JGL has worked with many corporate clients in supporting their efforts to achieve company-wide food service goals, including responsible subsidy management. Overseeing a relationship with an on-site third-party vendor requires regular and ongoing analysis of the financial results.
We share below some of the tricks of the trade Team JGL utilizes when assessing or serving as a subject matter expert for an on-site management fee operation.
Participation Rate: This is a key measure that reflects the average number of people dining each day. Participation, which is expressed as a percentage, should be measured for each meal period and based on the total client population (not an “adjusted for absentees” population). Tracking movement in the participation rate and comparing to industry benchmarks can provide insight with respect to satisfaction levels. It is crucial that the measurement methodology stay constant to effectively track this measure.
Check Average: Check averages by meal segment are another important measure. Increasing the check average through upsells, packages, or specials will positively impact the subsidy. As a note, we advocate for regular, modest, annual price increases – forgoing price increases will negatively impact the check average.
Food Cost: Food cost is a very important metric. Food cost is influenced by purchasing, portion size, waste, and pricing. It is different for cafés and catering. If food cost is unexpectedly increasing, it is important to track the cause and course correct. Don’t assume rising food cost is due to increasing supplier prices. Find out whether your food service management company is actively tracking waste. Ask to see the reports. Monitor portion sizes. Is the food service staff utilizing measuring tools to serve? While rising food cost might be due to increasing supplier prices, it just as easily may be caused by sloppy operating practices. Make sure you understand which it is.
Labor Cost: Labor cost has a tremendous impact on the subsidy because it is essentially fixed. Make sure your food service management company is making all efforts to manage this cost. Understand the role of each staffer and confirm they are truly required. Evaluate the use of overtime. Consider whether self-check-out will allow for the elimination of any cashiers. Understand the food service management company’s policies with respect to sick and vacation coverage. Utilize tracking measures such as sales per labor hour. With the current labor market conditions, working with your food service management company to creatively manage labor costs is a must.
Other Operating Costs: This category of costs includes everything that is not food or labor. Be sure you understand how you are being charged for insurance, marketing and promotion, training, technology and any other items hitting this category. Most food service management companies allocate expenses from corporate. Examples might be $11 per Outlook account, $25 per paycheck for every employee not on direct deposit, or a blanket $750 per month to cover corporate tech support. We find many clients falsely believe their food service management companies “admin” or “G&A” fee are covering many of the above, when in fact those items are generally being changed in addition the “admin” or “G&A fee.” It is important to understand these fees and how they are calculated.
Monthly Report Review: There should be regular review of the subsidy statements as well as key metrics. Key metrics should be compared to budget and the same period last year. If they have changed, the on-site GM should be able to explain why. Question any and all charges that seem off or unusual. You might be surprised how often charges may hit your unit that need to be reversed.
Regular QBR’s: Your food service vendor should develop quarterly business reviews which look at past performance, but more importantly, focus on upcoming initiatives. All too often, we find clients cancel these meetings or do not make time for them. Make time for them. They are important. Planning, measuring, and constant course corrections are the key to success.
Key Performance Indicators (KPI’s): We are big believers in key performance measures- but only if done right. We have seen more contracts than not refer to key performance measures which will be developed (but aren’t) or key performance indicators that don’t change. KPI’s should be developed annually and reflect shifting needs and priorities. Is purchasing local important now? Add a KPI. But, and here is the rub, you must define how it is tracked and measured and specify what constitutes missing, meeting and exceeding the KPI. Ideally, KPI’s should be evaluated and updated every year with the budget.
Test the Market: We work with many clients who have been with their food service management company for fifteen plus years. We applaud strong relationships, but we find if a client has not tested the market recently, they may not be getting the most competitive market terms. We generally advocate clients consider an RFP process every ten years if only to understand current contract terms and offerings since their last contract was signed.