Negotiating a higher commission or lower fees isn’t always the best strategy. While earned income is important, there are times when a higher commission can result in lost revenues. JGL manages two dozen plus RFP processes annually. We generally shy away from municipally run or managed RFP processes because of their usual focus on highest return/lowest cost. Just because a vendor offers the highest return on paper does not mean that vendor is the right fit to achieve institutional goals, or even, for that matter, produce the highest annual return. Here are a few points to consider when negotiating with food service or retail vendors.
- On the visitor food side, commissions that are too high (or unsustainable for the vendor) typically result in higher prices, lower food quality and or diminished services levels. When the JGL team goes into a museum café and sees long lines, the frequent culprit is a contract with outrageous commission levels that have forced the operator to cut staff to maintain margins. This can apply in a management fee situation as well. Think about the corporate café where the operator has a guaranteed subsidy – cutting labor is frequently a knee jerk reaction that only results in long lines and increased customer dissatisfaction.
- On the catered event side, we all know that caterers simply pass their commission expense on the customers in the form of higher prices. As a side note; in some markets, these expenses are actually line itemed to the end client. When the sum of event venue rental fees and catering becomes cost prohibitive, potential catering clients will vote with their wallets and go elsewhere. This results in lost business to the venue and diminished commissions. Better to capture 20% of something than 50% of nothing! Additionally, since venue rental fees constitute the lion’s share of earned income from events, increases should be considered first on the rental side (as the venue client retains the bulk of rental fee revenue).
- On the retail side, a similar phenomenon occurs. JGL just completed an assessment of a major cultural institution with a very strong retail contract. The commissions are one of the highest rates we have seen. So too, are the retail costs for key chains and t-shirts; many items were priced as much as 50% above industry norms. This not only depresses sales potential but dissuades the operator from offering more curated, creative and quality items which can increase the per capita sale.
- From a fee or expense perspective, JGL has clients who sometimes take the approach of favoring a particular vendor because their costs are lower. Lower costs are absolutely good, but make sure you at understand at what expense. A company that pays lower salaries than its competitors (particularly in today’s market), may deliver lower labor expenses in a management fee contract but the hidden cost is a less creative culinary approach or long lines in the café, which of course in turn, diminish sales potential.
So remember, when evaluating financial projections and/or offers in a competitive bid situation, dig below the surface to understand the real impact to your business.