How to Instill New Energy in a Lackluster Operation

Like many organizations that outsource their food services, the company, with 1,000 employees in a city center office building, had no one in management knowledgeable enough to effectively oversee the food service contractor.

The food service includes a staff café and an active catering operation, serving meals and refreshment services to between 200 and 300 guests a day and frequent special functions.

Costs were increasing and service was lackluster. The contractor’s on-site manager and district manager couldn’t answer management’s question, “What can you do to improve services and reduce costs?”

What We Did: After reviewing the operation and financial records, we discussed our findings with our client and the contractor’s regional vice president.

We renegotiated the operating contract. The new agreement gives the contractor two carrots…

• A 25% increase in its management fee, and
• The potential to increase its fee by providing outstanding service and holding costs below budget,

…and a stick: Half of any amount by which actual costs exceeded budget would be deducted from the management fee.

The new agreement capped the contractor’s charges for employee fringe benefits and insurance (typical sources of invisible income to food service companies) and gave the client a share of vendor rebates. Quarterly audits measure operational performance and determine a portion of the contractor’s fee.

We recovered $35,000 in accrued, but unpaid, vacation pay the contractor was holding. Vacation pay is now charged when vacations are taken.

The Result: A new manager and district manager brought fresh energy to the operation. Following our recommendations, the contractor spruced up the staff café with a new menu, merchandising and signage at its own expense. The monthly financial statements were revised, making them more informative and relevant to the company’s needs.

The Outcome: While progress wasn’t continuous, the result after three years is a more satisfactory and efficient dining service. The company’s subsidy cost was reduced by 9%. The contractor gave up most of its invisible income, but gained an increase in its visible income, its management fee.

Clarion’s Role: We helped forge a true partnership between client and contractor. The contractor shares the client’s financial risks and has a substantial self-interest in improving performance—a win-win for both parties.