A company has a large office building with 3,500 employees. Why would the company make the decision to have food services offered within the building rather than NOT to offer these services? Why would the company make the decision to outsource the operati

Contract Management 9o*pany. Foodservices I I I I I I I I I I I I I I T I I I

The authors wish to thank Jeannette Colter, assistance in coordinating the development

Senior Human Resource Generalist, Sodexho, for her of this chapter.

Children eoting lunch in an elementary school cafeteria

After studying this chapter you will be able to: l. Recognize that the preferred foodservice management alternative (self-

operated or contract management company-operated) must be deter- mined on a by-situation basis.

2. Explain that a wip-win relationship between the sponsoring organiza- tion and the contract management company is needed.

3. Outline basic steps in.the decision-making process to select and utilize a contract management company.

4. Describe the role of a foodservice liaison. 5. Note the impo-rtance of and types of communication between the spon-

soring organrzation and the contract management company. 6. Discuss challenges confronting contract management companies.

2 9 9

I I

300 FART 4 Noncommercial Foodservices Operations

Pretend that a business manager of a large manufacturing company is concerned about minimizing operating expenses and providing foodservice alternatives that will be enjoyed by his or her employees. The foodservices have been managed and operated by the company's own employees (it has been self-operated), but significant losses have occurred recently. This is a large operation serving several hundred meals to employees six days weekly.

Your contract management company has just received a request for proposal (RFP) from the company that addresses your company't po- tential interest in managing the foodservices

r : n - s i [ e f u t : c i s e l - v i c r a contemporary name for non- c o m m e r c i a l f o o d s e r v i c e s n n e r : t i o n q

se I fl *perated f*r:dsenricers n o n c o m m e r c i a l p r o g r a m s i n w h i c h t h e i o o d s e r v i c e s m a n - a g e m e n t a n d s t a f I a r e e m - p l o y e e s o f t h e o r g a n i z a t i o n o [ t - e r i n g t h e f o o d s e r v i c e

i.rirltract man;lggr?1fnI c{_}n] -

panv a for-profit business t h a t c o n t r a c t s w i t h a n o r g a n i - zation to provide foodservices a s s p e c i f i e d ; t h e m a n a g e m e n t company can be a chain with many contracts or an indepen- dent management company with only one or a few c o n t r a c t s

ttt* na et'r-l I <:r:ti :t--. t vi r es foodservices operations that are managed by a contract m a n a g e m e n t c o m p a n y

.v'_- .

operation, the services you "bould provide, and the costs associated with doing so.

What process would you use to develop a winning proposal response? What factors would enable your organization to manage the food- services more effectively (successfully) than they are currently? How soon after the business is awarded to your company could you tool up to take over the program? What basic steps would be involved in the transition?

As you read this chapter, think about answers to these questions and then get feedback from the real world at the end of the chapter.

We have defined noncommercial foodservices to be those offered by organiza- tions that exist for some reason other than to make a profit from the sale of food and beverage products. This segment of the hospitality industry is also called on-site foodservice in an effort to provide a descriptive name that is less related to its for-profit counterparts. Exhibit 17.1 reviews a portion of Ex- hibit 1.3. It shows many of the rvide range of organizations that feed people (their emplovees and/or consumers of their services) for reasons other than to make a profit.

The chart also shou's trvo basic ways that noncommercial foodservices operations can be managed. First, the organization can operate foodservices itself. In a self-operated foodservices program, the foodser-vice manager and his or her staff members are employees of the organization offering the foodservices. An alternative is for the organization to hire a for-profit contract management company to operate the foodservices. These foodser- vice operations are sometimes called managed foodservices. In this in- stance, foodservice managers are employed by the contract management company. Most contracts specify that nonmanagement staff members will also be employed by the contract management company. However, sometimes nonmanagement personnel are employees of the sponsoring organization.

WHTCH F$CIMSHRVTCffi MANAGHMHNT A-LTNRNATTVH TS TJREFHffi"REI} ?

oBIECTTVE r Recognize that the preferred foodservice management alterna- tive (self-operated or contract management company-operated) must be determined on a by-situation basis.

Auto mechanics have had friendly arguments for years about the topic "Which is best, a Ford or a Cher,y?" Movie critics have annual debates about the "best movie of the year." Art shows, dog and cat shows, culinary competitions, and craft exhibits are all staged to allow judges and the public to answer the ques- tion "Which is the best?" The answer to this question generally relates to some factors that can be measured (the fastest car can be timed; dogs and cats can be compared to exacting breeding standards) and to other factors that are more subjective (car styling and ar-t can be viewed differently by different people).

These points also apply to the question "Which is best: self-operated or contract management company-operated foodservices?" The answer is that it really depends on many factors, most of which are specific to the organization

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considering the alternatives. Some concerns are objective (financial statements can indicate whether an operation meets monetary goals), but other factors are more subjective (which alternative offers the best-tasting food?). This distinc- tion (the necessity for service to be offered at minimal cost or employee bene- fit) represents a fundamental difference in how foodservices are viewed by

I Military

Services

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This resident in a long-term care facililt is eating a meal prepared by the faciliA's food- seruice department that could be self-operated or managed by a controct manage- ment company.

C H E C K I T O U T T

Food Management Magazine p u b l i s h e s a n n u a l i n f o r m a t i o n about the largest contract m a n a g e m e n t c o m p a n i e s . T o v i e w t h e c u r r e n t r e p o r t , g o t o w w w . f o o d m a n a g e m e n t . c o m . S c r o l l t o " A r t i c l e s , " a n d c l i c k o n " A r t i c l e A r c h i v e S e a r c h . " Type "Top 50 management c o m o a n i e s " i n t h e s e a r c h b o x .

-t 3 o z PART 4 Noncommercial Foodservices Operations

TS TT ]THERfi VNFISL'S UST

The history of contract foodservice management probably began when a local restau- rant owner or caterer began to provide limited foodservices for a local business. Over the years it has grown into a multibillion dollar business with several large companies offering foodservice management services internationally, others with nationwide accounts, and still others with a large regional or community-wide base of operations. Historically, managers of self-operated foodservice programs have disliked contract management companies, in part, because of a concern that their jobs were in jeopardy. The management company brings in its own top-level unit manager(s), because man- agement expertise, of course, is what the organization is buying when it contracts with a foodservice management. companyj

There is also the matter of profit. An organization operated with public funds, such as a local school district, might question whether the profit paid to a contract manage- ment company might be better spent if it remained within the school district. (The con- tract management company would likely counter that it can yield increased efficiencies that will provide savings to the school district greater than what was paid in manage- ment fees to the company.)

So who does the better job of operating foodservices? The answer is that it prob- ably depends just as much on the staff managing the foodservice operation as it does on whether the staff is employed by the sponsoring organization itself or the contract man- agement company. There are ho secrets in the process of effective foodservice manage- ment. Basic principles are well known and can be applied by all managers regardless of whether they are employees of an organization needing foodservices or a contract man- agement company. Good (and less effective!) managers work for self-operated and for contract management-operated foodservices. A careful mix of creativity, effective oper- ating procedures, and consistent application of basic management principles is a more important determinant of foodservice success than is the type of management operation (self-operated or contract company) used.

a c i - r : u n t t h e c o n t r a c t m a n - a g e m e n t c o m p a n y ' s [ e r m f l o r the organizaLion that has re- tained it to operate the food- s e r v i c e s p r o g r a m ; a l s o c a l l e d client

oBIECTTVE 2 Explain that a win-win relationship between the sponsoring organi- zation and the con- tract management company is needed.

representatives of sponsoring organizations. Some factors critical to the "Which is best?" question have both subjective and objective components. (A

large management company does have exper-tise available, for example, to un- defiake kitchen design work or to do creative graphics for food promotions.

Howeveq how much do these services really cost when they are provided as part of a package price for operating the organrzation's foodservices program?)

A WIN-WTN R"HLATIONSHTP IS NHHPEN

Parties to the management contract must both benefit from it. An agreement in which one party wins and the othefpafiy loses will likely cause serious op- erating problems before the business relationship is dissolved. Exhibit 17.2 highlights potential risks incurred by both parties in a foodservices agreement.

The sponsoring organization may lose control over many aspects of providing its foodservices (and a desire to do so may be an incentive for an orga- nization to retain a contract management company!). Accounts can deterrnine the amount of control they desire. For example, depending on the agreement's terms, the organization may no longer hire or supervise staff or make decisions directly affecting costs. (These operating decisions will likely be made by the con- tract management company.) The sponsoring organization's staff must be con- vinced that management and other fees that it must pay will be offset by lorvered operating costs. There is always a risk that operating expenses may be higher

C$-l;\F5'['[:f{ 17 Contract Management Company Foodservices 3O3

Eric Loyall District Manager Corporate Services Sodexho Cincinnati/Louisville/Atlanta

A "Do Whatever It Tekesl' Attitude

What is your educational background?

I graduated with an undergraduate hospitality management degree from the University of Massachusetts.

What is your work experience?

I am a district manager for Sodexho. My district is a bit unusual as I am currently responsible for the Food, Catering, and Vending selices at five zoos, one museum, and 10 traditional corporate dining accounts.

What is the most unforgettable moment in your career?

While a student at UMASS, I held a summer job at a food stand inside a regional amusement park. One day management approached me and offered me an increase of 25 cents per hour to be in charge of the food stand. Though I was not sure I wanted to be responsible for others, I agreed. It turned out that, for $ 10 more each week, I had to do about 10 times the work! At the time, I didn't realize this small step to manage- ment would lead to a rewarding career full of un- forgettable moments.

What are the most significant challenges facing your segment'of the industry? How are they being addressed?

The biggest challenge is the same in all seg- i ments: Our customers are becoming more so- i phisticated (yes, even in the concessions and i leisure world!). We address this challenge with i more sophisticated menu offerings; themed loca- i tions; signature items; package pricing; the use

:;

of national, local, and in-house brands; the use of , retail-style merchandising; and lots (lots!) of em- ployee training programs.

What, if anything, would you do differently in your career?

I would learn Spanish because it u'ould be ver-v' helpful in my efforts to manage a diverse u'ork force.

What is your advice for young people considering a career in your industry?

There is no doubt that the foodsen ice industrf is very exciting. Foodservice combines elements of the manufacturing and service industries, and this creates lots of action. In the course of this action, you will work with and for countless characters in many exciting situations. Hollr,rr,ood has caught on to the industry's appeal. Just consider the food- related reality shows broadcast on major networks. Howeveq, to be successful, one must have what all our successful managers and chefs have: a passion for business, and a "do whatever it takes" attitude.

Elderly person enjoying a meal at a long-term care facililr lts Food and Nutrition Ser- vice Department could be self- operated or a managed services account ofa con tract management company.

l1'1;:inagentenl {:{}nlfaft a f o r m a l , w r i t t e n a g r e e m e n t t h a t s p e c i f i e s t h e r e s p o n s i b i l i t i e s a n d o b l i g a t i o n s o f b o t h t h e o r g a n i z a t i o n s p o n s o r i n g t h e foodservices and the manage- ment company that provides them; frequently, the company a g r e e s t o a s s u m e t o t a l responsibility for management of the foodservices ooeration i n r e t u r n f o r a m a n a g e m e n t fee and, perhaps, other remuneration; the organrzation p r o v i d e s t h e b u i l d i n g a n d e q u i p m e n t a n d m a y c o n t i n u e t o i n c u r l e g a l a n d e c o n o m i c liability

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E X F " { r t } t r 1 7 " ?

Risks in an Arrangement to

Operate Foodservices

d e { i c i t c r s u h * l d y t h e amount of expenses that cannot be paid for with revenues generated by a non-commercial foodservice p r o g r a m ; c a l l e d l o s s i n a commercial foodservice operation

3O4 PART4 Noncommercial Foodservices Operations

Organization Risks Contract Management Company Risks

Loss of total control Loss of profits Potential operating cost deficits Sponsoring organization may become fiscally

and subsidies u n s o u n d Reliance on the contract manage- Lack of input into long-range decisions that

ment company affect the foodservice operation Concerns about lowered priority Potential damage to its reputation

for its foodservice operation Possibility that resources used to obtain and manage the account could be better spent elsewhere.

with the management company than without it, and the organization must fre-

quently assume much or all of any operating deficit from the foodservices pro-

gram. Even if the contract with the management company is terminated, what

does the organtzation then do about its need to offer foodservices? Finally, there

is a risk that a management company will reduce the attention it gives to the or- ganrzatton over the life of the contract. This can occu4 for example, when it gives

priority to effor[s to attract and retain more lucrative accounts. The management company is not without its own risks as an agreement

is negotiated and administered. First, the management company risks re-

duced protit. (It may be possible to increase profits by channeling resources

into other more profit generating ventures.) Second, it must assume that the

sponsoring organrzation will remain fiscally sound. Also, the management

companv generally has little or no input into long-range decisions that affect it. If the management contract is terminated for whatever reason before its

term, the management company has lost an account that has cost company

resources to build. Also, the management company's reputation can be dam-

aged, and the resources used to obtain and manage the account could have

been more effectivelv used elsewhere.

THK fi#hITKAflT }VTANA$HruTffiNTI ffEC$sT#NoBtEcrrvE 3 Outline basic steps in the decision-making process to select and utilize a contract management company. Elderly persons

dining in an upscale retirement center

Exhibit 17.3 reviews general steps that an organizatton might find useful when making a decision to use a contract management company for its

foodservices. Each step in the figure is important, and the steps should be

{l}-{Al}'f'trjR ]V Contract Management Company Foodservices 3O5

r _ ' _ - _ " - _ ^ " * - - I l ? A r ? f i A a f t r f r f r A r * v f r , a A . g

N$NCSMMHRCTAL FOOI}SHTA1rTCHS {}SFMK HXfiITTNG CARHERS

Noncommercial foodservices of both types (self-operated and contract management company-operated) offer exciting career alternatives because they often provide food- services that are as diverse and challenging as are their commercial (restaurant and hotel foodservices) counterparts. (In fact, some might argue that the challenges are greater in noncommercial operations, because the same audience of potential guests is often at the heart of daily marketing and operating concerns.)

As a case study, consider a foodservices program operated at a world-famous healthcare institution whose main campus comprises many square blocks in a major city. The facility utilizes the'services of a contract management company to manage an aryay of foodservices, including these:

Cash cafeteria operations in several facilities serving thousands of customers on an average day Regular and special diets served to thousands of patients on an average day Thousands of meals for employees, including physicians and other medical spe- cialists, daily Full-service foodservices, including banquets, coffee breaks, off-site catering, par- ties, and a wide range of other foodservices for employee special events Special meals for government dignitaries, movie stars, and other personalities (patients) from around the world

S t e p 1 :

Step 2:

Step 3:

Step 4:

Step 5:

Step 6:

Step 7:

Step 8:

Analy

I

Existing Operation

+ Foodservices

t= l ' I Modified

I Operation

+

Enter into Management Contract

I I Y

Administer Management Contract

H X H I B I T I 7 , 3 The Contract Management Decision

306 PAR,I' 4 Noncommercial Foodservices Operations

The unit manager,for a managed seruices ac- count talks to his area manaeer.

done sequentially. Let's examine this process.

Step 1: Deterrnine the Need to Analyze Foodservice Alternatives. The organization must consider the factors that it will use to evalu- ate its own self-operated program and contract management com- pany alternatives. Costs will be im- porlant, but so will quality and other standards. These must be defined and used (a) to deterrnine when and if analysis of the current foodservices is needed, (b) to develop performance standards against which to review alterna- tives, and (c) to suggest priorities for the use of time and other lim- ited resources. (The organization's administrators have many things

r*qur:st !*r pru;pcs;1tr 4R[']:1 a formal document that incor- porates the organization's n e e d s f o r f o o d s e r v i c e s e x - oressed in the form of detailed i p e c i f i c a t i o n r e q u i r e r x € h t s ; the objective of the RFP is to define the required foodser- vices so clearly that prospec- t i v e b i d d e r s ( m a n a g e m e n t c o m p a n i e s ) c a n d e v e l o p accurate costs and other estimates used in their proposal responses

to do; they need an objective way to deterrnine the most signifi- cant problems. Should time be spent analyzing foodser-vices of al- ternatively, is their time better spent on other activities?)

Step 2: Analyze Foodser-vices. The existing foodservices operation can be carefully revieu'ed by considering sales, costs, and other factors for which operational data are available. This analysis mav gen- erate ideas to modify the existing operation in a wav that allou's the existing self-operated program to be improved r,r,ithout the need for external (contract management companv) assistance.

Step 3: Determine Specification Requirements. Analysis of the existing operation and estimates about operating results if svstems are modified can yield information useful in describing an ideal foodservices program. These should be identified and incorpo- rated into a request for proposal (RFP). Exhibit 17.4 identi- fies factors to be considered when revier,r'ing an existing foodservice program and to be included in requests for propos- als from potential contract management companies.

Step 4: Develop Request for Proposals. Organization representatives must determine if a potential contract management companv can provide required foodservices in an acceptable manner. They assess this by developing and sending out a request for proposals to eligible contract management companies.

A dietitian trains unit managers.

{jt i\P"3-[i]t l7 Contract Management Company Foodservices 3OT

Existing foodservices can be examined to assess the extent to which the follow- ing factors are satisfactorily met by a self-operated foodservice program. This will suggest information that should be supplied by prospective contract manage;nent companies to indicate how they would operate foodservices under a manage- ment contract. This basic information includes the following:

N utritional requirements Basic meal patterns Basic portion sizes Nutritional audits Revenues, costs, surplus, and deficit relative to budget Standard recipes Diet modifications (if applicable) Food purchase specifications Serving times Personnel requirements (for foodservice director and operating staff) Training requirements Food handlers' health certificates Staff uniforms Wage rates Compliance with all applicable laws and regulations Responsibilities of the organization and the contract management company Accountability, records, payments, and fees, including allocation of costs, exam-

ination of records, payment of allowable costs and fees, and compliance fees

Step 5: Analyze proposal responses. Contract management compa- nies respond to the request for proposals u'ith a formal pro- posal response. It indicates exactly how the management company intends to meet all the specifications noted in the re- quest for proposal. Organization officials must study proposai responses and compare them with the facility's current opera- tion and with proposal responses submitted by other manage- ment companies.

i::Xlil*trtT' I 7"r{ Essential Foodservice Specifications

s l r u p i r - r s t h e a m o u n t o f r e v e n u e s t h a t r e m a i n a f t e r a l l c o s t s a l l o c a t e d t o t h e n o n - c o m m e r c i a l f o o d s e r v i c e p r o g r a m h a v e b e e n p a i d ; called proJit in commercial foodservices

p r c ; : o s a l r e s p i J n s e t h e i n formation sent by a contract m a n a g e m e n i c o m p a n y t o a n o r g a n i z a t i o n t h a t a d d r e s s e s f o o d s e r v i c e s p e c i f r c a t i o n r e q u i r e m e n t s d e t a i l e d i n t h e o r g a n i z a t i o n ' s r e q u e s t f o r p r o p o s a l l R n R ;

The workers in this large cheese production plant will require breaks and a meal period during their shiJt. These seruices may be provided by a contract management company.

oBIECTTVE 4 Describe the role of a foodservice liaison.

3O8 FART 4 Noncommercial Foodservices operations

Step 6: Negotiate Management Contract. The organization cannot

enter lnto a formal agreement with a management company

unless and until a contract that specifically outlines the respon-

sibilities and obligations of both parties has been developed. A

process to negotiate each point raised by the management com-

pany in its proposal response is necessary'

Step 7: Enter into Management Contract. This formal document speci-

fies the expectations, obligations, and responsibilities of both the

organization and its contract management company par"tner.

Step 8: Administer Management Contract. Procedures to require com-

pliance with the contract are essential to assure the organizatron

that the management companv "does what it says it would do."

THE tr##NSH${VECA LXAISON

!'l-rt;clservir:c 1i;lis<.:n a food- s e r v i c e m a n a g e m e n t s P e c i a l - i s t e m p l o y e d b y a s P o n s o r i n g organization to rePresent its interests in the ongoing ad- ministration of the food- services agreement with a c o n t r a c t m a n a g e m e n t C O M D A N V

Top-level managers of organizations sponsoring noncommercial foodser-vices

ur" "*p"rts

in the work they do in education, healthservice, business and in-

dustry, and other disciplines. They are not, horvever, typically experts in man-

aging a foodserwices operation within their organization. By contrast, those

*lthitr the food management company are experts in managing foodservices;

after all, it is their business. How can sponsoring organizations level the play-

ing field as they interact with contract management companies?

Some, especially large, organrzations may employ a foodservice liaison

who, with extensive past experience, is a foodservice management specialist.

He or she may have worked for many years in a restaurant or hotel's food and

beverage operation or even for a contract management company. Increas-

ingly, ho*",r"., most persons serving aS liaisons come from purchasing,

human resources, or facilitV management backgrounds.

Exhibit 17.5 revieu,s the possible relationship between the organization

and the contract management company when a foodser-vice liaison is utilized.

Note, first, that the foodservice liaison typicallv reports to a business or fi-

nance officer within the sponsoring organrzation. By contrast, the unit food-

service manager reports to the contract management company's district,

regional, o. ui"u foods"rvice director. The foodservice liaison interacts with

the unit's foodservice manager on day to day and short-term administration

of the foodservice contract. Much of this work involves assuring that both

Sponsoring Organization Contract Management ComPanY

District, Regional, or Area Foodservice Director

I I I +

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E X F { I B I T 1 7 . 5 The Foodservice Liaison: The Link in the Relationship Between the organization and

the Contract Management ComPanY

{r r l A Pl"lj tr{ tr 7 Contract Management Company Foodservices 3 09

parties comply with terms of the contract and, within these terms, discover- ing ways to more effectively deliver foodservices to those who utilize them. The organization's business or finance officer interacts with the contract management company's foodservice director as longer-term and special issues arise. For example, issues of agreement noncompliance that cannot be re- solved between the foodservice liaison and the unit foodsen'ice manager might be discussed by these officials. The foodser-vice liaison also provides technical assistance to the organization's business or finance officer as a new foodservice management contract is nesotiated.

Basketball legend and businessman Earvin "Magic" Johnson is offering his name and image (brand) to contract management foodservipes in schools and colleges, sports and recreation feeding venues, and even healthcare facilities.

Themes being planned include "Magic Johnson Sports Bar" for col- leges and, for schools and sports venues, "The Magic Johnson Market- place," a basketball-themed eatery with alarge, open grill.

His joint venture is with Sodexho and is being undertaken in ef- forts to change the "cafeteria-going" experience for consumers in a very large industry that is almost anonymous, even though it serves tens of millions of consumers nationwide.

As of June 13, 2006, no deals had been signed, but a campaign was begun to bring some "pizzazz" into a huge industry that is interested in making itself better known to the public that it serves.

Source: Bruce Horovitz. Johnson vice. USA Tbday. Retrieved June . c o m

hopes to work his image magic with food ser- 12, 2006, from usatoday.printthis.clickability

Chef using a grill at the Museum of Science in Boston

3 l o PART 4 Noncommercial Foodservices Operations

Nonf inancial Operating lnformation

Consumer Advisory l n f o r m a t i o n

Financial and Operating Information

Distriq!, Regional, or Area Contract Management

Company Staff

F i n a n c i a l S t a t e m e n t s

oBIECTIVE 5 Note the importance of and t)pes of communi- cation between the sponsoring organiza- tion and the contract management company.

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r K H [ S l T ^ I 7 . 6 Relationship Between Organization and Contract

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Management Company Under a Foodservice Agreement

T${ffi n/gAFi&ffiEMHNT C{}NTRACT

Exhibit 17.6 reviews the relationship between the sponsoring organization

and the contract management company after a foodservices contract has

been agreed on. The relationship between the organrzation and on-site man-

agement is primarily of a nonfinancial nature. Also, there is often ongoing

input to the sponsoring organization and on-site management from an advi-

sory group of consumers. By contrast, much of the relationship between the

organization and off-site contract management company personnel relates to

financial matters. The organization pays fees and compensation to the com-

pan-y, which, in turn, provides financial statements to the organization.

Exhibit 17.6 also illustrates the relationship between the on-site manage-

ment staff and the off-site (district, regional, or area) management companv

staff: financial and operating information flows between these personnel, and

the off-site office provides staff support and assistance as needed.

There are numerous ways that sponsoring organrzation and contract

management company personnel communicate. These are important to recog-

nize, because effective ongoing communication is a critical factor in a success-

ful agreement between the two parties. In an effective relationship, personnel

from both the orga- nization and the company will ac- tively manage the agreement, iden- tify operating and other problems, and work coopera- tively to address them. Exhibit 17.7 reviews the types and frequency of cor,nmunication be- tween sponsoring organrzations and the management companies who operate their food- services.

The unit manager of a healthcare food and nutrition seruices department meets with her district manager.

Staff Support Assistance

M a n a g e m e n t F e e s a n d O t h e r C o m p e n s a t i o n

A. Telephone, e-mail, and facsimile (fax) 1. Organization to on-site management staff 2. Organization to district- or regional-level

management company staff

B. Meetings 1. With organization's consumer advisory

committee 2. Between organization and district- or

regional-level management company staff 3. Between organization and on-site manage-

ment staff

C. Written pro forma projections 1. Provided by the contract management

company to the organization 2. Annual budget (comparison of projected

and actual to-date expenses)

D. Written financial statements 1. Monthly operating statement (for month

and year to date) 2. Weekly revenue and cost report

E. Written audit reoort 1. Audit report of district or regional staff visit

to organization

F. Informal oral conversation 1. Between organization and on-site manage-

ment staff

CI ii\P'T'?iR l7 Contract Management Company Foodservices 3 I I

Type of Communication Fre

f : : ; q f i l f f i l T " I ' f

. 7 Communication Between Organization and Contract Management Company

1 . A n y t i m e . , 2. Anytime

1 . A t l e a s t m o n t h l y

2. At least bimonthly

3. Anytime

1 . A t l e a s t q u a r t e r l y

2 . A n n u a l l y

1 . M o n t h l y

2. Weekly

1 . A t l e a s t b i m o n t h l y

1 . A n y t i m e

oBIECTTVE 6 Discuss challenges confronting con- tract management companies.

prr: fr:rrtr"t pr*jcc tion e s t i m a t e s o i f i n a n c i a l p e r f o r - m a n c e d o n e i n a d v a n c e o f a f i s c a l p e r i o d

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The future of this industry segment and the challenges that will likely con- front it can be considered from the perspectives of its customers, programs, clients, and work force.r

Customers

The typical customer continues to evolve. Globalization along with an increased presence of muitinational companies and demographic changes in our own com- munities have made the-crrstomer base of contract management companies in- creasingly diverse. This base represents every culture and ethnic background and includes many persons.whose dining preferences are not traditional U.S. cuisine. To attract and retain their business, we must identify and meet their needs. As well, our traditional customers are learning about new and different cuisines, and they are demanding a wider variety of dining options.

I This section was contributed bv Stephen rate Sen ices Division, Central Region, who the end of this chapter.

Di Prima, Division Vice-President, Sodexho's Corpo- also provided the "Feedback from the Real World" at

312 PAR-f 4 Noncommercial Foodservices Operations

off$h$i"ine the relocation of some business functions such as production or manufactur- i n g t o a l o w e r c o s t - l o c a t i o n , typically overseas

Along with dining preferences, work habits are also changing. Some

changes are being'mandated foom the boardroom, but just as many are being

driven by the front-line workers themselves. Offshoring, virtual offices, flex

hours, increased productivity, and technology i^mprovements have all had an

impact on noncommercial foodservice operations. In many cases, fewer

workers are in buildings, and others maintain work schedules that don't align

with traditional dining service operating hours. Contract management com-

panies are aggressively addressing this issue and working even harder to

build sales. A third interesting dynamic is wellness and healthy dining in the work-

place. There will always be fads (remember low-carbohydrate diets?), but an

increasing number of customers are shifting their personal dining habits

with health in mind. They want options that allow them to meet specific di-

etary goals, such as low salt, low fat, and high fiber, and they no longer want

their healthy food decisions to be punitive, that is, to require the purchase of

unappealing and bland foods. They expect wellness offerings to be integrated

into all points of service and are not willing to sacrifice quality or taste as this

occurs. The impact of inflation, especially higher gasoline prices, also affects

our customers, and operations. While income levels make a difference, more

customers are demanding more value selections or choosing to bring meals

from home. This is an ongoing issue that will continue to evolve with the

economy and geopolitical environment.

Programs

Contract management companies are aggressively moving to address the

changing profiles of their customers. No longer do companies look at each

other as the competition for the customer. Increasingly, the competition is

viewed as nearby casual- and quick-ser-vice restaurants and the brorntn bag.

Contract management companies continue to partner rn'ith well-known na-

tional and regional brands, but they are also working hard to develop internal

concepts with a retail "feel." For example, Sodexho continues to roll out inno-

vative programs that are comparable to public venues'uvith regard to what is

offered and how it is packaged. Today's demanding workplace requires us to

look at different ways to sele our customers. For example, credit cards are

now the norm, and express lines, office delivery grab and go, and take-home

meals have become a standard part of our program.

Sustainability is another trend emerging in our market. Global envi-

ronmental issues are becoming more important to our customers and clients.

While recycling is important, these concerns go well beyond that. Locally

grown products are capturing more interest, as is energy conservation. We

have an operation in Nofih Carolina that converts used frying oil to biodiesel fuel used to power vehicles on site. Locally grown products demonstrate a

S-qpporl for local industries and provide a higher level of perceived quality.

This is a trend that will continue to evolve and grow.

Clients

Our clients are proxies for the economic activity that is happening around

the world. Many, if not most, of our client companies are affiliated with inter-

national companies or offshore jobs or have foreign subsidiaries. Clients con-

tinue to look for ways to reduce suppliers and often move to single-source

solutions or a short list of preferred providers. This means that they are look-

ing for companies with global footprints that can follow them wherever they go and that offer the expertise and experience required to work around the

s r a b a n d g * t h e f o o d s e r v i c e option in which a customer selects a prepackaged food i l e m f o r c o n s u m p t i o n a w a y from the site

s u s t a i n a h i i i t y t h e c o n c e p t t h a t t h e n e e d s o f t o d a y ' s population can be provided for 'nvithout damaging the ability of future generations to meet t h e i r n e e d s

* l i * l r t { * f ' c * n f l r a c l t n a n $ g * - n ] * f 1 t c ( } m p a n y ) t h e o r g a n i - -

. z a t i o n t h a t n e g o t i a t e s a n d administers the foodservice contract with the management company

C}I\PTER 17 Contract Management Company Foodservices 3f3

globe. Client expectations are for a single point of contact, master contracts, and program consistency. Contract management companies that do this well will grow, and those that don't will rniss out on opportunities.

Management contracts are also changing. Tiaditionally, contracts were agreements that allowed companies to receive a fee for operating the foiidservice pFogr?m. Often these programs operated at a loss that was absorbed by the client. Today, fewer companies are willing to subsidize their programs. Thdy structure contracts in which the management company takes the risk as it re- tains profits, but also assumes responsibility for losses.

Work Force

Internally, the greatest challenge foodservice management companies will face in the future is the same challenge that confronts them today: finding qualified people u'ith a passion for the business and the desire to make this industry their career. This is true for every level, from the grill cook to boardroom executives. Foodservice professionals must also give back to their industry by supporting educational institutions, mentoring aspiring managers, and becoming personally involved in industry alliances and pro- fessional orsanizations.

1 . Recognize that the preferred foodservice management alternative (self-operated or contract management company-operated) must be determined on a by-situation basis. There are pros and cons to both self-operated foodservice programs and those operated by contract management companies. The specifics of each situation must be carefully evaluated by decision makers to determine which alternative is best for the organization that sponsors the foodservice program.

Explain that a win-win relationship be- tween the sponsoring organization and the contract management company is needed. Both parties to a management contract must benefit from it for a long-term relationship to evolve. Both the organization and the foodser- vice management-eompany assume risks, and these must be assessed before and during the time of the contractual relationship.

Outline basic steps in the decision-making process to select and utilize a contract man- agement comlrany Basic steps to select and utilize a management company include the following: o Determine the need to analyze foodservice

alternatives . Analyze foodservices

o Determine specification requirements . Develop requests for proposals . Analyze proposal responses . Negotiate management contract o Enter into formal agreement . Administer management contract

4. Describe the role of a foodservice liaison. A foodservice liaison is a representative of the organrzation sponsoring a noncommercial food- service operation. He or she represents this organization in the administration of the agreement with the contract management company and may or may not have foodser- vices management experience.

5. Note the importance of and types of com- munication between the sponsoring orga- nization and the contract management TOmpany. Organization officials generally interact with on-site contract management company staff relative to nonfinancial operating information. Financial aspects of the relationship involve in- teraction between organizational officials and off-site (district, regional, or area) contract management company staff members. Numer- ous types of telephone, e-mail, facsimile, meet- ing, written pro forma projections, written financial statements, written audit reports, and

2 .

3 .

314 f3:\[tl' 4 Noncommercial Foodservices Operations

informal oral conversation help to assure that

communication is timely and effective.

6. Discuss challenges confronting contract management companies. Customers are becoming increasingly diverse,

and a wider variety of needs must be success-

fully met to retain the business. As well, chang-

ing work habits (for example, r'ifiual offices

and flex hours), an increased interest in healthy

foods, and the ever-present demand for value in

food purchases are becoming more impor-

tant. There is increased competition from off-

site foodser-vices that is being addressed by

Our real-world advice comes from Stephen Di Prima, Division Vice-President, Sodexhoi Corporate Services Division, Central Region.

companies as they partner with national and regional brands and as they roll out innovative internal concepts. Environmental concerns are now very imporlant and must be addressed. Large clients often want to interact with pre-

ferred suppliers who, increasingly, have global

footprints, as do their-large clients. Todar',

fewer companies want to subsidize foodser- vices, so profit and loss contracts are popular.

The largest internal challenge of management companies continues to be the search for quali-

fied personnel with a passion for the business.

In his current position, Steve's responsibilities include overseeing oper- ations in 20 states and over $400 million in annual revenues. Steve has an undergraduate degree and more than 20 years of foodservice indus- try experience in both sales and operations. Steve maintains a key focus on client relations, team enhancement and management training, and development activities.

cludes an executive summary recommenda- tions, financial projections, and references. The document must be cleaq concise, and error free, and must offer a compelling reason to choose our companv.

Executive summaries communicate our message and may be the only part of the pro- posal the decision makers will read. They must be able to see why our company should be se- lected in a few well-written pages.

Our slients often tell us that they appreci- ate our proposals for the following reasons:

. Well-organized and easy to find key

What process would you use to develop a winning proposal response?

Many factors combine to create a winning pro- posal: one that is customer focused and aligned with the client's needs and objectives.

Long before we develop our_ response, we employ a strategic process to confirm client ob- jectives, identifu creative solutions to meet their needs, outline measurable outcomes, and in- corporate proof statemenfs* Throughout thi.s, phase, we challenge ourselves to trul;r differen- tiate our ideas and proposal. We assign a strat- egy team for each project made up of individuals with the best skill set to address each new busi- ness opportunity.

In some cases, ouf response rnust follow a required format (request for proposal), and in other cases, the format is left to our discretion. In either case, the response itself usually in-

a

a

information Attractive and professionally presented Thoroughly demonstrates how well we un- derstand them and their needs

r Customized presentation, rather than a boilerplate document

{.llr\PT'Lil{ 17 Contract Management Company Foodservices 3 f 5

o Innovative solutions r . Competitive offer

The single most important factor in devel- oping a winning proposal is to clearly under- stand the client's objectives and to use these to guide your strategy and response.

What factors would enable your organization to manage the foodservices more effectively (successfutty) than it is currently?

Numerous factors enable a contract manage- ment company to more effectively manage a foodservice operation. Management depth, or- ganizational support, technical expertise, and economy of scale are all advantages that man- agement companies enjoy.

fers limited promotional opportunities for food- service managerq within their field of expertise. In :addition, management turnover can have a significant impact, since the"transition can re- quire an organization to bring in a candidate from the outside. Support during the transition can be limited. Also, the person being replaced may be the only experienced foodservice man- agement person in the organization.

Conversely, a management company is better able to attract and retain quality candi- dates because of the clear career path offered b5r the organization. This career track also pro- vides a ready pool of qualified candidates to re- place promoted or reassigned managers.

A management company also has the abil- ity to allocate resources. If, for example, an account has a'major event or is opening a new faciliry the management company can direct additional rnanagers or specific expertise to support the operation. These resources can in* clude marketing, culinary support, and train- ing, as well as rttutry othei ur"ur.

An operation , often requires additional technical expertise not available on-site..Sourc- ing this expertise can be challenging for a self- operated program, and it can be difficult to find and expensive. Management companies that operate a large number of sites typically have faced similar issues in other locations and can share that experience'in subsequent situations. Even more irnportantly, they have the technical resourees to suppo'rt the actions necessary to address these issues.

Finally, a ntanagement company can lever- age its scale to the advantage of individual accounts. Purchasing powel manufacturer sup- port, distributor marketing, and training are all areas in which a management company can have a positive -impact on an indivi-dual account.

How soon after the business is awarded to your company could you tool up to take over the program?

There is no standard timetable for transitioning an account. Based on expectations and circum- stances, a contract management company can open a new program in two days or two months. Ideally, the organization wants to open with all its new programs and concepts in place. {Jltimately, the client determines the speed of the transition.

Factors to consider for the client include current contract terms, company calendaq ex- pectations for service, and upcoming events. Items that the rxanagement company must con- sider include status of current employees, the management selection process, number of loca- tions, renovations, and contract negotiations.

The most successful transitions occur when both sides work together to forge a win*win re- lationship. Early and candid communication is crucial to a successful transition. This includes a clear understanding of expectations and joint development of performance requirements.

Iffhat basic steps would be involved in the transition?

The basic steps in the transition are these.

. Flave regular and ongoing communication with client and team

. Review and establish mutual understand- ings about performance expectations

. Develop and execute bound contract

. Name the 'opening team and front-line -.workers

. Develop program specifics

. Requisition equipment

. Identifo corporate resources required for the opening

. Renovate and merchandise as necessary r Conduct preopening surveys and focus-

group sessions (if client permits) . Orient employees r Train employees

3 1 6 pAft-T 4 Noncommercial Foodservices Operations

Discuss the following questions.

1. If you were the manager of a self-operated food- services company, what reasons would you cite to emphasize that self-operated foodservices are the preferred alternative for your organization?

2. If you were a district foodservices director for a contract management company making a sales call on a prospective organrzational client, what points would you address that speak in favor of using your company to op- erate the organization's foodservice program?

3. What are the advantages and disadvantages of using a foodservice liaison from the perspective

of the organization and the contract manage- m e n t c o m p a n y ?

'

What kinds of day to day operating problems do you think are most Iikely to arise when an organization enters into a foodservice agree- ment with a contract management company? How if at all, does an emphasis on pleasing the consumer and attaining quantity and quality standards change when a self-operated food- service program ends and a program offered by a contract management company begins?

4 .

5 .

1 . Check out the websites for the followins con- tract management companies:

. Delaware North Companies: rntnv. delarvarenorth. com

o Centerplate: www.centerplate.com

. Gluckenheimer Enterprises: www. gluckenheimer. com

What selling points do they utilize to empha- size hort' they can benefit organizations who emplov them?

Review the websites for the following contract management companies that were the top rev- enue producers in 2005.

. ARAMARK: wwwaramark.com

o Compass Group, The America's Division: www.cgnad.com

o Sodexho: www.sodexho.com

What do you think are some of the personal and professional advantages to working for one of these Big Three companies relative to other organrzations that generate smaller revenue levels? What are possible disadvan- t a g e s ?

3. Check out the website addresses for the follor,r'- ing hotel contract management companies:

. White Lodging Services Corporation: www.whitelodging.com

o Hostmark Hospitality Group: www.hostmark.com

. Tharaldsen Lodging Companies: www.tharaldsen.com

What are the similarities or differences in (a) the way they approach prospective clients and (b) the benefits they suggest will accrue to owners compared to their counterparts who are foodservice management companies?

2 .

The following tems were explained in this chapter. Review the definitions of any words with which you are unfamiliar. Begin to utilize thbm as you expand your vocabulary as a hospitality professional.

on-site foodservice self-operated foodservices contract management company managed foodservices account management contract deficit or subsidy request for proposal (RFP)

surplus proposal response foodservice liaison pro forma projection offshoring grab and go sustainability client