When Did Facility Managers Become Food Service Managers? Matt Mundok, FMP

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1 When Did Facility Managers Become Food Service Managers? Matt Mundok, FMP Over the years, more and more facility managers have become responsible for the oversight and management of outsourced food services in corporate environments. A common misconception is that when food service is outsourced to a food service management company, all the problems are solved and the facility manager can return to doing more fundamental facility management tasks. There certainly are situations where the scenario described above does occur, however, many times facility managers are faced with having to ask the right questions of their food service management company to respond and react to requests from internal company stakeholders and employees to ensure their satisfaction with the services. The intent of this report is share tips, best practices and resources to assist facility manager in becoming better food service managers. A Bit of History Companies offer on-site food services for a number of reasons. Some offer it simply as a convenience to the employees because the location of the facility is not in close proximately to other establishments or as in a manufacturing environment, because they require the workers back on the job as quickly as possible. Other companies offer food service as part of their service or amenity programs for employees. Many times food service is bundled with other services offered such as banking, fitness centers, health services or company stores. There also are companies that offer food service as a benefit and/or a tool to attract and retain great people. These companies spend significant capital on food service facilities and often subsidize the food service operations. Over time, most companies have moved from self-operated food services to outsourced food services. In the self-operated model, the employees and management of food services are employees of the owner or corporation. These employees develop the program and menu, order, cook, serve and sell the food and services. Today, about 90% of all corporations outsource the management of their food services to food service management companies. These companies bring with them the technical knowledge, people, programs and experience to remove the burden of food services from the owner or host corporation. Many times the decision to outsource is financially driven due to the cost of company labor wages and benefits. With the shift from self-operated to outsourced food service, internal food service subject matter experts are disappearing from corporate payrolls. Senior management usually comes to the conclusion that since the company outsourced food services, it can be managed by individuals that do not necessary possess technical food service skills. This has led to the trend of facility managers becoming food service managers. Common Industry Terms In an effort to begin the process of better educating facility managers about the technical aspects of managing a food service relationship, a good understanding of some key terms and concepts can be helpful. Many food service programs are positioned based on the financial goals of the program. Food services can be categorized as either a profit/loss ( P/L ) program or a subsidized program. In a P/L, the operator bears all financial risk for the operations, revenues usually exceed expenses, the operator controls the program and customer prices are typically at market. In a subsidized program, the revenue does not exceed the expenses; therefore the company pays the difference to the operator, commonly known as the subsidy. In this type of program, the company bears the financial risk, controls the program and customer prices are typically below market.

2 The two financial categories listed above are typically tied to a specific contract type. Profit/loss financial programs are managed on a P/L contract, while subsidized operations are typically run under a management fee arrangement. In a P/L contract, the operator receives all profits from the operations, but is also responsible for all losses. Although standards are defined in the P/L contract, typically service level agreements are general. In a management fee contract, the operator receives a set fee (either fixed or percentage of sales) for managing the business. The owner or host company assumes the financial risk, but also has much more control over the program and can enforce strict service level agreements in which a large portion of the management fee can be earned or lost based on the food service management company s performance. Investments are usually offered as part of the negotiation process with food service management companies. In some cases, food service companies make a true investment into the operation where the investment is charged to their operating statement and it is not charged against the operating statement for the owner or host companies operations. More often, the investment is more like an up front loan, in which is it charged back to the host company on a monthly basis. Some of these investments are interest free, but most are subject to buy-back contract language in which the host company is obligated to buy out the remaining unamortized amount, should the contract be terminated early. Other useful knowledge regarding food services is defining which party is responsible for certain areas of the operation. Typically the owner or host company is responsible for providing the facilities and food service equipment, utilities, office space for food service personnel, maintenance of equipment and deep cleaning of food service spaces. The operator is typically responsible for care of the facility and equipment, daily cleaning of food service areas, marketing and merchandizing the area and performance standards. What is Food Service to Your Company? Facility managers typically cannot answer the question What is food service to our company? It is difficult to effectively take on the responsibility of managing a corporate food service program without determining exactly what food service means to the organization. Every company expects different outcomes by providing on-site food service. Some do it simply as a necessity for their employees. Typically this is seen in manufacturing facilities or call center environments where workers are expected to take relatively short breaks and return to the plant floor or telephones. The vast majority of companies view on-site food service as a convenience or part of the employee benefit package. These organizations position food services as an enhancement to the overall workplace environment. This category is where there is the most confusion around how much resources, investment, subsidy, etc. should be allocated to provide the service. The number of companies that still view on-site food service as an employee amenity is on the decline. However, there are still companies that invest heavily in there program by providing significant capital into the food service facilities and equipment, as well as significantly subsidizing the program on behalf of their employees. These companies believe food service plays an important role in attracting and retaining employees. The first step in determining a strategy for food service is to gain censuses from leadership about where the program falls on the Food Service Benefit Spectrum. The spectrum is simply defines how the company views food service and how the program should be structured to meet this viewpoint. The outcome sets the stage for the level of investment, types of services, the type of contract arrangement and the level of commitment from the company for the facility manager.

3 Finding the Right Food Service Partner Once a facility manager can gage how the company views food service, the next step is ensuring the right food service management partner is contracted to provide the services. Many operator selection processes are lead by corporate procurement and/or sourcing. These departments typically do a great job negotiating commodity based contracts for tangible goods or services. However, food service is very different than most services procured by a company as the vast majority of the cost is paid by the employees of the company, not the company itself. No matter what financial arrangements are with the operator (P/L, breakeven or subsidized), the employees control the much of the outcome through their participation, not the company. All operator selection processes should begin with a Request for Information (RFI) to begin the research to determine which operator (local, regional or national) might be the best fit. Facility managers that lead an RFI process find that on-site food services is a dynamic business and providers are constantly reinventing themselves to introduce trends in dining into their programs. This educational process accomplishes two main objectives. The first is to learn the possibilities for the services prior to a Request for Proposal (RFP) and the second is that it begins the relationship process. A key element in managing a successful on-site food service program for any facility manager is having a good working relationship with the food service provider. Facility managers are typically much closer to the people of the company than folks in the procurement department; therefore it is important the facility manager is representing the customer of the service, the people of the company. During an operator selection processes, it is the role of the facility manager to communicate the desires of the customers. If there has been an operator in place for some time, sharing recent customer satisfaction surveys or focus group results in crucial information for the team to consider. Resources for facility managers to gain knowledge about food service trends and best practices included joining and participating in associations such as Society for Foodservice Management (SFM) and IFMA Restaurant and Food Service Community of Practice. Both of these organizations offer networking and educational opportunities to learn about the management of corporate food service. SFM also publishes industry benchmark data to its members on a regular basis. Other great resources include a number of publications such as Food Management Magazine, National Restaurant Association web site and Nations Restaurant News. Participants in a food service operator selection process should in include the following, including their respective roles. All parties should have an equal contribution in the selection process. Procurement Lead the process logistics and ensure corporate compliance regarding the process and base contractual terms and conditions. Facility Management Lead the development of the scope of work and operational expectations of the operator Business Unit Manager Lead the communications about expected services for the people of the company Subject Matter Expert Lead the development of submittal forms, benchmark data and validation of proposals. Once implementation of a RFP process is underway, there are five (5) key components that must be implemented to increase the likelihood of finding the right food service partner.

4 Scope of Work Ensure the scope of work in the RFP clearly defines the expectations of both the company and the facility manager that will be the first level liaison with the operator. The Scope of Work should be very detailed and clearly define items such as financial reporting requirements, key performance indicators (KPI s), marketing of the program, visitation schedule for operator leadership and the like. Required Submittal Forms It is very important to have the operators prepare their financial submittals on a standard form that ensures a common format. Every operator reports there financial performance differently and uses different line item descriptions for expenses. Therefore, it is crucial that all financial proforma s be submitted on a standard form that includes lines for sales, expenses, staffing requirements and investments. Clarification Process Food service proposals are often lengthy and provide multiple options for programs. Facility managers should seek clarification from the operators as to what exact program is being proposed for the host company and what are the risks associated with the programs. Risks at this stage of the process most commonly include what will change (menu items, prices, service levels) if the proposed program is implemented. Vendor Presentations A fair amount of time should be allocated for meeting with the operator teams prior to selecting a finalist. Be sure that presentations are conducted by the management team (district manager/general manager) that would be responsible for the program, not the business development people. One of the most important keys to success is to have good communication and working relationship between the facility manager and local food service team. Vendor Site Tours Seeing what an operator does at their existing client locations can reinforce how the program will be managed for the host company. This step is often skipped in the process and it is often difficult to visualize how the proposed program will be implemented. These on-site tours can be very valuable when attempting to select the right food service partner. The Cheat Sheet for Facility Managers So often companies implement an RFP process, find a new food service partner, sign the contract and celebrate. The contract becomes a document that is filed away and forgotten. This practice typically has little impact on the operations during the early stages of a relationship with a food service operator. However, over time, key elements of the contract can be overlooked. If the relationship between the operator and the facility manager does not contain some level of accountability for contract compliance, the hard work of the RFP process will not be realized. A contract compliance checklist should be developed and utilized by the facility manager on a bi-annual basis. This checklist simply details the key areas the operator is contractually responsible to fulfill. Items typically found on the checklist include, price adjustment parameters, budget submittal processes, completion dates for renovations/investments, completion of customer satisfaction surveys and the like. Another tool that should be utilized by a facility manager that has to manage food services is a flash report. Every food service operator has the ability to generate a flash report. These reports can be published as often as on a weekly basis and typically contain key data about the operation that is important to the host company and/or the facility manager. Flash reports typically contain sales information, key ratios such as food cost percentage or customer counts and information about catering activity. These executive summary reports keep the facility manager in touch with the performance of the on-site food service program.

5 In addition to receiving flash reports, it is recommended that facility managers conduct a formal financial and operational review meeting once per month with the operator. These meeting are best done after the completion of the financial statements from the previous month. The review meetings typically take sixty to ninety minutes. The agenda includes review of the monthly financial operating statement, justification of sales/cost trends by the operator, discussion around upcoming marketing and promotional events and equipment related issues. This formal forum allows both parties to share ideas, thoughts and recommendation for continued improvement of the program. One of the most common questions asked by facility managers is How do I keep the food service operator motivated to introduce new and exciting programs to the program? The answer to that question is simple communicate with the operator often and demand that retail innovations are introduced into the program. In the context of this report, retail innovations refers to leveraging what off site retail restaurants are advertising and mass marketing. For example, if a facility manager sees Subway promoting a $5 dollar foot long sub, challenge the operator to take advantage of this consumer awareness by introducing what is happening outside the walls of the on-site cafeteria. Facility managers as well as the employees of the company are influenced by and made aware of value through advertising by retail restaurants. Be sure the operator takes advantage of this opportunity by introducing and implementing similar programs in the on-site cafeteria. Keeping up with trends in the on-site dining industry is sometime difficult. The following are current trends in the industry for 2011: Cashless Payment Options Every operator should be offering some sort of cashless payment solution at the on-site cafeteria. Simply accepting credit and debit cards meets this trend. However, credit/debit processing should be integrated with the point of sale system and authorizations should take less than 15 seconds to maximize participation. Tiered Catering Programs As corporate catering budgets continue to be slashed, on-site operators should be offering the people of the company a budget pick-up catering offering that competes with local restaurants. Many operators have developed catering offerings whereby items are simply prepared and packaged at the cafeteria and the host of the meeting picks up the items at the cafeteria and delivers them to the meeting room. This simpler service model takes less labor and the savings are passed on to the customer. Speed Ovens New cooking technology that utilizes both convection cooking and microwave is revolutionizing the types of offerings that can be done in small cafeterias. These ovens can cook up to 10 times faster than a traditional oven. They are perfect for toasting sandwiches, finishing single portion entrees and cooking personal flatbread pizza. A key factor that makes these ovens so versatile is that they do not require a ventilation hood in most municipalities. Keeping up with trends in the restaurant industry can be done be joining the Society for Foodservice Management (SFM) or IFMA s Restaurant and Food Service (RFS) Community of Practice. Both of these organizations provide conference and educational material that concentrate on trends in corporate dining. Other sources to keep up with industry trends can be found at Food Management Magazine website, National Restaurant Associations 2011 Trends Report, and Nutrition Unplugged Trend Report.