Showing posts with label clarion group food service consultants. Show all posts
Showing posts with label clarion group food service consultants. Show all posts
Saturday, July 4, 2020
The new summer 2020 issue of Dining Insights Is at the printer and being readied for e-mail subscribers
➧ Planning ahead for the new work and learning environments➧The FDA's advice for keeping on-site dining safe from old and new risks
➧ Case Study: How QA Audits Improve Performance
➧ How clients miss the full value of consultants' efforts
➧ Advice from top women chefs
. . . and much more.
To get your copy via mail or e-mail, send your name, organization and physical or e-mail address to info@clariongp.com.
Wednesday, July 1, 2020
What will business be like when (almost) no one’s in the office?
July 1, 2020“The office has lost top billing as the place where white-collar work gets done,” proclaimed a pair of tech executives, writing in The Wall Street Journal and quoted in the Summer 2020 issue of Dining Insights’ lead article, “Planning Dining Service in the Post-Virus Era”.
From March through June – and in varying degrees beyond – companies and institutions have been kept alive by executives, managers and many others working from home offices and kitchen tables.
“Newly remote employees will soon begin to see that productivity, innovation and creativity remain strong, if not stronger, under the new conditions,” according to Matt Burr, CEO, and Becca Endicot, editor, of Nomadic Learning, a digital training company. “Organizations will learn that they benefit tremendously from losing the limitations that come from traditional office settings.” (nomadiclearning.com)
Maybe. That’s pretty much what advocates of the open office were saying some ten or twelve years ago, before it became apparent that an open office left no place for someone to concentrate on a specific task. (That’s one of the pluses to working at home. No one except the spouse, kids and dog can bother you.)
The other side, not yet acknowledged by remote-working promoters, is the loss of what open offices were designed to encourage – casual encounters and informal face-to-face discussions where ideas are aired and new initiative emerge. Gmail was conceived during a conversation over lunch in a Google cafeteria, according to company legend.
The shift to off-site working has been gradual but continuing as technology improved and expanded capabilities. The January 2013 issue of Dining Insights noted, “Companies now have new ways to outsource even highly skilled work to freelance workers all over the world.” The new way is “a pool of virtual workers that can be tapped on demand to provide a wide range of services,” Evgeny Kaganer of the University of Navarra, Barcelona, Spain wrote then in the MIT Sloan Management Review.
This market is alive and well today. Technical writers, among others, can be had for as little as $200 an assignment – no taxes, no benefits, no legal complications or commitments, not even a desk and chair for a day.
Over the years since around 2010, employees in search of work/life balance have increasingly worked a day or two a week from home. Participation data for corporate dining facilities have reflected declining on-premises populations. The Society for Hospitality and Foodservice Management’s semi-annual Industry Standard and Benchmark Comparisons survey’s reports of lunch participation in company dining centers nationwide tells the story:*
1992: An average 56% of available employees had lunch in the company dining center.
2002: 43% of available employees
2012: Office environment, 35.9% (early in the trend to remote working)
2016 Office environment, 35.0%
2018 Office environment, 31.0% (latest data available)
* Each year’s survey reports the prior year’s statistics. The 1993 survey reported 1992 results, etc.
With the advent of Zoom and other conferencing software systems – and a hard shove from Covid-19 – remote office work has become nearly universal. Whether, when and how a significant return to offices will occur are open questions at this point. Obviously, if lunch participation falls much below the 2018 average of 31%, employee dining service will become not just unsupportable, but virtually obsolete in many office environments, seriously denting a large segment of the on-site food service industry. Will it happen?
It would take a remarkably clear crystal ball to see what will happen in 2021 and beyond, including when and how the economy will recover, but based on experience during prior (but much slower) transitions in office arrangements and fluctuations in the economy, some reasonable expectations can be considered.
1. It’s probable that physical presence in offices will average below 50% of actual employment for a year or more, even after the coronavirus is tamed. The comfort of executives and employees generally (no need to get dressed up; no commute) and company advantages (no or limited employee dining, coffee pantries, conference services and other expensive services to support; less office space needed) will be important considerations in deciding office populations.
Depending on the company, average daily office populations could be 25% or less. Operations like call centers and tech support services operate as well remotely as they did when everyone was in an office. Much other routine work probably can be performed remotely as well. The use of freelancers for specific assignments may expand.
2. It will take a while for disadvantages to show up in various ways at different companies, each perhaps seeking its own solution. For example, a company with 1,000 employees that reduced its office space as 75% of its employees worked remotely may find the office is now too small if it must bring more people back to the premises.
3. What other kinds of disadvantages? Principally, the loss of face-to-face contact and communication. Zoom or similar conference systems are okay; each participant can see the others’ heads and shoulders, but miss the vital body language which often speaks more eloquently than words. Everyone has to take a turn speaking, making the conference more formal than it would be for a group around a table. Meetings have to be scheduled; they can’t be spontaneous. Serious negotiations, like contracts, are unlikely to be as productive when participants can’t face each other in person and measure the other party’s reactions. There are no refreshment breaks or buffet luncheons when participants can relax and socialize informally away from the business at hand or a tough negotiation.
4. Despite the Nomadic Learning folk’s forecast, the absence of informal meetings and interactions will inhibit creativity and innovation to some degree; maybe a lot. Lone wizards might thrive, but team-oriented people aren’t hermits. They may find working remotely in a group awkward and unrewarding.
5. Humans are social beings. If thousands of people are willing to face a bitingly cold November or December Saturday or Sunday to cheer a football team, why would they not want to gather in a more cordial atmosphere? Employee morale depends on the enthusiasm and engagement of its people, identifying with the company and the stimulation of working with each other. A company softball team or bowling club is unlikely to form among remote workers, eliminating one more tie to the organization.
Of course, times are changing. New technologies may offset these apparent disadvantages; companies may find artificial intelligence is more efficient and reliable than humans, and the rising generation’s concept of work and life most likely will be different than that of their predecessors.
As wise people have been saying for ages, Time will tell.
Dining Insights is published by Clarion Group, a consulting firm providing solutions and uncovering opportunities in dining and hospitality services for companies, colleges and universities, government agencies and other organizations. For information on how we may benefit you and your organization, call Tom Mac Dermott, 603/642-8011 or Ted Mayer, 617/875-7882 or visit our website, https://clariongp.com.
A Short History of Office Evolution
Office arrangements follow trends, the way fashions and diets do; they just don’t change as fast – the cost of restructuring facilities and buying new furniture and equipment is a bigger investment than new clothes.
But trends there are. A photo of an office in the 1930s and ‘40s, even into the ‘50s, would show people busy at row after row of desks in a great open space. Managers and executives had separate, four-walls-and-a-door offices, some alongside the open office’s wall or upstairs for the more important folks. Size of office and access to a window (and the view outside the window) denoted rank.
As the need for massive squadrons of clerks diminished and jobs became more specialized, the “cube farm” became the way to go. Everyone had an individual cubicle to call his/her own, demarcated by a five-or-so-foot high partition with space for a built-in desk and chair. The size of the cube (some as little as six by eight feet) and location – in the middle of the floor or by a window – indicated rank. A little better privacy, but not much. The walls weren’t high and there was no door, letting in extraneous noise and neighbors. A lot of cube farms survive today.
In the 2000s, the new way of structuring the office was the open plan – no walls (except maybe in the executive suite), a scattering of desks, tables, comfortable chairs and a couch around a coffee table, ping-pong and foosball tables along a back wall. Convenient coffee pantries with free beverages and snacks and a large, open employee dining center serving everything from gourmet entrees to comfort food to vegan selections, catering to every taste at subsidized prices, were essential elements.
The idea, advocates said, was to encourage open interaction and spontaneous creativity. The fact that it took less space than a conventional cube farm, coupled with the introduction of desk “hoteling” (desks not assigned, available for anyone to use, often first-come, first-served), wasn’t seen as a disadvantage by corporate management. The concept was – and is – considered most important by tech companies and others where innovation and creativity are their primary competitive tools.
The downside that emerged was there was no place to hide when working alone or with two or three others on a task or a project. Many companies found they had to provide semi-private spaces for such work. The expansion of mobile computer connectivity helped solve the issue for solo work; the employee who had to concentrate could stay home and work, away from distractions. As the technology improved, the idea of working from home (or somewhere other than the office) caught hold and came to be encouraged to varying degrees by employers. Work/life balance was often the motivation.
By the 20-teens, remote working had become so popular that, as noted above, office employee café lunch participation rates fell from more than 50% in the 1990s to less than a third by 2018. Of course, the most popular day for concentrating on important projects without office distractions is Friday.
Now, the coronavirus emergency has converted a nice amenity into a business necessity. As the emergency recedes, remote working will likely remain as a key element of the new way of doing business for many organizations.
Saturday, January 19, 2019
Minimum Wage Myths and Realities
Minimum Wage Myths and Realities
January 19, 2019
Twenty-nine states and some cities have minimum hourly wage rates above the federal $7.25 minimum. Twenty states are raising their minimums again in 2019; some already are at the $15.00 widely-proclaimed living wage; other minimums are raised to $12.00 as part of annual step-ups to $15.00 by 2023.
Some minimum wage increase advocates say a person working full-time at the minimum wage should be able to support a family. At $15.00 an hour, a full-time worker would earn $31,200 a year. At $12.00, it would be $24,960.
According to the U.S. Department of Health and Human Services (www.healthcare.gov), the current “poverty line” for a family of three is $20,780; for a family of four, $25,100 and for five (mom, dad, three kids), $30,170.
Could a family of three to five people survive, let alone thrive, on $25,000 to $31,000 in New York, Chicago, Los Angeles or any other major metropolitan area?
However well-intentioned, the minimum wage increase is – and has been since it went up from 75 cents to a dollar in 1954 – a temporary bandaid. Necessary for folks at the bottom of the ladder, but still a short-lived benefit.
When the minimum wage increases, it has a ripple effect upwards, at least for the next four or five wage levels. Since labor cost is a component of a company’s, a college’s, a non-profit’s and a government’s total costs, prices, tuition and institutional and government revenues must rise to cover higher costs – or organizations must be willing to absorb reduced profits or even losses – or take other steps to compensate for higher labor costs.
As these steps are taken, up the line from the local shop to the giant corporation, there are two effects: prices rise and organizations, especially businesses, strive to increase productivity – achieve the same -- or higher -- output with fewer labor hours.
Rising prices is the definition of inflation, eroding the value of the higher minimum wage until, in three or so years, it’s time to raise the minimum again. That’s been going on since the federal minimum wage law went into effect in 1938 at 25 cents an hour, $10.00 a week. (As a point of reference, my grandfather was a trolley car driver in Brooklyn in the late 1800s-early 1900s for $7.00 a week. Thirty years later, $10.00 wasn’t much of an advance)
The other effect of rising labor costs is increased automation, driving up productivity but reducing work opportunities for the less-skilled people at the bottom of the ladder, those the minimum wage increase was intended to benefit.
Nothing I’ve said here is a novel insight; it’s been said over and over every time the topic of increasing the minimum wage comes up. The problem is the stance of the two sides: The proponents talk persuasively about the needs of people to earn a decent living; the opponents warn persuasively about the costs – high prices, fewer jobs for the un- and marginally-skilled worker.
Both are more-or-less right. Higher wages help poor people. Higher costs force prices up and/or efficiencies that reduce the need for labor. Since nothing is done to adjust cause and effect, the cycle starts up again.
If the cost of the basics of life – food, clothing, shelter and an internet connection – somehow stays flat or rises less than the minimum wage rises, it’s likely the increased wage would provide a greater benefit to more people and last longer. If more and more people emerge above the poverty line, however it’s defined, the benefit to the nation as a whole would be enormous.
Imagine what it would be like if the poorest people in the country had enough to eat, decent clothes, a non-leaky roof and an electronic link to the rest of the world (and of course, a good education) so they could climb from the bottom rungs up a few so the next cohort filling in below also could climb the ladder, following upward behind them -- paying higher taxes on increasing income, reducing the need for government aid and contributing to the nation's well-being.
How could that happen? It would take a collection of wiser heads than mine, especially heads attached to the movers and shakers of government, labor, social movements and business – the people with most skin in the game – to put aside their self-interests to work it out.
Could that, would that ever, happen? I hope so. It’s the only answer I can see.
- Tom Mac Dermott
You can receive Clarion Group's newsletter, Dining Insights, in your postal mail box or via e-mail. Send your contact info to us at info@clariongp.com. To learn about the services we offer, visit our website, www.clariongp.com or call Tom Mac Dermott, 603/642-8011 or Ted Mayer, 617/875-7882.
Sunday, September 7, 2014
Are You a Co-Employer With Your Food Service Contractor?
Companies, colleges and others who
have outside contractors operating their on-site food services should beware of
the risks they face in the rapidly evolving arena of employment law. The widely publicized finding of the National
Labor Relations Board General Counsel that McDonald’s is responsible for the
employment actions of its franchisees is fair warning.
The NLRB’s General Counsel has
“found merit” in charges that McDonald’s and some of its franchisees “violated
the rights of employees,” according to a NLRB press release. “If the parties cannot reach settlement in these
cases, complaints will issue and McDonald’s USA LLC will be named as a joint
employer respondent.”
Another warning comes in the NLRB’s
current consideration of the relationship between companies and on-site
contractors. The case involves a company
and its on-site service contractor. A
union is trying to have the company declared a joint employer who must
participate in the collective bargaining between the contractor and the union. The case is pending.
If these views stand, it isn’t a far reach to
see how an organization could be held responsible for the employment actions of
food service and other contractors on its premises.
The U.S. Department of Labor, other regulators
and labor unions have long tried to tie the host company or institutions to its
service companies’ employees as a joint employer. Sometimes, the host has made it easy to be
linked – and held responsible financially – for actions over which it has, at
best, only indirect control.
The NLRB defines joint employment as
when “two entities . . . share or co-determine those matters governing the
essential terms and conditions of employment [including] matters relating to
the employment relationship such as hiring, firing, discipline, supervision and
direction.”
When an organization requires its
onsite food service contractor to submit candidates for key management
positions and makes the selection itself, it’s opening the door to a finding
that it is a joint employer.
Other actions organizations often
take that can lead to a finding that it is a joint employer with its on-site
contractor include:
• Negotiating with the contractor
over the wage rates, pay raises and benefits the contractor offers its
employees working on the premises.
• Directing the contractor to
promote, demote, transfer or take another action affecting one or more of the
contractor’s employees.
• Telling the contractor what hours
its employees should work, rather than what hours of service to provide.
• Paying bonuses or making other
payments to the contractor’s employees or authorizing the contractor to make
the payments and reimbursing the expense.
• Treating the contractor’s
employees as “members of the family” with privileges the same as, or similar
to, those of its own employees – access to the on-site fitness center, for
example.
The basic defense against a claim of
a joint employer relationship is a strong, clear statement in the operating
contract that the contractor is the sole employer and has sole authority over
all aspects of its employment relationships.
But if management interferes,
even indirectly, in the actions of its on-site contractor related to the
contractor’s employees and their wages, working conditions and the like, then
the barrier created in the contract crumbles.
Clarion Group can analyze your dining and hospitality services and contractual relationship with your provider to help you avoid creating a joint employer relationship -- and improve operational and financial performance of you services. For information, contact Tom Mac Dermott, president (603/642-8011 or TWM@clariongp.com) and visit our website, www.clariongp.com.
Thursday, June 5, 2014
Ensure Your Food Service Operating Contract Protects Your Interests
The managers of corporate and campus food services and related hospitality services often make a mistake when they outsource these services by accepting the vendor’s "standard contract." Based on our experience, we recommend that you don’t accept this contract. It’s one-sided and not in your favor.
This isn’t the same situation as renting a car or buying a computer program where your options are take it or leave it. A food service contract, worth from several hundred thousand to many millions of dollars in sales, is much more important to the vendor than an individual customer is to a car rental company.
When we’re helping a Clarion Group client select a food service operator, we turn the tables and present the vendor with our "standard contract." We draft the contract in collaboration with our client’s attorney to ensure it’s fair to the vendor, but clearly delineates the vendor’s responsibilities and fully protects our client’s interests.
We’ve developed our contract format over two decades of food service consulting and adapt it to each client’s specific circumstances. Then we negotiate the final terms and conditions with the vendor, with our client’s participation and final approval.
Food service operating agreements used to be simple two- or three-page documents, but changing times and circumstances in the food service industry, government regulations and other factors have dictated that these agreements be much more detailed.
Important points to be included in a food service management contract, often omitted in the contractor’s proposed form:
To learn how Clarion Group can ensure the operating agreement with your current or future food service contractor can be both fair to both you and the operator and fully protect your interests, contact us at info@clariongp.com or call Tom Mac Dermott, president, at 603/642-8011.
This isn’t the same situation as renting a car or buying a computer program where your options are take it or leave it. A food service contract, worth from several hundred thousand to many millions of dollars in sales, is much more important to the vendor than an individual customer is to a car rental company.
When we’re helping a Clarion Group client select a food service operator, we turn the tables and present the vendor with our "standard contract." We draft the contract in collaboration with our client’s attorney to ensure it’s fair to the vendor, but clearly delineates the vendor’s responsibilities and fully protects our client’s interests.
We’ve developed our contract format over two decades of food service consulting and adapt it to each client’s specific circumstances. Then we negotiate the final terms and conditions with the vendor, with our client’s participation and final approval.
Food service operating agreements used to be simple two- or three-page documents, but changing times and circumstances in the food service industry, government regulations and other factors have dictated that these agreements be much more detailed.
Important points to be included in a food service management contract, often omitted in the contractor’s proposed form:
- The vendor’s responsibilities should be clearly defined and the vendor should agree to perform its services to a high standard, defined as clearly as possible.
- The vendor should be an independent contractor, solely responsible for its employees and for its actions and not able to act as an agent for the client company. (If the vendor makes purchases or other commitments as the client’s agent, the client can be held liable for the vendor’s unpaid debts or other commitments.)
- The vendor has sole responsibility for the food it serves, from the farm field to the diner’s plate. Its program for ensuring the food it serves is wholesome, healthy and safe for consumption should be clearly described in the operating contract.
- Financial terms should be unambiguous, including the contractor’s responsibility for producing accurate operating statements promptly and providing satisfactory supporting material for its claims for reimbursement of costs. A contractor can produce financial statements within 10 days of an accounting period’s end date.
- Contractors receive rebate payments from their vendors, which they keep as additional income and do not disclose to clients. We have negotiated for our clients to receive a share of these rebates.
- The contract should be enforceable in your home state, not the vendor’s.
To learn how Clarion Group can ensure the operating agreement with your current or future food service contractor can be both fair to both you and the operator and fully protect your interests, contact us at info@clariongp.com or call Tom Mac Dermott, president, at 603/642-8011.
Monday, April 14, 2014
Proposed OT Regulations Will Upset Management Structures
Proposed OT Regulations Will Upset Management Structures
April 14, 2014Food service operators who are worrying about a possible increase in the minimum wage are looking in the wrong direction.
The federal government’s proposal to tighten regulations on exemptions from overtime pay has received little attention, but if implemented, will have a far greater and more immediate impact on corporate and campus food service operations that an increase in the minimum wage.
Operators will have to rethink and restructure their on-site food service management teams.
In March, President Obama directed the Department of Labor to revise the regulations covering the minimum salary level that exempts an employee with some supervisory responsibility from receiving time-and-a-half pay for work performed over 40 hours in a week. Currently, the minimum is $455 a week or $23,660 a year. Proposals for the new minimum are as high as $984 a week or $51,168 a year.
In contrast, the impact of a raise in the federal minimum wage from the current $7.25 to a proposed $10.10 an hour – when it happens – will be minimal. The minimum wage increase will be phased in over two or three years, cushioning its impact. Many states have already raised their minimum wages and federal contractors must pay at least $10.10 an hour. Few food service employees are paid less than $8.00 an hour now.
Federal law permits an employer to pay employees who have some supervisory responsibilities, such as overseeing two or three other employees and exercising some independent judgment in the performance of their duties, on a salaried basis. They aren’t compensated for hours worked beyond 40 in a week.
In a food service operation, these would be chef-managers, chefs who oversee other food preparation workers, assistant managers and many supervisor positions, such as shift leaders. Many of these positions don’t pay much more than the $23,660 minimum to qualify. When that minimum is raised, even to $35,000 or $40,000 a year, persons in those positions will no longer be exempt from time-and-a-half pay. Operators will have to raise salaries, redefine salaried positions or begin paying for overtime work on an hourly basis.
What ever course operators choose, their labor cost will rise, much more than it will when the minimum wage is increased.
Latest Dining Insights Issue Published
The Spring issue of Dining Insights is at the printer and ready to go, featuring . . .
Trends to watch, from sales and food cost to distributor mergers, technology and greener greenness.
Proposed OT regs will hit food services, changing the rules for lower-paid managers.
Fresh, local foods, how they get from farm to your fork.
Miss Dancing Waters' diamond toenail and your food service vendor.
. . . and more
For the current issue and a complimentary subscription, send your name, position and address for the paper edition or your name, position and e-mail address for the electronic edition to: info@clariongp.com
Trends to watch, from sales and food cost to distributor mergers, technology and greener greenness.
Proposed OT regs will hit food services, changing the rules for lower-paid managers.
Fresh, local foods, how they get from farm to your fork.
Miss Dancing Waters' diamond toenail and your food service vendor.
. . . and more
For the current issue and a complimentary subscription, send your name, position and address for the paper edition or your name, position and e-mail address for the electronic edition to: info@clariongp.com
Sunday, December 1, 2013
How to Increase Sales and Profits in Corporate Food Service
The signs are pointing upward for corporate food services, according to two recent surveys of the industry, but not for everyone. The story’s a little different at every company.
Overall, customer counts and the average sales per customers increased in 2012, compared to 2009 at the depth of the recession, according to the 2013 Industry Standards and Benchmark Comparison study conduced by the Society for Hospitality and Foodservice Management. The study found customer counts increased by10.6% and customers were spending 16.5% more for breakfast and 9% more for lunch than in 2009.
The unevenness of the improvement is illustrated in the findings of a separate survey by FoodService Director magazine, where 59% of corporate food service operators reported a 10% increase in sales this year over last, but 29% reported a 10% decrease in sales.
The results reflected the findings of a survey of corporate food service managers conducted earlier in the year by Clarion Group and Food Management magazine, where half of respondents reported sales increased by 5% or more in 2012 over 2011. The other half said sales were flat or declined.
Corporate food service operators have to work harder to achieve these favorable results. Increased employment and price increases alone won’t do it. Operators have to do more to entice recession-conditioned customers back to purchasing their meals in the company café. Every survey on the subject says people are more attuned to the value of their purchases than to just price.
Here are a few suggestions corporate food service operators can use to increase sales and the bottom line:
• Sell the sizzle. Active marketing and promotions via the company intranet, posters and fliers can emphasize periodic "specials." They needn’t be reduced prices, just greater perceived value.
• Special events, promoting a holiday or a new food offering every few weeks will help bring in customers who usually go out for lunch or bring their own to work. If you get them once, you may be able to convert them to regulars.
• Make good use of social media to promote the café. A small restaurant chain in California is using an app to communicate with customers in its limited territory. The same would work for a corporate food service operation.
• A visiting chef from a popular local restaurant almost always attracts a bigger crowd. You can keep them coming by offering your version of the restaurant’s most popular dishes on succeeding days.
• An "action station" where a chef prepares meals to order at the counter as the customer watches is the surest way to convey "fresh" and "healthy" to you customers.
Above all make sure the food you offer is good, service is warm, friendly and prompt and the café is clean and attractive. Combine all these elements and sales and profitability are bound to rise.
About Clarion Group
Clarion Group is an consulting firm that advises companies, professional firms, colleges and universities, independent schools and institutions in the management, operation and improvement of their in-house employee/student food services, catering, conference, lodging and related hospitality services throughout the U.S. and Canada.
For information, contact:
Tom Mac Dermott, FCSI, President
Clarion Group
PO Box 158, Kingston, NH 03848-0158
603/642-8011 or TWM@clariongp.com
Website: www.clariongp.com
Overall, customer counts and the average sales per customers increased in 2012, compared to 2009 at the depth of the recession, according to the 2013 Industry Standards and Benchmark Comparison study conduced by the Society for Hospitality and Foodservice Management. The study found customer counts increased by10.6% and customers were spending 16.5% more for breakfast and 9% more for lunch than in 2009.
The unevenness of the improvement is illustrated in the findings of a separate survey by FoodService Director magazine, where 59% of corporate food service operators reported a 10% increase in sales this year over last, but 29% reported a 10% decrease in sales.
The results reflected the findings of a survey of corporate food service managers conducted earlier in the year by Clarion Group and Food Management magazine, where half of respondents reported sales increased by 5% or more in 2012 over 2011. The other half said sales were flat or declined.
Corporate food service operators have to work harder to achieve these favorable results. Increased employment and price increases alone won’t do it. Operators have to do more to entice recession-conditioned customers back to purchasing their meals in the company café. Every survey on the subject says people are more attuned to the value of their purchases than to just price.
Here are a few suggestions corporate food service operators can use to increase sales and the bottom line:
• Sell the sizzle. Active marketing and promotions via the company intranet, posters and fliers can emphasize periodic "specials." They needn’t be reduced prices, just greater perceived value.
• Special events, promoting a holiday or a new food offering every few weeks will help bring in customers who usually go out for lunch or bring their own to work. If you get them once, you may be able to convert them to regulars.
• Make good use of social media to promote the café. A small restaurant chain in California is using an app to communicate with customers in its limited territory. The same would work for a corporate food service operation.
• A visiting chef from a popular local restaurant almost always attracts a bigger crowd. You can keep them coming by offering your version of the restaurant’s most popular dishes on succeeding days.
• An "action station" where a chef prepares meals to order at the counter as the customer watches is the surest way to convey "fresh" and "healthy" to you customers.
Above all make sure the food you offer is good, service is warm, friendly and prompt and the café is clean and attractive. Combine all these elements and sales and profitability are bound to rise.
About Clarion Group
Clarion Group is an consulting firm that advises companies, professional firms, colleges and universities, independent schools and institutions in the management, operation and improvement of their in-house employee/student food services, catering, conference, lodging and related hospitality services throughout the U.S. and Canada.
For information, contact:
Tom Mac Dermott, FCSI, President
Clarion Group
PO Box 158, Kingston, NH 03848-0158
603/642-8011 or TWM@clariongp.com
Website: www.clariongp.com
Texas A&M Got Big Money for Outsourcing Dining Services. What's Their Risk?
Article revised December 2, 2013
Be careful what you ask for. You might get it, and a lot more in the bargain.
We're talking about the large investments major food service contractors are offering colleges for the opportunity to operate their campus food services. The dollars certainly are enticing, but not quite so attractive when you look at the long strings – really thick cords – attached to them.
The biggest recent example is Texas A&M University, College Station, TX, which outsourced its food service operations to the Chartwells Division of Compass Group last year. A separate Compass division also was awarded landscaping and maintenance contracts.
With an enrollment of 56,000 students including 8,000 campus residents, Texas A&M certainly isn’t a typical university, but the rewards the administration hopes to receive and the risks they're taking, scaled down, are the same for any college or university that accepts a contractor's "investments."
The financial commitments Chartwells made to the university to gain control of the campus food services are enormous, yet it has already caused problems, maybe more problems than it cured.
According to the local newspaper, The Eagle, the company paid the university a "signing bonus" of some $45 million upon being awarded a five-year contract, with an option for another five years. It paid another $6.5 million this year and spent some $5 million in dining facility renovations, with additional payments to come throughout the contract’s life. The total cost to Chartwells over the 10 years -- if the contract runs that long -- is the $45 million signing bonus, plus a total of $25 .5 million in facilities improvements, a 5 percent commission on sales in the first year and a 10 percent commission on sales in the remaining years, about $2.5 million, for a potential total of around $73 million.
The administration apparently sees that as a real bargain, since it reported losing $1 million a year running the food service on its own
That’s the good news. But here’s the other side: Meal plans for resident freshmen and sophomores have been made mandatory. By the 2016 academic year, all 8,000 resident students will be required to joint the meal plans at prices that currently range from $1,236 to $2,096 per semester and will increase by up to 3% a year. When all resident students are required to belong to a meal plan, Chartwells’ revenue from the plans will be about $27 million a year; potentially $270 million if the contract runs for the full ten years, not counting revenue from retail outlets, catering and other sources.
Of the total $270 million in potential meal plan revenue, the $73 million in payments and commissions equal some 27%. Chartwells has to generate a profit on top of that big enough to justify the payments, probably 8 to 10 percent of sales, leaving about 65% or less of total revenue for food, labor and operating expenses.
But what if all doesn’t go well? The Eagle reports a great deal of student unhappiness and agitation over the mandatory meals plans, price increases and new restrictions on meal plan options. Already, Chartwells has had to replace the campus general manager, a sure sign of trouble.
A college or university has only one good option when its food services become unsatisfactory and the contractor cannot improve them. It must replace the contractor. But wait, what about those dollars the contractor provided? The institution has to reimburse all the money the contractor provided, prorated by the number of years left in the contract. Not many institutions can afford that – the money has been spent – so it may have to go along with the unsatisfactory food service operation and hope the contractor can improve its performance.
Of course, the money isn’t really an investment, it's an advance or loan. Repayment comes from higher meal plan charges and other prices and maybe reduced services. The college never knows how much return the contractor is making on the loan. It’s buried in the cost structure of the financial reports it sends to the client. A college would do better to borrow the money at a known interest rate and let the contractor operate at a known rate of profit.
College and university administrators should carefully look the gift horse in the mouth and think about the possible long-term consequences to the campus food services and the institution of accepting immediate money in exchange for a long-term commitment to a single provider.
About Clarion Group
Clarion Group is a consulting firm that advises colleges and universities, companies, professional firms and institutions in the management, operation and improvement of their in-house employee/student food services, catering, conference, lodging and related hospitality services throughout the U.S. and Canada.
For information, contact:
Tom Mac Dermott, FCSI, President
Clarion Group
PO Box 158, Kingston, NH 03848-0158
603/642-8011 or TWM@clariongp.com
Website: www.clariongp.com
Be careful what you ask for. You might get it, and a lot more in the bargain.
We're talking about the large investments major food service contractors are offering colleges for the opportunity to operate their campus food services. The dollars certainly are enticing, but not quite so attractive when you look at the long strings – really thick cords – attached to them.
The biggest recent example is Texas A&M University, College Station, TX, which outsourced its food service operations to the Chartwells Division of Compass Group last year. A separate Compass division also was awarded landscaping and maintenance contracts.
With an enrollment of 56,000 students including 8,000 campus residents, Texas A&M certainly isn’t a typical university, but the rewards the administration hopes to receive and the risks they're taking, scaled down, are the same for any college or university that accepts a contractor's "investments."
The financial commitments Chartwells made to the university to gain control of the campus food services are enormous, yet it has already caused problems, maybe more problems than it cured.
According to the local newspaper, The Eagle, the company paid the university a "signing bonus" of some $45 million upon being awarded a five-year contract, with an option for another five years. It paid another $6.5 million this year and spent some $5 million in dining facility renovations, with additional payments to come throughout the contract’s life. The total cost to Chartwells over the 10 years -- if the contract runs that long -- is the $45 million signing bonus, plus a total of $25 .5 million in facilities improvements, a 5 percent commission on sales in the first year and a 10 percent commission on sales in the remaining years, about $2.5 million, for a potential total of around $73 million.
The administration apparently sees that as a real bargain, since it reported losing $1 million a year running the food service on its own
That’s the good news. But here’s the other side: Meal plans for resident freshmen and sophomores have been made mandatory. By the 2016 academic year, all 8,000 resident students will be required to joint the meal plans at prices that currently range from $1,236 to $2,096 per semester and will increase by up to 3% a year. When all resident students are required to belong to a meal plan, Chartwells’ revenue from the plans will be about $27 million a year; potentially $270 million if the contract runs for the full ten years, not counting revenue from retail outlets, catering and other sources.
Of the total $270 million in potential meal plan revenue, the $73 million in payments and commissions equal some 27%. Chartwells has to generate a profit on top of that big enough to justify the payments, probably 8 to 10 percent of sales, leaving about 65% or less of total revenue for food, labor and operating expenses.
But what if all doesn’t go well? The Eagle reports a great deal of student unhappiness and agitation over the mandatory meals plans, price increases and new restrictions on meal plan options. Already, Chartwells has had to replace the campus general manager, a sure sign of trouble.
A college or university has only one good option when its food services become unsatisfactory and the contractor cannot improve them. It must replace the contractor. But wait, what about those dollars the contractor provided? The institution has to reimburse all the money the contractor provided, prorated by the number of years left in the contract. Not many institutions can afford that – the money has been spent – so it may have to go along with the unsatisfactory food service operation and hope the contractor can improve its performance.
Of course, the money isn’t really an investment, it's an advance or loan. Repayment comes from higher meal plan charges and other prices and maybe reduced services. The college never knows how much return the contractor is making on the loan. It’s buried in the cost structure of the financial reports it sends to the client. A college would do better to borrow the money at a known interest rate and let the contractor operate at a known rate of profit.
College and university administrators should carefully look the gift horse in the mouth and think about the possible long-term consequences to the campus food services and the institution of accepting immediate money in exchange for a long-term commitment to a single provider.
About Clarion Group
Clarion Group is a consulting firm that advises colleges and universities, companies, professional firms and institutions in the management, operation and improvement of their in-house employee/student food services, catering, conference, lodging and related hospitality services throughout the U.S. and Canada.
For information, contact:
Tom Mac Dermott, FCSI, President
Clarion Group
PO Box 158, Kingston, NH 03848-0158
603/642-8011 or TWM@clariongp.com
Website: www.clariongp.com
Tuesday, October 15, 2013
Should a College Operate Its Own Food Services?
Should a college or university operate its campus food services on its own, or turn the role over to a food service contractor? That’s a question with an ambiguous answer, according to Tom Mac Dermott, FCSI, president of the food service consultant firm Clarion Group.
It depends on a number of factors primarily, how important food services is considered to be to the institution’s core mission and how competently the service is being managed.
Some 90 percent of all colleges and universities (from community colleges through graduate schools) now outsource their food services to a contractor; the exceptions being the largest campuses of state universities and a small number of state and independent colleges.
The big state universities’ dining services with budgets of $20 million or more are larger than many regional food service companies and have the resources to employ professional staffs and operate successfully.
Among smaller institutions, the decision to remain self-managed is based on the value the college sees in its dining services and a desire to keep it as an integral part of the campus community. Over the past 30 or so years, colleges have increasingly outsourced food service operations almost invariably for economic reasons. The decision usually was made when the food service operation was losing money or a competent manager retired and the successor was not competent.
In recent years, colleges have converted to contractor management because the contractor offered a substantial financial investment to upgrade – or even build – the food service’s facilities. Some of these investments have been in the millions of dollars, even for relatively small institutions. Of course, the investments do not come without strings in the form of a long-term contract, sometimes for more than ten years.
Some medium-sized and smaller colleges have a long history of self-management and have been successful. Davidson College in North Carolina, Saint Anselm College in New Hampshire, Bowden and Bates Colleges in Maine and Middlebury College in Vermont are examples. Many of these regularly appear on the Princeton Review’s annual "Best Campus Food" list, indicating the importance food service plays in their campus' lives.
At one time, colleges would outsource their food services because the contractor claimed its buying power would enable it to reduce the operation’s food costs, but that’s no longer the case (if it ever was true). Food service companies now retain all the advantages gained by their purchasing volume and promise no more than to match local market prices – the same prices a competent independent operator could get on his or her own.
"Competent" is the key word. The self-managed food service operation is only as good as its manager, and purchasing food economically is only a part of the picture. The manager’s skills in creating imaginative menus that reflect the tastes and preferences of the campus community; adaptability in meeting the needs of the college and students, and leading a well-motivated, well-trained staff are more important.
The college or university that is considering outsourcing its self-managed food services should be aware that, while it’s comparatively easy to convert to contractor management, its far more difficult to do the reverse, revert back to self-management. The infrastructure to support the operation has to be reassembled and a competent manager found and hired.
Only one Clarion client in 18 years, New York Institute of Technology, Westbury NY, made the switch and has been successfully self-managing its multi-unit campus food service operations for the past five years.
About Clarion Group
We are a consulting firm that advises companies, professional firms, colleges and universities, independent schools and institutions in the management, operation and improvement of their in-house employee/student food services, catering, conference, lodging and related hospitality services throughout the U.S. and Canada.
For information, contact:
Tom Mac Dermott, FCSI, President
Clarion Group
PO Box 158, Kingston, NH 03848-0158
603/642-8011 or TWM@clariongp.com
Website: www.clariongp.com
It depends on a number of factors primarily, how important food services is considered to be to the institution’s core mission and how competently the service is being managed.
Some 90 percent of all colleges and universities (from community colleges through graduate schools) now outsource their food services to a contractor; the exceptions being the largest campuses of state universities and a small number of state and independent colleges.
The big state universities’ dining services with budgets of $20 million or more are larger than many regional food service companies and have the resources to employ professional staffs and operate successfully.
Among smaller institutions, the decision to remain self-managed is based on the value the college sees in its dining services and a desire to keep it as an integral part of the campus community. Over the past 30 or so years, colleges have increasingly outsourced food service operations almost invariably for economic reasons. The decision usually was made when the food service operation was losing money or a competent manager retired and the successor was not competent.
In recent years, colleges have converted to contractor management because the contractor offered a substantial financial investment to upgrade – or even build – the food service’s facilities. Some of these investments have been in the millions of dollars, even for relatively small institutions. Of course, the investments do not come without strings in the form of a long-term contract, sometimes for more than ten years.
Some medium-sized and smaller colleges have a long history of self-management and have been successful. Davidson College in North Carolina, Saint Anselm College in New Hampshire, Bowden and Bates Colleges in Maine and Middlebury College in Vermont are examples. Many of these regularly appear on the Princeton Review’s annual "Best Campus Food" list, indicating the importance food service plays in their campus' lives.
At one time, colleges would outsource their food services because the contractor claimed its buying power would enable it to reduce the operation’s food costs, but that’s no longer the case (if it ever was true). Food service companies now retain all the advantages gained by their purchasing volume and promise no more than to match local market prices – the same prices a competent independent operator could get on his or her own.
"Competent" is the key word. The self-managed food service operation is only as good as its manager, and purchasing food economically is only a part of the picture. The manager’s skills in creating imaginative menus that reflect the tastes and preferences of the campus community; adaptability in meeting the needs of the college and students, and leading a well-motivated, well-trained staff are more important.
The college or university that is considering outsourcing its self-managed food services should be aware that, while it’s comparatively easy to convert to contractor management, its far more difficult to do the reverse, revert back to self-management. The infrastructure to support the operation has to be reassembled and a competent manager found and hired.
Only one Clarion client in 18 years, New York Institute of Technology, Westbury NY, made the switch and has been successfully self-managing its multi-unit campus food service operations for the past five years.
About Clarion Group
We are a consulting firm that advises companies, professional firms, colleges and universities, independent schools and institutions in the management, operation and improvement of their in-house employee/student food services, catering, conference, lodging and related hospitality services throughout the U.S. and Canada.
For information, contact:
Tom Mac Dermott, FCSI, President
Clarion Group
PO Box 158, Kingston, NH 03848-0158
603/642-8011 or TWM@clariongp.com
Website: www.clariongp.com
Micromarts Merge Food Service and Vending
Convergence is a term usually associated with communications, the blurring of lines between television, the internet, smart phones and the like.
Now convergence has come to corporate food service. The line between staffed employee cafes and vending is being blurred with the emergence of the unattended food service option called micromarkets.
The new concept provides fresh and packaged foods in a compact convenience store-style setting, but requires no attendant or cashier. Customers select their products from glass-front refrigerated display cases, shelves and racks, then pay for the purchases at a touchscreen kiosk, similar to those found at Home Depot and some supermarkets.
A surveillance camera monitors the space, discouraging pilferage. Current operators say their pilferage loss is about 2%.
The micromarket concept is designed for workplaces that are too small to support a staffed café and where vending is an inadequate solution, generally between 150 and 500 population.
The concept can supplement the corporate food service’s central dining center for a company whose population spread among several buildings on a campus. The compact units can be installed in buildings that are too far from the central dining center to be convenient to employees. It also would work for a company in a high rise where the employee café isn’t convenient to some floors.
It could be useful in a company that has a population in evenings, overnight or on weekends, when the dining center is closed. It also can replace the staffed company store or c-store, selling sundries and company-logo products in addition to light foods, snacks and beverages. These units usually are losers, because low sales can’t support the attendant’s wages.
Space requirements are minimal,. As little as a 20x20-foot semi-enclosed room or alcove is all that’s needed, enough for a two- or three-door refrigerated display case, shelving and racks for non-refrigerated products, a payment kiosk and surveillance camera.
The concept is gaining a niche in corporate food service. There were a total of 2,642 micromarkets in operation at the end of 2012, up by 170% from 2011, according to industry reports.
So far, independent vending companies that have fresh food commissaries and the national Canteen division of Compass Group are the ones promoting micromarkets. Vendors say sales double when a micromarket replaces a bank of vending machines. The low cost and ease of installation makes the option especially attractive.
There’s nothing to prevent a company or its food service operator from installing a micromarket, supported from the central kitchen instead of an outside commissary.
The key for anyone who wants to include a micromarket in its corporate food service portfolio is to ensure the food offered is fresh, appealing and well packaged. That means daily restocking and strict rotation of product. Just a few customers having a bad experience will be enough to destroy acceptance and sales. That’s why fresh food vending often is unsuccessful. Customers don’t believe the food is fresh.
Micromarkets are only one of many creative solutions Clarion Group can bring to your employee dining, executive dining, catering and other hospitality services. To learn how we can improve value, increase sales and crate a more cost-effective food service program, contact Tom Mac Dermott, 603/642-8011 or Angela Phelan, 609/619-3295 or e-mail us at info@clariongp.com. Take a look at our website, www.clariongp.com,
Now convergence has come to corporate food service. The line between staffed employee cafes and vending is being blurred with the emergence of the unattended food service option called micromarkets.
The new concept provides fresh and packaged foods in a compact convenience store-style setting, but requires no attendant or cashier. Customers select their products from glass-front refrigerated display cases, shelves and racks, then pay for the purchases at a touchscreen kiosk, similar to those found at Home Depot and some supermarkets.
A surveillance camera monitors the space, discouraging pilferage. Current operators say their pilferage loss is about 2%.
The micromarket concept is designed for workplaces that are too small to support a staffed café and where vending is an inadequate solution, generally between 150 and 500 population.
The concept can supplement the corporate food service’s central dining center for a company whose population spread among several buildings on a campus. The compact units can be installed in buildings that are too far from the central dining center to be convenient to employees. It also would work for a company in a high rise where the employee café isn’t convenient to some floors.
It could be useful in a company that has a population in evenings, overnight or on weekends, when the dining center is closed. It also can replace the staffed company store or c-store, selling sundries and company-logo products in addition to light foods, snacks and beverages. These units usually are losers, because low sales can’t support the attendant’s wages.
Space requirements are minimal,. As little as a 20x20-foot semi-enclosed room or alcove is all that’s needed, enough for a two- or three-door refrigerated display case, shelving and racks for non-refrigerated products, a payment kiosk and surveillance camera.
The concept is gaining a niche in corporate food service. There were a total of 2,642 micromarkets in operation at the end of 2012, up by 170% from 2011, according to industry reports.
So far, independent vending companies that have fresh food commissaries and the national Canteen division of Compass Group are the ones promoting micromarkets. Vendors say sales double when a micromarket replaces a bank of vending machines. The low cost and ease of installation makes the option especially attractive.
There’s nothing to prevent a company or its food service operator from installing a micromarket, supported from the central kitchen instead of an outside commissary.
The key for anyone who wants to include a micromarket in its corporate food service portfolio is to ensure the food offered is fresh, appealing and well packaged. That means daily restocking and strict rotation of product. Just a few customers having a bad experience will be enough to destroy acceptance and sales. That’s why fresh food vending often is unsuccessful. Customers don’t believe the food is fresh.
Micromarkets are only one of many creative solutions Clarion Group can bring to your employee dining, executive dining, catering and other hospitality services. To learn how we can improve value, increase sales and crate a more cost-effective food service program, contact Tom Mac Dermott, 603/642-8011 or Angela Phelan, 609/619-3295 or e-mail us at info@clariongp.com. Take a look at our website, www.clariongp.com,
Thursday, September 12, 2013
Contractor Investments: Look the Gift Horse in the Mouth
With low interest rates and the Federal Reserve’s easy money policy, the major food service contractors have been more generous in offering financial investments to potential college and university clients.
In Clarion Group college food service projects, we've seen recent seven-figure investment offers to college clients where the apparent profitability to the contractor doesn’t merit such large sums. Clearly, the contractors are seeing a return on investment (ROI) that’s not apparent to the client.
A food service contractor needs a 20% ROI – total annual profit – to justify a large investment. That means for a $1 million investment, its annual profit must be at least $200,000 a year for five years.
A minimal profit for the contractor is about 8% – 5% to cover its general and administrative expenses and 3% net, pre-tax profit. It would take $2.5 million in annual sales to generate an 8% rate of profitability to cover a $1 million investment.
Some contractors have offered investments that on the surface don’t come close to yielding a 20% ROI. Their actual profit is far above 8% or whatever profit margin they show to their clients on their budgets and financial statements.
Recent Clarion Group reviews of college food service financial statements indicate where the additional profit comes from. There are at least three principal areas:
Vendor rebates: Contractors no longer deny that they receive rebates and discounts from their vendors. An audit by the New York State Attorney General found contractors were withholding rebates equal to 14% of purchases from state university and public school clients. Other documents we've reviewed indicate the rebates may be as high as 18% of purchases.
A $2.5 million dining service might have a 35% food cost and 4% paper/disposables cost, about $975,000. At 14% of these purchases, the contractor's rebates are $136,500.
Wage-related taxes, benefits and insurance: Contractors typically charge between 30% and 40% of direct payroll (salaries, wages, overtime and paid time off) on their operating statements. A college administrator may not question this cost because the college’s own payroll tax and benefits package may run as high as 40% to 50% of payroll.
The food service contractor’s actual cost is about 25% to 27% of payroll, sometimes less. The contractor retains the difference as part of its profit. Low-wage food service employees often can’t afford their share of the cost of the contractor’s health insurance; young employees don’t think they need insurance, and some have a spouse with better coverage. Typically, half or fewer of full-time hourly employees – and none of the student or other part-time employees – accept the company’s benefits package.
A $2.5 million sales, dining service's direct salaries and wages cost may be about $850,000. If the contractor charges 30% of payroll, but has an actual cost of 25%, its indirect profit is about $42,500.
Liability insurance: Contractors typically charge between 1% and 1.8% of total sales for liability insurance, although their actual cost is about 0.5% of sales; up to 0.8% for small contractors, Clarion financial reviews have found. What that's worth to the contractor? At 1.5% of $2.5 million in sales, the insurance charge is $37,500. A large contractor's actual cost at 0.5% of sales is $12,500, leaving $25,000 in the contractor's pocket, an undisclosed 1% of sales.
Altogether, the contractor in this example has generated about $204,000 in profits not visible to the client -- some 8% of sales -- in addition to the profit shown on the operating statement.
The trap: Contractors typically ask for five- to ten-year contracts when they make an investment, and sometimes longer, if the investment is large. This may seem like a minor consideration when the college is seeking the investment dollars, but it can prove to be disadvantageous. The operating contract will require the college to refund the undepreciated balance of the investment if the contract is terminated by either party for any reason before the contract term has expired.
If a college that accepted a $1 million investment, depreciated over a 10-year contract and by the fifth year, the college is dissatisfied with the operation of the campus food services, it must pay back $500,000 to terminate the contract. The college may not have the resources to make such a repayment.
Colleges should be cautious about asking for or accepting large investments from food service contractors. Their services may not live up to the promises they made to secure the contract. Measuring the value of food service contractors by the size of their investment offers shuts out the smaller, but often more capable, regional and local food service companies from consideration.
Clarion Group works with colleges and universities, corporations and institutions to improve the quality and cost-effectiveness of their food service and hospitality services and in the competitive selection of food service providers. For information about Clarion and the value we can bring to your organizations, contact Tom Mac Dermott, FCSI, president, 603/642-8011 or Angela Phelan, senior vice president, 609/619-3925 or e-mail us at info@clariongp.com. We look forward to hearing from you.
In Clarion Group college food service projects, we've seen recent seven-figure investment offers to college clients where the apparent profitability to the contractor doesn’t merit such large sums. Clearly, the contractors are seeing a return on investment (ROI) that’s not apparent to the client.
A food service contractor needs a 20% ROI – total annual profit – to justify a large investment. That means for a $1 million investment, its annual profit must be at least $200,000 a year for five years.
A minimal profit for the contractor is about 8% – 5% to cover its general and administrative expenses and 3% net, pre-tax profit. It would take $2.5 million in annual sales to generate an 8% rate of profitability to cover a $1 million investment.
Some contractors have offered investments that on the surface don’t come close to yielding a 20% ROI. Their actual profit is far above 8% or whatever profit margin they show to their clients on their budgets and financial statements.
Recent Clarion Group reviews of college food service financial statements indicate where the additional profit comes from. There are at least three principal areas:
Vendor rebates: Contractors no longer deny that they receive rebates and discounts from their vendors. An audit by the New York State Attorney General found contractors were withholding rebates equal to 14% of purchases from state university and public school clients. Other documents we've reviewed indicate the rebates may be as high as 18% of purchases.
A $2.5 million dining service might have a 35% food cost and 4% paper/disposables cost, about $975,000. At 14% of these purchases, the contractor's rebates are $136,500.
Wage-related taxes, benefits and insurance: Contractors typically charge between 30% and 40% of direct payroll (salaries, wages, overtime and paid time off) on their operating statements. A college administrator may not question this cost because the college’s own payroll tax and benefits package may run as high as 40% to 50% of payroll.
The food service contractor’s actual cost is about 25% to 27% of payroll, sometimes less. The contractor retains the difference as part of its profit. Low-wage food service employees often can’t afford their share of the cost of the contractor’s health insurance; young employees don’t think they need insurance, and some have a spouse with better coverage. Typically, half or fewer of full-time hourly employees – and none of the student or other part-time employees – accept the company’s benefits package.
A $2.5 million sales, dining service's direct salaries and wages cost may be about $850,000. If the contractor charges 30% of payroll, but has an actual cost of 25%, its indirect profit is about $42,500.
Liability insurance: Contractors typically charge between 1% and 1.8% of total sales for liability insurance, although their actual cost is about 0.5% of sales; up to 0.8% for small contractors, Clarion financial reviews have found. What that's worth to the contractor? At 1.5% of $2.5 million in sales, the insurance charge is $37,500. A large contractor's actual cost at 0.5% of sales is $12,500, leaving $25,000 in the contractor's pocket, an undisclosed 1% of sales.
Altogether, the contractor in this example has generated about $204,000 in profits not visible to the client -- some 8% of sales -- in addition to the profit shown on the operating statement.
The trap: Contractors typically ask for five- to ten-year contracts when they make an investment, and sometimes longer, if the investment is large. This may seem like a minor consideration when the college is seeking the investment dollars, but it can prove to be disadvantageous. The operating contract will require the college to refund the undepreciated balance of the investment if the contract is terminated by either party for any reason before the contract term has expired.
If a college that accepted a $1 million investment, depreciated over a 10-year contract and by the fifth year, the college is dissatisfied with the operation of the campus food services, it must pay back $500,000 to terminate the contract. The college may not have the resources to make such a repayment.
Colleges should be cautious about asking for or accepting large investments from food service contractors. Their services may not live up to the promises they made to secure the contract. Measuring the value of food service contractors by the size of their investment offers shuts out the smaller, but often more capable, regional and local food service companies from consideration.
Clarion Group works with colleges and universities, corporations and institutions to improve the quality and cost-effectiveness of their food service and hospitality services and in the competitive selection of food service providers. For information about Clarion and the value we can bring to your organizations, contact Tom Mac Dermott, FCSI, president, 603/642-8011 or Angela Phelan, senior vice president, 609/619-3925 or e-mail us at info@clariongp.com. We look forward to hearing from you.
Wednesday, August 28, 2013
Is Self-Management Still a Good Option for Campus Dining Services?
Should a college or university operate its campus food services on its own, or turn the role over to a food service contractor? That’s a question with an ambiguous answer, according to Tom Mac Dermott, FCSI, president of the dining service consultant firm. Clarion Group.
"It depends on a number of factors," Mac Dermott says, "primarily, how important food services is considered to be to the institution’s core mission and how competently the service is being managed."
Some 90 percent of all colleges and universities now outsource their food services to a contractor; the exceptions being the largest campuses of state universities and a small number of state and independent colleges, he says. "The big state universities’ dining services with budgets of $20 million or more are larger than many regional food service companies and have the resources to employ professional staffs and operate successfully."
"Among smaller institutions, the decision to remain self-managed is based on the value the college sees in its dining services and a desire to keep it as an integral part of the campus community," Mac Dermott says. "Over the past 30 or so years, colleges have increasingly outsourced food service operations almost invariably for economic reasons."
The decision usually was made, he says, when the food service operation was losing money or a competent manager retired and the successor was not competent.
"In recent years, colleges have converted to contractor management because the contractor offered a substantial financial investment to upgrade – or event build – the food service’s facilities. Some of these investments have been in the millions of dollars, even for relatively small institutions," according to Mac Dermott. "Of course, the investments do not come without strings in the form of a long-term contract, sometimes for more than ten years."
Some medium-sized and smaller colleges have a long history of self-management and have been successful. Davidson College in North Carolina, Saint Anselm College in New Hampshire, Bowden and Bates Colleges in Maine and Middlebury College in Vermont are examples. "Many of these regularly appear on the Princeton Review’s annual ‘Best Campus Food’ list," he notes.
"At one time, colleges would outsource their food services because the contractor claimed its buying power would enable it to reduce the operation’s food costs," Mac Dermott says, "but that’s no longer the case, if it ever was true. Food service companies now retain all the advantages gained by their purchasing volume and promise no more than to match local market prices – the same prices a competent independent operator could get on his or her own."
"Competent" is the key word, according to Mac Dermott. "The self-managed food service operation is only as good as its manager, and purchasing food economically is only a part of the picture. The manager’s skills in creating imaginative menus that reflect the tastes and preferences of the campus community; adaptability in meeting the needs of the college and students, and leading a well-motivated, well-trained staff are more important."
"The college or university that is considering outsourcing its self-managed food services should be aware that, while it’s comparatively easy to convert to contractor management, its far more difficult to do the reverse, revert back to self-management. The infrastructure to support the operation has to be reassembled and a competent manager found and hired," he notes.
About Clarion Group
We're a consulting firm that advises companies, professional firms, colleges and universities, independent schools and institutions in the management, operation and improvement of their in-house employee/student food services, catering, conference, lodging and related hospitality services throughout the U.S. and Canada.
For information, contact:
Tom Mac Dermott, FCSI, President
Clarion Group
PO Box 158, Kingston, NH 03848-0158
603/642-8011 or TWM@clariongp.com
Website: www.clariongp.com
"It depends on a number of factors," Mac Dermott says, "primarily, how important food services is considered to be to the institution’s core mission and how competently the service is being managed."
Some 90 percent of all colleges and universities now outsource their food services to a contractor; the exceptions being the largest campuses of state universities and a small number of state and independent colleges, he says. "The big state universities’ dining services with budgets of $20 million or more are larger than many regional food service companies and have the resources to employ professional staffs and operate successfully."
"Among smaller institutions, the decision to remain self-managed is based on the value the college sees in its dining services and a desire to keep it as an integral part of the campus community," Mac Dermott says. "Over the past 30 or so years, colleges have increasingly outsourced food service operations almost invariably for economic reasons."
The decision usually was made, he says, when the food service operation was losing money or a competent manager retired and the successor was not competent.
"In recent years, colleges have converted to contractor management because the contractor offered a substantial financial investment to upgrade – or event build – the food service’s facilities. Some of these investments have been in the millions of dollars, even for relatively small institutions," according to Mac Dermott. "Of course, the investments do not come without strings in the form of a long-term contract, sometimes for more than ten years."
Some medium-sized and smaller colleges have a long history of self-management and have been successful. Davidson College in North Carolina, Saint Anselm College in New Hampshire, Bowden and Bates Colleges in Maine and Middlebury College in Vermont are examples. "Many of these regularly appear on the Princeton Review’s annual ‘Best Campus Food’ list," he notes.
"At one time, colleges would outsource their food services because the contractor claimed its buying power would enable it to reduce the operation’s food costs," Mac Dermott says, "but that’s no longer the case, if it ever was true. Food service companies now retain all the advantages gained by their purchasing volume and promise no more than to match local market prices – the same prices a competent independent operator could get on his or her own."
"Competent" is the key word, according to Mac Dermott. "The self-managed food service operation is only as good as its manager, and purchasing food economically is only a part of the picture. The manager’s skills in creating imaginative menus that reflect the tastes and preferences of the campus community; adaptability in meeting the needs of the college and students, and leading a well-motivated, well-trained staff are more important."
"The college or university that is considering outsourcing its self-managed food services should be aware that, while it’s comparatively easy to convert to contractor management, its far more difficult to do the reverse, revert back to self-management. The infrastructure to support the operation has to be reassembled and a competent manager found and hired," he notes.
About Clarion Group
We're a consulting firm that advises companies, professional firms, colleges and universities, independent schools and institutions in the management, operation and improvement of their in-house employee/student food services, catering, conference, lodging and related hospitality services throughout the U.S. and Canada.
For information, contact:
Tom Mac Dermott, FCSI, President
Clarion Group
PO Box 158, Kingston, NH 03848-0158
603/642-8011 or TWM@clariongp.com
Website: www.clariongp.com
Tuesday, January 29, 2013
Food Service Operators Face Diminishing Customer Base
Food service contractors and employed operators of corporate food services may face further diminishment of their customer bases in 2013.
As rapidly-advancing technology has disrupted other industries, it is now food service management's turn. Corporate food service operators have to rethink their business models to stay relevant in this new environment.
In addition to the slow economic recovery, companies now have new ways to outsource even highly skilled work to freelance workers all over the world, reducing the need for -- and cost of -- on-site employees. Of course, fewer employees on-site means fewer food service customers.
"A third generation sourcing system . . . the 'human cloud,' is centered on an online middleman that engages a pool of virtual workers that can be tapped on demand to provide a wide range of services to any interested buyer," according to Evgeny Kaganer, an assistant professor at the University of Navarra in Barcelona, Spain, writing in MIT Sloan Management Review.
The commercial real estate market also provides a gloomy clue to the pace of corporate hiring. "U.S. businesses took on new office space at a sluggish pace in the fourth quarter [of 2012] as employers remained cautious about adding jobs," The Wall Street Jouranl reported.
The impact of the sharp and still evolving change in the way businesses operate has an impact on both the food service operator and the company it serves. Formerly profitable food services may become unprofitable for the operator, and the company may find it has a choice of either subsidizing its employee food services or reducing their scope.
Solutions will vary from company to company, but all will involve the way the food service operator looks at, and manages the business. Companies will have to cooperate with their food service operators as they both adapt to the new reality.
Some potential solutions:
Companies with multiple buildings on a large campus might close food service outlets in all but the highest-population buildings (about 1,000 employees). The other buildings could be serviced by the type of food truck that has become popular on college campuses.
At small sites (500 employees) a mini-cafe, supported by an off-site commissary could be practical.
Companies that find their food service has light breakfast business could close the employee cafe in the morning and replace it with a kiosk near the main employee entrance, serving coffee, cold beverages, muffins and the like. The kiosk could remain open through mid-morning to serve employees who want a morning snack. The cafe would be open only for lunch and maybe afternoon snack business.
Vending operators and some of the major contractors have begun installing "micromarkets," a c-store type, compact facility with no attendant. The customer selects foods and beverages from refrigerated display cases and shelves and pays for the purchases at a self-checkout kiosk -- the sort of "reverse ATM" now common at Home Depot and some supermarkets. This option only works in a closed environment with a small population, about 250 employees.
Changes in the way employee food services are provided are inevitable. Operators will have tto use technology to counteract the changes technology is forcing on their traditional ways of doing business.
As rapidly-advancing technology has disrupted other industries, it is now food service management's turn. Corporate food service operators have to rethink their business models to stay relevant in this new environment.
In addition to the slow economic recovery, companies now have new ways to outsource even highly skilled work to freelance workers all over the world, reducing the need for -- and cost of -- on-site employees. Of course, fewer employees on-site means fewer food service customers.
"A third generation sourcing system . . . the 'human cloud,' is centered on an online middleman that engages a pool of virtual workers that can be tapped on demand to provide a wide range of services to any interested buyer," according to Evgeny Kaganer, an assistant professor at the University of Navarra in Barcelona, Spain, writing in MIT Sloan Management Review.
The commercial real estate market also provides a gloomy clue to the pace of corporate hiring. "U.S. businesses took on new office space at a sluggish pace in the fourth quarter [of 2012] as employers remained cautious about adding jobs," The Wall Street Jouranl reported.
The impact of the sharp and still evolving change in the way businesses operate has an impact on both the food service operator and the company it serves. Formerly profitable food services may become unprofitable for the operator, and the company may find it has a choice of either subsidizing its employee food services or reducing their scope.
Solutions will vary from company to company, but all will involve the way the food service operator looks at, and manages the business. Companies will have to cooperate with their food service operators as they both adapt to the new reality.
Some potential solutions:
Companies with multiple buildings on a large campus might close food service outlets in all but the highest-population buildings (about 1,000 employees). The other buildings could be serviced by the type of food truck that has become popular on college campuses.
At small sites (500 employees) a mini-cafe, supported by an off-site commissary could be practical.
Companies that find their food service has light breakfast business could close the employee cafe in the morning and replace it with a kiosk near the main employee entrance, serving coffee, cold beverages, muffins and the like. The kiosk could remain open through mid-morning to serve employees who want a morning snack. The cafe would be open only for lunch and maybe afternoon snack business.
Vending operators and some of the major contractors have begun installing "micromarkets," a c-store type, compact facility with no attendant. The customer selects foods and beverages from refrigerated display cases and shelves and pays for the purchases at a self-checkout kiosk -- the sort of "reverse ATM" now common at Home Depot and some supermarkets. This option only works in a closed environment with a small population, about 250 employees.
Changes in the way employee food services are provided are inevitable. Operators will have tto use technology to counteract the changes technology is forcing on their traditional ways of doing business.
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