Diversifying your Catering Company – the Risks and the Rewards
One of the most interesting spectacles in television sports is the opportunity to watch world-class athletes competing outside of their regular sport. For those of us without much athletic ability, it can be gratifying to learn that an NBA superstar is a terrible bowler, or that the top pro quarterback has a 32 golf handicap.
On the other hand, there are some people with so much talent that they excel in any number of areas. The legendary Jim Thorpe won Olympic gold medals in track, and then played pro football, baseball, and basketball. Babe Ruth was not only a great hitter he was also a superb pitcher.
All of this is to illustrate a point about specialization versus diversification in the catering business. One of the questions we as consultants are asked most frequently by caterers is whether they should diversify out of their area of specialization as a way to gain additional revenue and profit.
This is a complex question, and one that almost every fast growing caterer will face at some point. For every caterer that successfully diversifies, there are others for which diversification not only don’t help their profits, they actually make it harder to maintain their original business. Most of the very large and successful caterers are diverse companies – yet they do not try to offer all services to all customers.
Here are some points to keep in mind:
Accomplishment in one sector of catering does not automatically translate to success in another – companies that are superb at executing the most complex full service events can flounder when asked to do a sandwich tray delivery for 20 people.
Diversification is not without risks, particularly for caterers with less brand equity –
if you are one of the dominant caterers in your market, the risks from diversification may be minimal, but they aren’t zero. For example your competitors might use it as a way to sell against you.
It is just as much of a challenge to diversify down market than up market – some caterers believe that success in upscale catering should automatically qualify them for success in the middle market. While this is sometimes the case, I have seen upscale caterers fail miserably while attempting to broaden their base in the midrange of catering.
Diversifying caterers must continuously work on their core catering competencies –mastering the fundamentals is a lifelong process, because the fundamentals change as the business evolves. Diversifying makes this even more crucial.
Opportunity costs (defined as the most valuable foregone options) are very real – for example, if you have to turn down a regular customer because you have made the decision to diversify, and therefore are so busy that you have to close off a date – the opportunity cost is the lost business from your regular customer.
But opportunity benefits are possible as well – maybe your regular corporate delivery customer will use you for her full service holiday party because you have diversified into full service catering.
Horizontal rather than vertical diversification is often the best strategy – a caterer that excels in midrange corporate business can often break into the midrange social market very easily.
Keep it simple – generally, the simpler your business model as a caterer, the more profitable you are likely to be, which can be seen an argument against diversification.
But possibly the best idea is to diversify into an entirely new catering market, with little or no competition – this is often referred to as a Blue Ocean Strategy, and if this is possible in your market you should consider it.