Aramark (ARMK) Earnings Call Transcript & Summary

Okay. Great. Hello, everybody, and thank you for joining us. As part of this 2024 Redburn Atlantic CEO Conference, we're delighted to welcome John Zillmer, CEO of Aramark, to today's session, which will last around about 50 minutes, including, hopefully, the opportunity for me to pass on some of the questions that you are able to submit. If you do want to submit questions there should be a box below your video into which you could type those questions and they'll pop up on my screen and I'll try and pass them on. So John, first of all, thank you very, very much for joining us. Great to see you. And yes, yes, thanks for joining us.

As we were sort of just chatting about sort of prior to this, I mean, this feels like the last 12 months or 2024 has been something of a sort of seminal year for Aramark. The company has maintained pretty impressive growth against the what's more normal market backdrop following the sharp recovery. You've managed to cut leverage, raise the dividend, introduce a share buyback program, all sorts of things that seemed quite a challenge a couple of years ago, to say the least. And the share price has obviously started to reward you for that progress. And naturally, the question most investors are asking is, can you maintain the trajectory, I suppose. And so first of all, my question is from an Aramark perspective, perhaps you can begin by framing what is different about the organization now that will allow you to maintain that trajectory?

Yes. Thank you, and thanks for having me. First of all, we are excited about the performance of the last 12 months. And we really feel like the company has come through a lot over the last several years. We've been able to achieve a number of our strategic objectives, but really clarifying the mission of the organization, creating the hospitality culture, really being focused on growth and really refocusing the organization on delivering great customer service has kind of led us to this point. And we feel like we've got great momentum in the business, a rock-solid leadership team and management team in the business and just a great overall marketplace that supports -- that can support very significant growth for us over the next several years. And our expectations that we laid out in our Investor Day a number of years ago haven't changed. We still continue to see solid growth, solid margin expansion and significant value creation for our shareholders through '25 and '26 and beyond. So we're very excited and we feel like we're at an inflection point and really focused on execution and delivery. We've achieved the strategic objectives that we wanted to achieve. Now it's really about focused execution and delivery more than anything else.

Very good. I mean, I suppose if you weigh up the growth that you've achieved in the last few years and the opportunity landscape as you see it today, are there any end markets or areas of the business that have particularly surprised you? Because I mean, obviously, the rate of new outsourcing has accelerated sort of materially and so within that context, what has surprised you most about how the market's developed in the last year or 2?

Yes. Interestingly, the market's developed broadly across both domestic and international operations, and we're seeing growth and strength in virtually every segment that we operate. And we have had outsized growth in a couple where we have a very significant market positioning that enables us to grow more rapidly than our competitors like national parks and some -- there is Corrections. But we're seeing strong growth opportunities in every vertical, in every geography. So it's very encouraging, I think, for the long-term health of the organization. It's a very competitive but rational marketplace and one that I think we're well positioned to take advantage of over the last -- over the next several years. We have seen significant opportunities expand themselves in our supply chain operations, our GPOs, a number of the strategic initiatives we've undertaken in order to help close the margin gap with our competitors have really borne fruit and will continue to. So that's -- I wouldn't say that's been a surprise, but it's been really exciting to see the strategy come to fruition and the results of that as we've built it.

And has the -- does the lead time between the sort of -- or the sort of thought process and the speed with which that develops within industries differ materially? Are there industries that tend to move more slowly and therefore, they now perhaps provide some of the opportunity? Or are they kind of -- or they move through the gears at roughly the same rate?

No, they are different. Particularly when you think about large universities, they tend to move much more slowly. It's -- really what you're talking about is less of an operational decision and cost-based decision and more of a philosophical decision. So it takes some organizations longer to get to that point where they agree that, yes, this is the right thing to do and then they work through process and typically have many committees engaged, in lots of different parts of the organization engaged to kind of reach consensus before they move forward. And so the timing on some -- in some segments, K-12, collegiate hospitality, those tend to be a little bit longer, outsourcing in the business environment or the -- and even manufacturing is just an accepted practice. So there's no philosophical decision required. It's just an operational, yes, let's do it, let's get it done, that's different from some of those other more complex politically-oriented and societal-oriented kinds of organizations.

Got it, interesting. And within those that are sort of more commercially minded perhaps initially, one of the things that certainly has surprised me, if not you, is the extent to which business and industry has continued to find corners of the industry that will continue to outsource. And I wonder how much the role of technology and things like unattended vending have played into that and sort of expanded the addressable market to some extent? Can you sort of share, a, your thoughts on that as a broader market theme and, b, how Aramark is positioned compared to where you want to be in those sorts of solutions certainly?

Certainly. It actually has -- it has expanded the addressable market, particularly when you think about mini markets and unattended stores and the technology capabilities that you can bring to bear that we've even -- that we've brought to bear even in the minds of Chile or the hospitals in Chile or in higher education, the opportunity to serve customers 24 hours a day without having labor attached to it is extraordinary. And so we are seeing an expansion of those kinds of opportunities, particularly in the B&I sector, but we're seeing it in other parts of the business as well, where we're not only just taking advantage of the technological trend, but we're also finding unique and different ways to serve customers and are driving the base business and the volume in those existing facilities as well by adding those kinds of capabilities in a broader way. I do think it's an opportunity. Our refreshment services business has grown very significantly over the last 12 months. They're traditionally focused on core vending but the mini market business has expanded rapidly for them, and it's a much stronger part of that business. And they lead the opportunity for us in the B&I world, the 2 parts of the organization work together to provide that range of services for those customers. And so it does open up a smaller set of customers with fewer people, lower labor cost profile, different kind of operating dynamic, but significant revenue opportunity going forward.

And so, yes, just on that point on the sort of operating cost structure in those new opportunities, is that meaningfully different, are the margins likely to be slightly superior to more traditional venues? And is that something we'll ever see as it filters up to the top? Or is that probably not yet going to be material enough for that to be good?

I think they are materially higher. And I think that will translate into improved margins in refreshment services in particular as it continues to expand in those segments. So it's -- really, the difference is just we really have very little labor attributable to those operations. So it's -- the cost of goods is roughly similar, the product that we sell is roughly similar so it's just that you're managing that labor cost at a much lower level and leading to better margins.

Yes. Okay. And then on the international side of the business, that's obviously been a sort of standout in terms of the rate of growth in the last few years. And at least from the outside, it's always been my impression that it was the U.S. market, particularly that was sort of more attuned to outsourcing, and there were various sort of philosophical, if you like, obstacles preventing greater rate of outsourcing outside of the U.S. and particularly in Europe. Now they seem to be dissipating somewhat or at least the rate of growth both your company and some of the other competitors seem to be suggesting that, that's changing. Is that the case? Or is it just a bit of a short-term shakeout?

No, I think it is the case. I think the rate of outsourcing growth internationally has accelerated. And we're in all the world economies where we want to be. And each one of those different marketplaces has got a different growth profile and a different set of services in the verticals that we operate. We're the #1 provider in Germany in the B&I marketplace, yet we have very little presence in health care, but health care is a market that is outsourcing. And so there are a range of opportunities in a range of markets where we have significant growth potential, not only as a result of increased outsourcing, but just because we've got capabilities we can bring to bear that we haven't typically brought in a particular geography. So for us, the pace of outsourcing is important. It's -- and we'll be working very aggressively to take advantage of it but the total market opportunity, the total addressable market in these geographies is well beyond anything that we had seen before. So there's just a real strong opportunity to go ahead and grow the business, which we've demonstrated over the last several years, we're able to do that. We've got a dedicated leadership team that's really focused on delivering growth and they've been able to achieve terrific results, as you just noted. So we're excited about the opportunities internationally regardless of whether the rate of outsourcing increases or stays static, we're well positioned, and we feel like we've got lots of runway ahead.

Good to hear. Yes, because it's -- I mean, from our perspective, it seems obviously a lot of the, I suppose, press releases at least that we see talk to some of the higher profile wins in terms of brand names. And so it's difficult to gain that impression. But in something like health care in Germany, does it require you to sort of -- to win a sort of -- or to be able to plant a significant flag in that industry with a big contract win and then it works from there? Or is it more a case of sort of gradual attrition?

I think it's more a case of gradual focus and execution against the given marketplace. And it's not something that we had historically focused on. But adding the resources, the sales capabilities and the operational leadership is not a significant issue. So getting the scale over time will come. If you happen to be able to find a great win to go ahead and plant the flag and get started, that's terrific. But I think it will just be -- require us to be focused and disciplined over a longer period of time as we execute against that strategy in that particular market. And it's different around the world, the type of services that we offer in each country are really very different. The company was built over a number of years by way of acquisition. And so the businesses that we acquired over time were different. Were focused on different end segments. And really, it's now just building out the core capabilities across the enterprise in a way that really takes advantage of the strengths that we have, not only internationally, but domestically that we can expand to those other markets.

Okay. Interesting. Yes. So it sounds as though from your answers that you said that you're in all the geographies that you want to be in, you have all the capabilities you need to have. So it doesn't sound like M&A needs to play a meaningful role, although you've said that there are probably areas where you wouldn't mind making acquisitions if they fit. Is that the right sort of the right impression?

Yes, I think that's the right way to think about it for us. We feel very strongly about the market, the end markets and the countries we're in. And if we can add capability and expand our reach by doing tuck-in acquisitions in markets, we would definitely do that. And we've demonstrated our ability and our desire to do that with a number of small tuck-ins in the U.K. in particular. But it's -- and it's not just the foodservice business. It's also the GPOs as we've acquired a number of small international GPOs over the years to go ahead and bolt on to our capabilities for Avendra. This last year, we rebranded Avendra as Avendra International, it's now operating in all the countries where we operate, and it's really focused on that European growth and international growth as it continues to build that organization. And now we've eclipsed the $20 billion spend managed -- the managed spend ratio or number, I feel very good about that capability. So we'll continue to do tuck-ins. I don't see any significant -- there's no transformational M&A for us. We don't see that as our path forward. We see long-term sustained organic growth as the way to improving margins over time and creating significant shareholder value. I don't want to overpay by acquiring that -- I don't want to overpay for business by acquiring it and pay a multiple on business that I could sell at a much lower cost. And so we'll keep looking. That's a long-winded answer to say M&A is important, but it won't be the main driver for us.

Got it. That's very clear. And while we're on that topic, I mean, there is a question that's come in asking for your comments around the Sodexo headlines that were up sort of late summer. Perhaps I'll frame it in the context of, is there much strategic logic or from your perspective, advantage in being sort of more than twice your size. And I mean not to mention the sort of -- not really thinking about just the sort of operational cost removal but from a growth perspective, does that ever make sense?

I don't know that it does, and we certainly don't believe it's necessary for us to continue to grow. If we can continue to execute and deliver on the commitments we've made and grow the business, selling 10% annually and retaining 95%, 96%, that is a very strong growth trajectory for us. And then when you add base business growth and in-unit like-for-like growth just creates a very dynamic growth profile and trajectory and a very strong earnings accretion opportunity for us. So I think that's what we're focused on. And it was unfortunate that rumor came out in the summertime. It really was -- thankfully, it didn't divert anybody's attention from getting their jobs done and then was quickly dispelled by both organizations. And we're just focused on running the business and executing on our strategy, which I think in the long term, pays much better returns to our shareholders than some large-scale strategic combination that would be fraught with either cultural issues. Just when you think about the implications of a large-scale merger of any -- in any industry, they typically don't deliver on the promises. And so we like where we're positioned, and we'll continue to stay focused on what we're doing.

Very good, very clear. I mean you mentioned the retention progress that you've achieved within that previous answer. Obviously, in the latest fiscal year, retention took a bit of a backward step in the facilities business. Can you just sort of reassure us that, I mean, one of the themes that had emerged at least during the pandemic was the facilities had continued to be resilient and grow a bit more across the industry. I'm not necessarily speaking specifically about your own revenues. So sort of reassure us that there wasn't, if you like, business taken on then that was substandard and that this step back in retention recently was a one-off?

Yes, yes, absolutely. Well, the retention dip in facilities was really related to 2 accounts, 2 customers, 1 of which was a very long-term customer with Chicago Public Schools on the facilities side, which really was driven by a political decision as they elected a new Mayor last year, he campaigned on the promise of getting rid of outsourcing and turning the operations back over to the schools. And when he was elected, he delivered on that promise and essentially said, okay, this is what we're going to do. And so it was unfortunate. If the election had gone the other way, we probably would have expanded the relationship with the other candidate, it just was a political reality that we had to face. And so that's unfortunate. And not performance issue, but a political issue. The other large opportunity was Boeing, which Boeing had made the decision a couple of years ago to begin to turn over their integrated facilities management services to Aramark and then reverse course as a result of the -- what's going on inside the Boeing organization and the kind of turmoil and the change that they have gone through. So I still see -- first of all, Boeing is still a very large customer of ours on the foodservice side, didn't impact that relationship. But what it did impact was the facilities business that they had begun to outsource to us and they've gone ahead and retrenched and kept that in-house and done things a little bit differently for a period of time. I still see it as a significant opportunity but we had reported it as a win the year before. And then when they decided to reverse course, we had reported as a loss in the year then when they made that decision. So 2 very significant one-off chunks, which if you normalize for that retention rate in facilities is above 95%. The foodservice retention rate was above 95%. So it's really not a -- it's not a systemic issue. And frankly, it's -- we're excited about the opportunities in facilities going forward and have already booked significant wins that we'll talk about at the first quarter earnings release that will begin to replace those lost revenues. So we feel very good about the long-term trajectory in facilities and the margin expansion opportunity there and the growth trajectory of that business.

Very good. Very clear. I suppose during your answer, it occurred to me that I probably ought to ask you about the newly formed department of government efficiency that is being mooted. And whether there's, in your mind, any sort of agenda for something similar at a sort of federal level or -- and how that might impact you, if that were the case? I know it's obviously very early days and a difficult one to answer, but I thought...

Yes, I think it presents a very significant opportunity for companies like ours that are positioned well to provide services to branches at government that historically have been slow to outsource and/or very process-driven and have taken a lot of time to make rational decisions. So I think if, in fact, the government becomes more efficient and begins to look at things from an operations and business perspective that it will represent significant opportunities. Now you've seen some branches that the government have taken up outsourcing as a much more -- in a much more productive way, whether that's the Military who we serve in the Air Force or some of the other branches that have services that are outsourced or other large parts in government operations, I think it ultimately represents an opportunity for organizations like ours.

Very good. And then where should -- if it's not a sort of too clever question, in terms of sort of recessionary risks, I suppose one of the things that's been highlighted is that in some venues -- we've talked about some of the reasons why, but in things like Sports and Leisure and in business and industry, the per capita spend is well above where it was pre-pandemic in volume terms. Should we -- when we think about the next sort of 2 or 3 years, were there to be a squeeze on -- further squeeze on the consumer, should we worry about recessionary risk anywhere? And how do you think about that within your sort of oversight?

Yes. That's a great question. And first of all, I would say, as an organization, we're very recession resilient that even in the worst recession, you kind of think of in the financial crisis, 2007, 2008, our revenues only dipped by a couple of percentage points. It was -- we're -- because we're in such a -- we have such a broad portfolio of businesses that we operate in and we're operating in essential markets like health care, like collegiate hospitality, it's -- we're very recession-resilient. And specifically with Sports & Entertainment, the kinds of per capita spending increases we're seeing are driven by improved throughput, by improved speed of service by enhanced customer opportunities, our broader portfolio offerings. So yes, I see that as something that's very durable that will continue to expand as we continue to roll out technology to make speed of service and -- even faster as we roll it across every venue. We've got owners and teams that have adopted at a very rapid pace from a technology perspective, and we're seeing those results, and we've got some owners and teams that have adopted at a slower rate given the state of their facilities. So there is still a lot of runway and potential for increasing our performance and per capita spending in those operations that have been maybe a little slower to adopt. So I think, overall, we're not seeing a shift in consumer behavior, and we're continuing to see strong resilient consumers in the SME world. It's -- for us what impacts it more than anything else is team performance. If the teams are doing well and fans are having a good experience, and they've got a great service and they can get to that concession stand and be back in their seats in literally seconds as opposed to multiple minutes, it really has been fantastic, and customers have continued to spend very aggressively. So I don't see significant risk. We're not modeling it that way. We see very little recession risk. And frankly, we see really good business growth going from here.

Interesting. Because I mean it's certainly have been put to me when we just think sort of shorter term in the next 12 months that your guidance sort of includes 100, 150 basis points of like-for-like volume growth. So taking what you just said, is it fair to assume that some of that is assumed to come from the sort of increased take-up of relatively new venue -- within relatively new venues that you're anticipating?

Yes, that's absolutely fair. It -- well, we do have modeled in our plans for the year, increased like-for-like growth in those segments. We also see it continuing to be a strong improvement in the B&I operations as we have continued return to work unfolding more disciplined and more consistent return-to-work strategies being adopted by employers, people requiring at least 4 days in the office. So that leads to some stronger like-for-like growth in those operations. But we're also seeing it in other businesses as well, we see very strong performance across the board in -- even in industries that are more mundane just as a result of improving services and capabilities and the kinds of offerings that we're giving our consumers. So we look at like-for-like as being an important component, part of our long-term growth strategy, and we're very much focused on it.

Great. And then on the sort of volume of new wins, which has been, in my mind, the sort of the most impressive sort of achievement. I know there are lots of those. But the -- some of that clearly is a sort of widening opportunity set. But clearly, your win rates within that must have increased as well. So can you sort of help us understand how you're targeting additional business and then sort of upping those win rates? Or where does win rates sort of stand compared to history?

Yes, I would say that's a great question, and it's really the result. The increased win rates and the improved sales are really a result of just the discipline that we've been able to install over the last several years in reinvigorating the growth culture, really focusing on growth has been a key component of our overall earnings accretion story that we've put resources back into the business that had been cut. We put leadership into businesses that understood their verticals, understood their core markets and really understood how customers think. We built -- we rebuilt the capabilities of the organization and reinvigorated the hospitality culture as well. And so our win rates have improved dramatically from prior to '19 being in below 10% to 15% to being in the 30% to 35% range now. And so that's still -- that's a significant improvement, but still want to do better every day. We continue to focus on adding new technology, adding new resources, adding new capabilities to go ahead and continue to improve those win rates but it's really mostly about people and leadership and focus and discipline and being in the markets, getting to know the customers and really developing solutions for them in a meaningful way where prior to 2019, the company had engaged in bid responses. Now we're selling and there's a very -- that's a very different approach to running the business, and we've been able to deliver the last several years on that kind of growth that we had desired. And maybe the last key element that I would add there is we now have the entire organization incented on growth, where before the leadership team was not incented on growth. They were incented on EPS, which is wonderful. But in the long term, you grow EPS by growing the organization. And so now 40% of incentive comp throughout the organization is focused on growth. And the old adage you get what you incent, right? And it's -- we've been able to deliver on that, and we're confident we'll continue to grow the organization.

Very clear. And just picking out one of the components of that answer, and it's something that's slightly off topic here, but you mentioned the sort of retooling of the organization and the investment you had to make bringing people back in. Can you give us any idea of what that cost essentially? Because presumably, it didn't -- it must have required quite sum to the SG&A, OpEx investment to rightsize the sales effort?

Yes, it did. And we -- as we rebuilt the organization we disclosed at the time that it was going to -- that basically we were going to be doubling the size of the sales force. We went from approximately 50 people to actually more than double, 135 people selling business in the core business domestically that -- those resources had been cut in order to try to lift the margins artificially in the business. They had focused on SG&A and margin and had really taken those resources out of the business. So yes, it was a significant investment on our part, but it wasn't just the sales resources. It was also the leadership of the businesses that were -- we had company presidents that really didn't understand the end markets they were operating in, they'd come from outside the industry, they'd come from outside a hospitality mindset. And so bringing people back to the organization that understood the contract foodservice business, understood their customers, understood their verticals really was also a key component of it. And that wasn't an added investment. It was just -- it took time, and it took energy to go ahead and replace those people that were underperforming. But in essence, it was just a one-for-one kind of cost replacement when it was all said and done. So it was a significant overall investment, but obviously has paid significant dividends. And our organization is now extraordinarily lean, our SG&A is growing very slowly, less than half of our rate of sales growth. And so we're very confident in the way we're managing that.

And that sort of rate of SG&A growth can be sustained for a few years yet before you feel you need to...?

Yes, absolutely. Yes, absolutely. It's -- we are a purpose-built organization. We can add a lot of accounts before having to add additional SG&A resources. And that's where -- that's a key component of our strategy in terms of earnings leverage is have the growth rate and maintain SG&A leverage, get supply chain economics to improve as a result of improved spend, and it leads to this continued margin expansion.

Understood. John, you touched on Avendra earlier, and it's a sort of topic I'm really interested in exploring a little bit more perhaps now. Sort of if you could give us a little bit of context around that and whether the -- clearly, it derives its own margin to some extent, but the benefit it brings to the managed service offering and how that's -- presumably that didn't materialize immediately, you increase the size of Avendra not least because the pandemic got in the way and then food price inflation got in the way before it could really show its worth. So perhaps if you could just sort of touch on that time line a little bit and where we are now and how far along the sort of road to really knitting that into the sort of sales offering?

Yes. Absolutely. And first of all, Avendra has done an extraordinary job. The supply chain organization has done an extraordinary job of contributing both from a growth perspective, adding new customers for Avendra itself, but also adding significant improvement to the supply chain economics of the core business. And so we went from roughly $12 billion in spend under management to $20 million, that $8 billion in spend under management allowed us to go back to our manufacturing partners and negotiate improved, better deals that benefit both parties, that benefit both the Aramark core contract business as well as our supply chain partners and our customers at Avendra. So the -- we -- both sides of the organization have benefited from that increased spend. And I think our people have done an extraordinary job of negotiating those new deals and delivering on the promise. And if you look at our margin improvement, a significant chunk of that this year, last year and coming forward will be that continued improvement in supply chain economics and improved into-unit cost and improved national volume discounts, if you will. So it's a key component. It's really the source of the -- one of the key sources of growth in terms of earnings improvement, one of the areas where we're continuing to focus from an M&A perspective, adding additional capabilities in additional geographies to go ahead and continue to build the spend. But when you think about Avendra, Avendra was essentially a domestic company when we bought it from Marriott and Hyatt and the other founding partners, they didn't really even use that service themselves overseas. So we have significant organic growth potential with our existing customers like Marriott to grow outside the boundaries of the United States and to do -- and to provide those GPO services for them in markets around the world. So we've got both the organic growth opportunity as well as a potential M&A opportunity to grow that, that GPO and we'll continue to do so. It is...

Yes. So that organic growth is that to an extent -- to the extent that it should outpace the organic growth in the rest of the business...?

It's -- it will be a significant contributor and it could exceed that 10% rate in terms of overall new, if you will, depending on the markets and depending on the ability to rapidly expand those services overseas. It certainly could. Keep in mind, when we get new customers from Avendra, we're booking essentially the fees. So the revenues are not in -- you have $20 billion in spend but you're not booking $20 billion in revenues, right? So you're just booking the fees. And so it doesn't have necessarily the leverage on the revenue side that it has on the earnings side, but contributes to both.

Yes. Understand. Okay. No, that's very clear. And so I mean, it seems to me -- and that's obviously been a contributor recently as that's developed. But you're clear that that's going to -- your supply chain efficiency as you framed it, is going to be a contributor is one of the reasons that you expect to be able to generate operating leverage above what I might consider to be the sort of industry norm in the business of sort of 20 to 30 basis points. But Avendra will be part of the uplift above that. Is that the right way to read that?

Yes, absolutely. Absolutely. And that is certainly our belief and our intention, and it was a significant contributor over the last several years and it will continue to be as we move forward.

Yes. And then when we think about the -- outside of the actual sort of specific company levers, as you went through the pain of the pandemic and the conversations you had to have with your customers, was there any opportunity to advance that relationship and I suppose, renegotiate contracts to put it bluntly, to put them on a footing that was more able to remunerate you as a provider better?

Well, you know what, interestingly, the -- during the pandemic, almost all the business transitioned to management fee, particularly in the B&I area. So what had been traditionally a more prominent P&L business transitioned to management fees, so we could provide services to customers and in a way that served their particular needs and served them during that time period. And over the course of the last couple of years as companies have developed the Return to Work strategies, those contracts have now been renegotiated and put back into kind of a new footing, if you will, but still remain predominantly management fee contracts as opposed to P&L. We see that transitioning taking place over a period of time. But we're earning what we consider to be a very fair margin in that business, and we anticipate that, that process will unfold over -- probably over in the next couple of years. But right now, it's -- it continues to be more management fee. Everything else pretty much transitioned back to their original terms post pandemic. But in the B&I world where you still have some companies grappling with the issues of return to work, it's still management fee.

Okay. That's clear. And as we put your -- place your margins in the context of the sort of industry-leading margins, is there anything other than scale and continued supply chain efficiency at that scale? Is there anything else sort of structurally that would prevent you from continuing to close that gap?

No, nothing at all. The -- really, the only -- the entire difference in margin is attributable to scale on supply chain. And if you look at the additional spend that Foodbuy has compared to Avendra that's focused on food, it is the source of the margin differential. And I think our unit economics, the prices that our people pay in unit, our unit operations are every bit as efficient as our competitors. And so it really is about taking advantage of that additional scale and size, earning fees on, call it, if there are -- if our spend is $20 billion and theirs is $35 billion, that $15 billion in spend that they're managing, that they're earning fees on it comes at a very high rate, and that is the source of the differential. So we've studied this every which way, consultants have looked at this every which way and really the only way to close that gap from an earnings perspective is to do it over time and is to do it by growing supply chain. Where otherwise, we're extraordinarily efficient in terms of the way we manage SG&A, the way we manage our into-unit costs, and so that's -- hence, has led us to the strategy that we're on.

Very clear. A question, while we've been discussing Avendra, that's come in, has asked a question about whether it is possible to scale Avendra as efficiently internationally given different markets, different sort of cultural habits, different ingredient preferences. Are you still able to leverage the scale and you're trying to sort of touch a lot of different touch points in the purchasing organization?

Yes. It is different than the U.S. operations because it is more widely dispersed and less centralized so there are more touch points, more geographies to cover. But the margin profile in those countries is very strong and the ability to contribute individually in each of those countries is very unique. We'll have -- we'll probably be able to talk about it in our first quarter earnings release, a major addition to the Avendra family that we're working through right now that will add scale in a significant part of that European geography. We're very excited about that opportunity and working diligently to get to a point where we can talk about it in a meaningful way. And so the opportunity is significant, and we'll continue to grow it.

Very good. And just so -- I mean, we're running reasonably short on time, but I've got a couple more that have come in. On the balance sheet, obviously, huge progress has been made in the share repurchase program brought in most recently. Certainly, some people have seen that slightly as a contradiction given that there's an intention to continue to deleverage. But obviously, I think the message is probably that initially, the share repurchase doesn't really slow that down. But what do you see as the sort of -- as the right level of leverage for this business over the medium term?

Yes. I think we would certainly like to be below 3. We're -- we've finished the year at 3.4. We think we've got a very clear runway to be at, call it, 3x by the end of this year, potentially a little bit lower than that. I'm less focused on an actual endpoint and more focused on optimizing my returns to my shareholders. So if there is an opportunity for us to use repurchases to go ahead and optimize that for shareholders, we'll do that. Fundamentally, our priorities are first, to invest in the business, to grow the business and invest and to create earnings that way. Secondarily, it would be to focus on debt repayment and then the share buyback would be the last lever that we use probably. And early on in this process, we'll be very disciplined. We have an intrinsic value analysis that we feel very good about. We believe the share price is undervalued, that there is opportunity here. But we'll use discipline and we'll be very judicious about each of the levers. Getting below 3x opens up a pool of capital to shareholders, to us that typically won't invest in something that's more highly levered than 3x. So we want to create the opportunity for other investors to select Aramark as their investment. And so we'll probably end up somewhere in that range. But if there's a price dislocation and our share prices drop, we'll take advantage of the opportunity because in the long term, it's the right thing to do for shareholders.

Got it. Very good. So with an eye on time, I'm probably going to draw it to a close there. Anything that I should have asked you or topics we should have raised that I haven't, John?

No. No, thank you. Really appreciate the support and the opportunity to be with you this morning and always look forward to these kinds of opportunities, and it's great to be here.

Well, many thanks again for joining us. We hugely appreciate you taking the time and wish you every success. I mean I think your successes are being -- you seem to have spoked me and more or less walked away with all the awards at the recent II event, I understand. I was made aware. So well done on all of that and hope it continues. Thank you again for taking the time, John.

Perfect, thank you very much.