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.

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.

         

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:

• 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.

These are just highlights of the terms a food service contract should include. In our role as consultants, we level the playing field for our clients in their dealings with food service contractors because we know the players, their tactics and objectives. We ensure our clients have comprehensive, fair and enforceable contracts to guide their relations with their on-site service operators.

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. 

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

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,

The Unung Heros of Corporate Food Service

By Tom Mac Dermott, FCSI, President, Clarion Group

www.clariongp.com

 

A version of this article appeared in the online newsletter of Food Management magazine

 

“It doesn’t matter which company, it’s the manager they send me that makes the difference,” is a frequent comment by corporate facilities managers and others who are responsible for their organizations’ on-site food services that are operated by a food service management company.

And they’re right – to an extent.  The manager of an on-site food service certainly has the primary responsibility for the day-to-day operation, including the quality of meals, service and catering; hiring, training and overseeing hourly employees; financial results, and sometimes, more.

But who ensures the on-site manager is doing the job properly, provides advice and support and brings in the food service company’s specialized resources as needed?  That’s the district manager (or equivalent title, such as director of operations).

Company executives usually get most of the attention and credit, but it’s their district managers who are in the field making sure everything goes right at the dozen or so operations they supervise.

The DM is the direct link between contractor and client.  He or she is the direct overseer of the on-site manager, is directly responsible for client relations, utilization of the contractor’s resources to solve problems and improve services, and for the company’s success or failure at a location.

How do they manage their multiple responsibilities?  How do they coach their on-site managers, resolve problems, satisfy clients, deal with personnel, budgets, sales and cost, profit or loss and other issues?

Close communication with the on-site manager and the client’s representative is the key say district managers for several companies.

“No surprises” is the way Adam Salem, a director of operations for the Flik International division of Compass Group, sums it up.  “I talk to or visit my clients every week and keep in touch through e-mail.”  He’s responsible for food services at a group of corporate offices and law firms in the Washington, DC area.  With his regional vice president, he also holds quarterly review meeting with his clients.

Ken McIntyre, a long-time director of operations for Guckenheimer overseeing corporate headquarters accounts, was recently promoted to regional vice president for the Middle Atlantic and Southeastern region.

He says client relationship management is structured.  The director of operations has “monthly review meetings with our client and the on-site manager.”  A quarterly major review is also attended by him as regional vice president.  “It’s the centerpiece of the client relationship and a measuring tool [enabling us] to measure and manage the operation.”

John Gee, a Culinart Group West Coast district manager for corporate accounts, agrees.  “Getting off to a good start with a new client is important to establish the relationship.” he says.  He has mostly corporate and some education accounts throughout California.  He meets with clients on a monthly or bi-monthly basis, “unless they have a question” in the interim.

Gee, a 20-year veteran with Culinart, has the unusual experience of having been a district manager on both coasts.  After working in the company’s home region in the Northeast, he transferred in 2006 to their division in Los Angeles with accounts all along the Pacific Coast and in the Southwest.

What’s the difference in the business on the two coasts?

“New York is very traditional – shirt, tie and suit,” he says.  But despite the laid-back, no necktie attitude, “California is not more relaxed when it comes to work.  Don’t underestimated what happens out here. [Clients expect] greater accountability than on the East Coast:  ‘We want it done, and done tomorrow.’”

A DM’s most important responsibility is ensuring his on-site managers are performing well, both operationally and financially.  This is accomplished by a combination of individual coaching and formal training through periodic meetings of all the district’s or region’s managers and online training programs.

Training programs range from the basics, like culinary skills and accounting, to regulatory compliance and human resources topics, such as disciplinary procedures and the prevention and handling of harassment issues.

“I have weekly meetings with all my managers and chefs via Webex (a web-based conferencing program),” Guckenheimer’s McIntyre explains. “An HR person, our regional health and wellness manager, marketing manager and corporate Director of Culinary Operations (manager of the company’s regional executive chefs) participate.  We have a very chef-driven culture.”

His managers also are enrolled in an online training program.  “Managers can pick their own topics, but they’re also required to take some specific courses.”

Adam Salem of Flik says, “Our regional resources, such as regional chef and marketing specialist, provide training.  Regional meetings also provide training opportunities.”

“Training is on-going” at Culinart, according to Gee.  “I have a senior manager work with the less-experienced managers to set them up for success.”

Despite their best efforts, things can go wrong at a DM’s account.  What do they do when an angry client calls with a complaint?

“You can’t wait.  You have to anticipate trouble,” Salem says.  “It’s most important to get in front of the client right away.”

“Get face-to-face as fast as possible – on the same day,” Gee echoes.  “You can’t change the complaint.  You have to correct whatever the problem is.”

McIntyre agrees. “The first thing is to listen and assess the situation.  I have to be open-minded and, most important, be pro-active in responding.” 

Like McIntyre, both Salem and Gee utilize regional or corporate specialists to get into the account and work with the manager to solve the problem and get the operation back on track.

Gee’s approach is to be positive.  “I get positive feedback from the client and [talk to the manager] about the good things first, build on the good things.  Positive reinforcement is the most effective way” to get a manager to see and resolve an issue.

“I meet with the on-site team and go to our resources – the regional chef and others – and create an action plan,” Salem explains.  “I come back to the client with the plan and follow up.”         

But what if the manager is the problem – he or she isn’t controlling the staff, has let costs run away or has a conflict with the client?

“Like a baseball team, we have to have a relief pitcher,” McIntyre says.  “It’s very important to have the right person ready to step in.”  He prefers managers with a culinary background.  “Many talented chefs get burned out in the kitchen and go into management.”

“Recruiting is on-going,” according to Gee.  “We try to promote from within before going outside” when an on-site manager needs to be changed.                           

“A weak [on-site management team] means I have to spend a lot of time there.  It’s not good for the client,” adds Salem.  “I’ve developed sources [to identify potential managers].”

Financial performance also is important, whether the operation is P&L (the operator has the financial risk) or subsidized (client has the financial risk).

“I have a weekly flash [report],” according to Gee.  “By Monday, I have the results.  I get on the phone, accounts with bad results first.”

Other DMs do essentially the same, relying on weekly “flash” reports from their managers, usually on the first business day after the accounting week closes.

“I review each account’s financial reports weekly,” Salem says.  “If there’s an issue, I return to the account and notify the client.  It’s important that there are no surprises.”

Salem best sums up the job for all DMs: “I’m successful because of the team I’ve built.  Communication is the key to the job.”    

'Human Cloud' Poses New Challenge to Corporate Food Service

Food service contractors and employed operators of corporate food services may face further diminishment of their customer bases. Operators will have to use technology to counteract the changes technology is forcing on their traditional ways of doing business.

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.

As reported in MIT Sloan Management Review by Evgeny Kaganer, an assistant professor at the University of Navarra in Barcelona, Spain and three other academics, "A third-generation sourcing ecosystem . . . 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."

New human cloud organizations can now provide freelance talent for at least 15 major work categories, including content generation, sales and marketing, design and optimization, Kaganer et al say. These are jobs that traditionally are kept in-house, but now may disappear from the office and the food service department’s customer pool.

Human cloud organizations ("platforms") – the middlemen who connect companies and freelancers – saw their revenue increase by 53% in 2010 and 74% in 2011, the authors said. The number of active platforms increased to more than 100 in 2012 from about 40 in 2011.

As rapidly-advancing technology has disrupted other industries, it now is food service management’s turn. Corporate food service operators will have to rethink their business models to stay relevant in this new environment.

For example, a Clarion Group client with $1.5 billion in sales and 4,500 employees nationwide has only 250 employees at its new headquarters, where it is just opening a new food service, and has no food service at any of its other offices. Technology has enabled other Clarion clients to increase sales and profits while reducing on-site headcounts.

The impact of this 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.

The solutions will vary from company to company, but all will involve a change in the way the food service operator looks at, and manages, the business. Companies will have to cooperate with their operators as they both adapt to the new reality."

For example, at company with multiple buildings on a large campus, closing cafes in all but the most highly-populated buildings (about 1,000 employees) may be necessary. The other buildings can be serviced by the type of food trucks that now are popular, and successful, on college campuses.

At smaller sites, a mini-café supported from an off-site commissary and staffed by one or two attendants may be a solution.

Vending operators, including some major food service contractors, have begun installing "micromarkets," a c-store-type, compact facility with no attendant. The customer selects foods from refrigerated display cases and shelves and pays for the purchases at a self-checkout kiosk. This option only works in a closed environment with a small population, about 250 or fewer employees.

Clarion Group can help you meet the new challenges of the evolving world of corporate and campus food service.  For information, contact Tom Mac Dermott, president, 603/642-8011; Angela Phelan, senior vice president, 201/306-8613, or Ernie Wilder, vice president, 703/282-4040, or e-mail us at info@clariongp.com.  Visit our website, www.clariongp.com

Clients Often Miss Full Value of Food Service Consultants

Reprinted from FM Newslinks, on-line newsletter of Food Management magazine.

"Food service consultants frequently aren’t used to their full value by their corporate clients," Tom Mac Dermott, president of Clarion Group, a corporate food service consulting firm, says. "Often, we’re brought into a project too late to provide maximum benefit for our client."

"For example, if a corporate food service facility design project is already underway when the consultant is retained, it may be too late to incorporate important features or modify the plan for maximum efficiency and service," he says.

"A corporate food service consulting project also may not deliver full value if our recommendations are accepted but we’re not retained to implement them," he added.

There are three key components to a successful corporate food service consulting project whose objective is improving performance, service and cost-effectiveness, according to Mac Dermott:

Investigation: What’s happening now? What are the services? How are they being performed? Where are the weaknesses that need to be improved?

Research and Recommendations: The consultant reviews operational and financial records of the food service, researches alternatives to the current methods, procedures and systems and develops solutions to remove obstacles, strengthen inadequate areas and increase the value of the corporate food service to the client.

Implementation: The consultant works with the client and the food service operator to implement the solutions to ensure they are successfully established and maintained.

"This last step is where a corporate food service consulting project actually provides its value," Mac Dermott says. "If the consultant’s report and recommendations are just accepted and filed away, the time, effort and cost invested in the project is wasted."

The food service consultant needs to be retained throughout the implementation phase, Mac Dermott says, "because the operator often has a degree of ‘tunnel vision’ and can’t see beyond his own, comfortable way of doing things and the corporate client doesn’t have the knowledge or experience to know whether the needed improvements are being implemented effectively."

"Our corporate food service consultants have decades of experience in all types of operations and know to work with the on-site manager and staff to clear away obstacles, provide training and solve problems as they arise," he says.

Corporate Food Service: A Benefit or a Convenience?

Companies that once considered low cost meals an employee benefit sometimes now are revising their attitude and thinking of food service as a convenience that should be self-sustaining.

The conversion can be tricky because it inevitably means higher prices and maybe fewer services when the food service has to pay its own way.  In working with corporate clients, Clarion Group consultants have seen the conversions completed with minimal disruption and customer acceptance – and disastrously.

The worst way to convert from subsidized to "P&L" (the operator has the risk of profit-or-loss) is all at once. Customers come in one morning and the price of everything is higher.

In one instance we witnessed, customers in a central city corporate headquarters almost completely boycotted the food service. Sales dropped by two-thirds overnight when prices were increased by 20%.  Nobody protested, they just began bringing their own meals to work or went out to the dozen or so nearby restaurants, delis and fast food outlets.

The losses were so severe that within a month, the food service operator was threatening to terminate its contract. Two months later, a new operator was in place.  Clarion prepared the Request for Proposals and managed the selection process.

The new food service contractor had some advantages.  The dirty work – price increases and service reductions – had been done by the predecessor.  The new operator gave the café a modest facelift, restored some services, introduced a new menu and rejuvenated what had been a mediocre operation into a model food service program.

Customers returned and sales rose to their former level, although prices hadn’t been reduced; they saw greater value in the new operation and meals offered for the prices.

The most effective way to eliminate or reduce the subsidy is gradually.  In cooperation with the food service contractor, a conversion can be made gradually, over a period of two years with minimal, or no, customer backlash.

Companies use long-range planning for the management of their businesses, development of new products or services, advertising and marketing, equipment purchases and the like.   They should do the same when they want to eliminate the food service subsidy.

When you want to shift the burden of profit or loss in your company's or organization's food services, we can help plan a successful conversion.  For information, contact Tom Mac Dermott, president, 603/642-8011, or Angela Phelan, senior vice president, 201/306-8613 or Ernie Wilder, vice president, 703/282-4040, or e-mail us at info@clariongp.com.  Visit our website, www.clariongp.com.

News from Clarion Group Food Service Consultants

The Spring issue of Clarion Group's newsletter is published.  Articles include:

Corporate food service operators see improvements in sales.
The coming health care law may not bite too hard.
What do food service customers want?  "Food quality" tops the list.
.. . and much more.

To obtain your copy and a complimentary subscription send your contact info (mailing address or e-mail address) to info@clariongp.com

Corporate food service may gain as work-from-home options are reduced

"Maybe the outgoing tide of more employees leaving the office to work at home is starting to reverse," says Tom Mac Dermott, president of Clarion Group, a food service consulting firm. "That would be good news for the operators of corporate food services."

For more than a decade, the percentage of companies’ employees who work from home has been steadily increasing, reducing the number of customers for the on-site food service. Some 63% of employers in a study conducted by the Family and Work Institute now permit employees to work from home at least part of the time, up from 34% in a similar study in 2005.

Recently, Yahoo, the internet search engine and website, announced it will require all employee to work at the office, starting in June. Several other firms have followed suit.

"Some of the best decisions and insights come from hallway conversations and cafeteria discussions," said Jackie Rese, Yahoo’s human resources director in announcing the new policy. "Speed and quality are often sacrificed when we work from home."

While the wisdom of the decision is hotly disputed, not everyone, including some Yahoo employees, are upset. "Deadwood is hiding at home," one Yahoo employee told The Wall Street Journal.

The food service operator can help its host company implement the improvements in productivity that Yahoo is seeking, according to Mac Dermott. "The on-site food service center can be a place where creativity takes place."

"The staff café is a natural gathering place, generally in a central location," he said If it’s configured to permit groups to work and discuss ideas, as well as have lunch or a mid-morning or afternoon snack and coffee, it can be a valuable asset to the company as well as to the food service operator."

"By providing tables and groups of tables of various sizes to accommodate different numbers of people, especially round tables where six or eight people can gather for easy discussion, the food service operator is providing a comfortable site for productive meetings and informal discussions, " he added.

Other ways of encouraging staff café use the food service operator can implement include partitioning off small areas with seating for from eight to 12, which informal groups can use in place of reserved conference rooms, which often are in short supply, he added.

"Making sure the café is wi-fi-enabled and providing flip charts and other communication aides also helps encourage employees to use the café," Mac Dermott suggests.

"Work-from-home is probably here to stay in some version," he added, "but the food service operator can help make working at the work site an attractive option.

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.