Caterer To The Olympics: A Gold Medal But Not Much Gold

The world's athletes may be far from home while competing at the Barcelona Olympics, but you won't know it from their training table. Indian competitors will have plenty of roghan josh, a lamb dish, to fuel them. Russian athletes can nibble on the baked caviar and salmon delicacy, thin noodles natiuska. And for the Americans, what else but rib-eye steaks and burgers?

All of it will come from the ARA Group Inc., the Philadelphia-based services outfit responsible for feeding all 15,000 athletes and coaches during the competition. The games mark the eighth time since 1968 that ARA will face the herculean challenge of meeting the varied dietary demands of Olympians from 183 countries. "For us, it's the gold medal of our profession," says Joseph Neubauer, chief executive of ARA. "If you can do the Olympics, you can do anything."

FAR FLUNG. It may be a gold medal of sorts, but it doesn't add much to the privately held company's bottom line. ARA actually loses money on its Olympics contract, though it won't say how much. Neubauer figures the visibility is worth it. After all, the Olympics is merely a sideline for ARA. Most of its energy goes into trying to produce growth in such far-flung services as day-care centers, book distribution, and uniform rentals.

The core of this heavily diversified company remains in contract food, which produces some $2.8 billion of ARA's $4.8 billion in annual revenues. ARA recently won the food concessions at Baltimore's new Oriole Park at Camden Yards. For more than 30 years it has supplied cafeteria fare to colleges and now serves some 319 schools. It sets up Pizza Hut and Taco Bell kiosks in the dining halls to try to draw more students. "No more mystery meat," Neubauer vows.

But in its drive for growth, ARA has ranged far from food. Hospitals can rent emergency-room services, doctors and all, from the company. Its Correctional Medical Systems unit provides medical services to some 80,000 inmates at more than 110 jails and prisons nationwide. And last February, ARA acquired WearGuard Corp., which, with $120 million in annual sales, is the nation's largest catalog retailer of uniforms. ARA is already the country's top uniform renter.

The company's diversification has some common threads running through it. Neubauer says he will expand only into businesses that focus on providing service. To stay within the ARA fold, units must rank No. 1 or No. 2 in their industry. And all must maintain healthy growth potential.

The strategy has mostly paid off for the company, which went private in a 1984 leveraged buyout led by management. Its junk-rated bonds, which carry interest rates of between 10% and 12.5%, are trading between $107 and $110, up a couple of points during the past six months. Since 1985, net income has increased tenfold, to $64 million in fiscal 1991, ended in September. Sales over time are up, too: Last year, ARA revenues were $4.8 billion, up from $3.5 billion in 1985. The growth has made for happy ARA managers: Many hold stock now worth $35 or so a share, up from a meager $3.50 eight years ago.

Still, the company has been hit hard by the recession. ARA's 1991 sales were up slightly vs. 1990's $4.6 billion. But 1991 operating income, at $260 million, wasn't much better than 1990's $257 million. This year only a big second-half pickup will keep sales from running dead even with last year.

DAY-CARE WOES. Part of the problem comes from a slowdown in ARA's core food business: Corporate clients, busy downsizing their payrolls, have cut down on the amount of food they need from ARA. And Neubauer has had to trim some units: In February, he sold 90% of ARA's capital-hungry nursing home business, Living Centers of America, in a public offering that raised some $113 million.

But the biggest drag on ARA's earnings may come from its 12-year-old venture into day care. The company's Children's World Learning Centers Inc., with some 500 outlets after a series of acquisitions, is modestly profitable, executives admit. ARA is expanding into on-site day care. It has won business from the Pentagon, the National Security Agency, and 20 public schools, which provide day care before and after classes. But with few companies and school systems adding such costly operations, the effort is going slowly.

With worries like that, no wonder Neubauer eagerly awaits Barcelona. It's a potent morale-booster for ARA's 120,000 employees. Such challenges as ensuring that the Chinese get rice boiled and the Japanese get it steamed amid the Olympic hoopla are more fun than squeezing a little bit of growth out of an oh-so-sluggish economy.

      Company segment     1991 sales  1991 operating income
      FOOD AND LEISURE       $2.8 billion  $127 million
      Catering to hospitals, schools, and corporations; stadium and national park 
      concessions; vending machine services
      HEALTH AND EDUCATION*  $504 million   $27 million
      Emergency-room staffing; prison health care; day-care centers
      TEXTILE RENTAL         $821 million   $87 million
      Uniform rentals, industrial janitorial services
      DISTRIBUTIVE SERVICES  $368 million   $26 million
      Book and magazine distribution
      * Pro forma results, reflecting February divestiture of Living Centers of 
      ** Pro forma results, reflecting February acquisition of WearGuard Corp.
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