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. 

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

College Food Services Face New Challenge

By Clarion Group Food Service Consultants
www.clariongp.com

College food service operators are finding a new competitor for their voluntary meal plans. In addition to the usual off-campus restaurants, fast food, pizza and deli outlets, there now are a growing number of off-campus student residences, some of which have an in-house dining operation.

"Student housing development has remained robust [and] continues to boom, and analysts predict growth in the coming years," The New York Timers reported recently. The growth in off-campus housing has appeared in such diverse place as Columbia, MO, home to the University of Missouri, and Manchester, NH.

In Columbia, private developers have opened student residences with more than 3,800 beds since 2011 with more under construction, the Times reports. In Manchester, NH, a developer is building a residence for students of the local campuses of the University of New Hampshire, Southern New Hampshire University, Saint Anselm College and Hesser College.

The dining service operator at one large eastern university faces a special dilemma – a developer is building a new residence and dining hall on campus and plans to use a separate food service contractor. The new dining center is likely to lure some student meal plan members from the main campus food service, Mac Dermott notes.

At a college that is struggling to keep its on-campus residence halls full, the off-campus competitor, such as the ones in Columbia and Manchester, can be a challenge.

The University of Missouri in Columbia, with an enrollment of 35,000, probably doesn’t need to worry too much about off-campus competition.  But the option of living near but off campus may lure some students away from the dorms and meal plans of the nearby, much smaller Columbia and Stevens Colleges.

The colleges in and near Manchester may feel a pinch when the new private residence hall opens there next year.

College food service operators have a few weapons to meet the new competition. The off-campus food service facility isn’t convenient when the student on campus. The food service can actively promote its commuter meal plan or a low-cost "block-meal" plan – a plan proving a fixed number of meals per semester – to capture some of the optional dollars.

The college food service also can extend its meal plan to incorporate some local restaurants, a popular option at some campuses. While this type of plan does drain some revenue from the on-campus food services, it has proven valuable in attracting participants to a meal plan.

A good example is Iona College in New Rochelle, NY. The all-declining balance meal plan includes an allowance for spending at local restaurants in addition to the four on-campus food service locations, but the service is still profitable for the operator and the college.

But the most important element in competing with the off-campus residence operator and it food services is having a really good, imaginative and responsive operation that will attract students on its merits.

Clarion Group can help your campus dining service meet its long-standing and new challenges. For information, contact Tom Mac Dermott, president, 603/642-8011, or Angela Phelan, senior vice president, 201/305-8653, or Ernie Wilder, 703/282-4040, or e-mail us at info@clariongp.com.

Visit 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

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.

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.

Viewpoint

Adapting to Changing Times
Dining Insights, Fall 2009

The times they are a-changing
Bob Dylan wrote and sung that back in 1964 in a time of ferment and change. It would have been just as timely if he had introduced it in 2009.

At Clarion Group, we've been changing to keep up with - and get a step or two ahead of - the changes in the economy, in companies, on campuses and in life that have been going on around us, for the benefit of our clients.

Over the course of 2009, we have . . .

• Redesigned our website, clariongp.com, to provide more information about campus and corporate dining and our organization's capabilities.


• Launched this blog to provide a forum for everyone interested in on-site food services and opened new pages in Linkedin, Facebook and Plaxo.


• Developed a Six Sigma-based system for operational and financial evaluations of dining services to more effectively analyze systems, services and financials and create imaginative, effective solutions.


• Created the "Fresh & Natural" program to bring healthy and sustainable dining to campuses and companies.

Now we've taken a new, big step to broaden our horizons to encompass all the other facilitiees services that interact with dining services. These include conference and event services and management, space and servies reservation systems, audio/visual services and lodging.

Ernie Wilder, who managed all these services at the International Monetary Fund, has joine Clarion to add the expertise we need to effectively consult on these specialties - either as an integrated project covering all dining and facilities servicesor for the separate components.

We worked with Ernie at the IMF and know his capabilities and his potential to add value to clients' facilitiess services.
We're still focused on our traditional capabilities, including outsourcing, vendor negotiations and maagement, systems, operating systems, food quality and service improvements, feasibility studies, concept development and facility design.
What changes will come in 2010? Stay tuned.

- Tom Mac Dermott

Sustainability and Food Service

Sustainability in all its many iterations has been embraced enthusiastically by nearly all, if not all, university, college and school communities. It's been less obviously adopted in the corporate world, if only because companies don't have students eager to promote the concept and practice.

In addition to its ecological benefits, sustainability has the potential to reduce costs for those who adopt its procedures. Energy-conserving equipment, utility-usage reduction, more efficient work practices and waste control are all good business, no matter what business you're in.

We're exploring the expanding and evolving world of sustainability and introduced our new "Fresh & Natural" approach to green, healthy dining in the Spring issue of Dining Insights. There also are articles about attracting and retaining customers and other topics involving the world of employee and student dining.

If you don't receive Dining Insights, you can join the 3,000-plus managers, administrators and executives who learn about the workings of on-site food service, outsourcing or "insourcing" their food services, dealing with food service contractors and more.

Just e-mail your name, title and mailing address to info@clariongp.com. We'll be glad to hear from you.

Tom Mac Dermott, FCSI
Clarion Group
www.clariongp.com