When firms push for nil-cost catering, the level of service itself suffers. But agreeing a risk and reward strategy at contract stage will improve the offer - and still save money
By Ian Boughton
24 July 2008
A call for better buying was made recently by Phil Hooper, chairman of the British Hospitality Association (BHA) Food and Service Management Forum. He said that too many catering tender documents are drawn up by procurement officers without any input from catering experts, are too detailed and inflexible, and allow no room for suggestions. "The ultimate objective", he said, "is to find the lowest tender, almost irrespective of value which has resulted in much heartache all round."
By contrast, he praised signs of a growing realisation that the lowest price may not be the best value. In any case, the dream target of nil cost or nil subsidy is probably impossible for most sites, although Richard Waddington, business development manager at Interserve, notes that some clients have become remarkably bullish about what they expect.
"Some public sector companies now state that either the catering service operates at a zero subsidy or they will not provide the service. This is a drastic measure at the expense of catering." It is time for new thinking, he says. "Traditional methods are criticised for being very expensive. Maybe businesses that operate close to each other will find that sharing facilities can help split the costs, however, this can be difficult to organise." However, he warns, following trends, such as low-subsidy coffee-and-deli operations, may achieve the wrong result. "A deli reduces the range of options - and that could reduce its attractiveness to the consumer."
Least cost, more risk
The move to deli-bars has been helped by a reduction in the length of the average lunchtime - now 33 minutes, confirms Chris Piper, sales director at Artizian. However, he says, deli-bars work more to a high street pattern than to workplace catering, and the FM client may have less understanding of how to run such an operation: "The move in traditional catering is to a halfway house of guarantees, with a trend towards risk and reward. There are now more clients who accept a subsidy, and are willing to give something back to the caterer who performs well."
The FM who comes to catering for the first time might use a consultant, says Piper, but it has to be one with the right aim. "There are those who charge on a percentage of savings, which implies that the whole purpose is simply to make savings, and that may not be the case. Some experienced FMs are now looking more for added value and innovative ways of working. The more responsible FM recognises that he is going to have to pick up some cost," says Dean Lindsay, managing director for business and industry at Aramark. "If you're looking to run a coffee bar and deli with two people to serve 500 staff, you're on the way to a nil subsidy - but probably long queues too."
The FM, he suggests, is simply not using enough trade networking to share experiences:"We do not see the FM networks being used for talk about catering as much as we would like. We know that a bunch of FMs talking is always lively and enlightening, and we like it because we get the insights we need." At Neller Davies, the FM consultancy with a catering speciality, director Julian Fris was once a head of catering for 32,000 employees. This is critical - catering in an FM company without direct specialist experience, means food becomes just another facility service.
"The client is always going to pay, even if it is just for the space utilisation. You need to be making in excess of £1,000 per sq ft to have a commercial venture, and in my experience a staff restaurant struggles to get above £60. Grab-and-go might achieve £300 - still a long way to go before it can sustain itself.
"My best advice is for the FM to spend time setting out a catering strategy, understanding local requirements by undertaking local market surveys, and assessing carefully how many people currently eat in the workplace."
A full survey will involve everything from staff profiles by age, gender and occupation, to research of the external alternatives offered within 10 minutes' walk of the location.
The most outspoken critic of contracts in recent years has been Bite Catering, where Nick Parker has been campaigning that better buying leads to more open costs.
"People have not brought good business methods to selling catering. The caterers have not put their case well, to show the buyer that too rigid a contract just invites the caterer to find other ways to make money. A caterer on a fixed management fee has no direct way in which to grow his profit, but if he has grown sales, he will go to suppliers and say that as he is buying more, how about a better price? They will probably offer a retrospective discount."
Caterers often hide this, says Parker, something he sees as a tactical mistake. "If I go to my client and tell him openly that I've done £2,000 better than I expected, he will most often tell me to keep it - because he knows that I am now unlikely to be asking to increase my management fee! The best catering relationships allow us to be transparently seen to be rewarded for a great job."
Another outspoken catering company, Churchill Catering, has a remarkable track record at senior level with the big brands. "For the past five years all our client subsidies have been reduced year-on-year," says managing director Tony Nicholl: "Our purchase values on a shopping basket of 140 items are sometimes 40 per cent below multinational caterers. It can be difficult to get the client to accept this."
"My best advice for the FM is always fix the price, always seek a financial guarantee for achieving the budgeted gross profit and labour cost, always ask for a shopping basket, always look for invoices to support it, always impose a financial penalty for non-performance and always look for measurement of performance by audit process."
At ISS Eaton, sales and marketing director John Higgs agrees that more informed buying is the way ahead. "There is a lot of misunderstanding - many clients think that the management fee is their bottom-line cost, but it isn't. It's the caterer's earnings. It has now become fashionable to require nil-cost, and even to set it out in tenders, but there is an ideal way that suits both sides. It is called management fee with guarantees, which means the caterer will forecast costs, income, labour and sundries and gross profit. This can be turned into risk and reward. If the caterer achieves costs lower than forecast, he can be rewarded with a percentage of the saving, and the client still saves. If the caterer's costs are far too high, then he may lose a percentage of his fee.
"A management fee with performance guarantee allows for security, flexibility, capping and risk and reward. It gives the caterer an incentive, and security for the FM."
Ian Boughton is a freelance journalist
FM QUICK FACTS
- In 2007, the UK contract catering market grew by 5.5% to £3.97 billion, and the number of meals served by 3.8% to 1.59 billion
- The number of people employed in contract catering has grown by 12% over the past 20 years but the number of meals served over the same period has grown 10 times faster
There has been a steady change of direction in catering contracts. Fourteen years ago, two-thirds of the market was accounted for by cost-plus contracts, weighted heavily in favour of the supplier.
This year, fixed-price and performance-guarantee contracts account for two-thirds of the market. However, even they are not seen as the complete answer, because if the client changes the terms, perhaps because of falling staff numbers, the caterer has to work out how to meet prices. The most likely way to do this is by dropping standards. The trend for tenders to specify nil-cost, no-subsidy, or even profit-return workplace catering also continues but this, say caterers, may be over-optimistic. It seems that in the workplace there will probably always be a need for a subsidy of some kind or other - the question is, what do you get in return?