that feels like a good place to draw to a close. Thank you very much again for stepping in at the last minute. It's been fascinating. Thanks for your insights, and thank you to everybody online for listening. And with that, I'll say goodbye.

Thanks, Neil.

Thanks a lot. Bye-bye.