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Author : David Strydom

22 June 2015

There are effective ways FMs can control catering costs. The experts explain how.

Controlling costs and balancing budgets are part-and-parcel of most FMs jobs. But the task is sometimes made almost impossible owing to rising costs and budgetary constraints. PFM spoke to several experts for their opinions.

Andrew Wilson, co-founder and MD of Wilson Vale says that first and foremost, an open policy is vital so FMs can keep a close eye on finances. This all comes back to the relationship with the catering contractor. “A close working relationship and an honest and open approach will reap benefits in terms of cost control, promoting a sense of trust and confidence to ensure that everything is as it should be,” says Wilson.

The second most important element, he adds, is to set clear objectives from the outset for the catering service. This can be as formal or as informal but it’s got to cover important policies such as pricing, staffing, tariffs and sourcing. If there is a strong, mutually agreed footprint in place at the beginning, everything else will fall into place. 

“It’s about setting a clear vision to define what your catering philosophy is and what your objectives are in terms of finance and how you measure value. By knowing exactly what your objectives are, you are more likely to find a caterer with a good cultural fit with your or organisation.”

Wilson says FMs need to think about how they benchmark the value of their on-site staff catering service. Is it viewed purely as a costly overhead, for example? “It is actually a relatively low cost when you consider the HR benefits of what a good catering service can bring to an organisation, such as making staff feel valued, satisfied and motivated. There is also the added advantage of keeping staff in the building at lunch-time and the associated time management and productivity benefits of that. Valuing a catering service should be more about the wider holistic values rather than purely based on finances.”

It’s also important to have regular review meetings as they’re crucial for reviewing and refining costs, strategy and keeping on top of any issues which may be on the horizon, says Wilson. “Ideally, a monthly meeting or an informal chat with an area manager, in addition to a formal, quarterly review meeting, will help FMs to keep on top of any fundamental issues.”

Another unusual technique of controlling costs is by reducing tariffs. This may sound contradictory but if you decrease tariffs you drive sales, resulting in better volumes because more people are likely to use the service if it is perceived as great value. Attention should also be paid to the calibre and skills of the kitchen team. 

“A considerable investment in the catering management resource means nothing if the chefs don’t have the craft skills required to minimise food waste and to utilise fresh ingredients and labour economically and wisely. The cost of packet mixes and ready-made dishes is far higher than creating a dish from scratch using fresh, seasonal ingredients.”

Efficient use of leftovers for soups and pies reduces wastage and adds further to the cost savings. At Wilson Vale, Wilson says, ‘we go a step further by recruiting area managers who are trained chefs so that they have the experience and insight into the challenges facing chefs’.

“Without doubt, in our view, a craft-led catering operation focusses on quality, drives sales and always delivers on cost control.”

Mark S Nelson, director of service development, OCS Group, says two clear areas can be analysed to ensure you’re achieving best value. These are raw materials and labour costs.

“Industry research shows that, on average, 8% of purchased raw materials will be wasted, either in the preparation stage or as a result of being unsold. It is therefore essential to provide a separate food waste bin and a food waste log. If significant quantities are being discarded, look at how the food is being produced and whether the style of service can be amended. For example, is it more effective to make sandwiches to order rather than supplying pre-made?”

Nelson says FMs should review whether their key raw ingredient purchase lines are meeting their objectives. An ingredient such as organic meat commands a premium price over non-organic meat and this can have a big impact on gross profits.

“Are your facility’s opening hours really meeting the needs of the customer? Is breakfast trade being missed because you don’t open early enough, or are you open late when no one wants to make a purchase?  Unproductive labour costs can be just as wasteful as unused raw foods and should not be overlooked.” 

Finally, of course, says Nelson, FMs must ensure the customer chooses you first, rather than finding an alternative. “Take the ‘customer journey’ yourself: how is the ambience? Would you sit there? Did you see the POS? How was the service and queuing time? Make sure you offer great value for money and remember that every person in the building is a potential customer.”

Conduct a price survey, comparing your outlet to the local competition, to ensure the pricing strategy is correct, says Nelson. Menu fatigue happens quickly and it’s vital to ensure your daily offer is varied. Is your offer tailored to the end-user? If your customers aren’t using the facility, look at what they are eating during the day, or where they go to buy food, then ask yourself the question: why are they doing this?

Anthony Bennett, co-founder of bespoke hospitality services business Bennett Hay, says FMs should start out with a clear specification of the offer they would like customers to enjoy. If they're going out to tender, they should be clear on the current offer. “Benchmark costs using current data, including a number of customers based in your building, opening hours, tariff policy and portion sizes. Look particularly at sales levels versus previous years and the unit pricing of food, drink and sundry items on a six monthly basis.”

The type of contract used will be a big factor in the cost of your catering, says Bennett. He adds that fixed cost contracts will certainly drive control and having guarantees on particular cost percentages (for example gross profit , labour and sundries) will also provide certainty. “Letting the catering team know, on a daily basis, the number of people in a building will also help in terms of planning quantities.

“Something as simple as ensuring you have the right till systems to help the facilities team measure and manage activity will make a difference. Bennett Hay has introduced iPad tills at a number of our client sites. We now have instant access to hourly data. This is invaluable to inform decisions around opening times and the sale of low margin, low volume items.”

In addition says Bennett, suppliers should have the right operational systems in place, including ordering/production sheets, wastage records, menu costing records and specifications. Cost control tends to be tighter if these aspects are measured and monitored.

“Don’t forget training. We often find, when we transfer chefs to Bennett Hay under TUPE, that they have never had any formal training in managing gross profit.”

Clive Hetherington, owner and finance director of Vacherin says close working relationships are essential with a personal service like catering. It’s important the FM, catering manager and operations manager meet regularly and that all parties are clear on the goals you are working towards, that budgets are being achieved, and any exceptions agreed. It also makes sense to choose a caterer who is happy to work completely open-book, he says.

“Budget planning is critical. Set unit costs per head for hospitality - it is not uncommon for caterers to work to a fixed core labour cost and fixed core sundries cost, with any extra cost incurred (for example related to specific events) to be agreed in advance. For staff dining, agree a fixed gross profit percentage and work with the caterer to promote the service and maximise sales. Some elements of a catering strategy can sometimes appear to increase costs but that doesn’t mean it’s a bad thing. For example, if the strategy is that all hospitality must now be done in house, the costs internally may go up but the external entertaining bills will also reduce.”

In order to meet budgets, Hetherington says, caterers often need client support to achieve this, particularly when some policies may not be as popular internally. “Caterers can often be put in situations where they’re expected to tell people what hospitality they can and cannot have for different types of meetings because the people ordering have never been communicated with internally regarding the policy.”

This can get very difficult and political so is best avoided by clear internal communication up front to help prevent cost over-runs, Hetherington says. “Similarly, some staff dining customers love to take handfuls of napkins and condiments, and to overload their plates in self serve situations – caterers can only control and manage these cost over-runs with support from their clients.”

Nigel Forbes, managing partner at The Litmus Partnership says catering can be an expensive service when you add on the less visible costs of the service. “It’s important for FMs to look at the total cost of the space including ‘hidden costs’ such as waste removal, utilities, upkeep of fabric and fixtures. Consider separately metering the catering space and set targets for the caterer to reduce the cost of utilities.”

Today, Forbes adds, it’s more critical than ever to maximise sales and that will only happen if the menu offer and product mix is meeting customer requirements. “Is it matched to the profile of your customers? Is the caterer regularly introducing new innovations and marketing their services to your customers? Are you supporting the caterer with this where necessary?”

Controlling costs is vital, says Forbes, and it’s a good idea to consider benchmarking current costs against similar businesses to help determine the potential for reducing cost and making efficiencies. Caterers must manage costs closely, for example, by buying food at the most competitive prices, controlling disposables use, and managing food wastage effectively by menu and production planning, and batch cooking.

“Labour costs also need to be controlled carefully. Is the labour establishment still right for the service you’re offering? Today, main meals at lunchtime are declining and grab-and-go café style services are increasing.  The latter is less labour-intensive and there is much more scope to buy in quality, ready-made products or ingredients, saving labour in the process.”

Finally, catering is a complex business and can be controlled most effectively using technology to provide management information that helps you to manage each element of the service more efficiently such as stock control, purchasing, menu costings, intelligent sales data from EPOS, says Forbes..

Wendy Bartlett, MD for Bartlett Mitchell, says there are two core cost areas in catering – those that the caterer is responsible for and you can see easily from their accounts, and those that are sometimes forgotten, but which the caterer has an influence on. “Energy is a good example of the latter. By working in partnership with the caterer you can really make a difference with the correct choice of equipment, correct training and practices, and new ideas. In one contract we have worked together with the client to reduce energy consumption by over 30%.”

There’s also another factor to consider – revenue (sales), says Bartlett. “Deliver sales growth and there’s not such a need to cut costs. If sales have increased, the focus then becomes how we can improve and expand, rather than squeeze – a much more pleasant experience for all. In these economically challenging times, budgets are already squeezed but growing sales has infinite possibilities.  By focusing on bringing in £20 of new sales rather than saving £10, the team’s energy is put into something with much more potential.”

Quite often caterers are measured on so many criteria that it becomes overwhelming, Bartlett says. “Meetings become all about the data rather than the actions and what is next. The old adage of what gets measured gets done is very true and the secret is to measure a few key areas successfully - make them a success, then a habit, and then move onto the next.

“KPIs and SLAs are useful to an extent but in reality they become onerous and very few clients have the time to do more than read the measurement results, let alone discuss a long list in detail. Carefully agree the format of quality measurement you use so the focus of the team and clients is just about the actions and resulting improvements.”

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