Clarion Group: Companies Are Revising Their Attitude and Thinking of Food Service as a Self-Sustaining Convenience

February 25, 2013 

Kingston, NH - Companies that once considered low cost meals an employee benefit sometimes now are revising their attitude and thinking of food service as a convenience that should be self-sustaining, according to Tom Mac Dermott, FCSI, president of Clarion Group, a food service consulting firm.

“The conversion can be tricky,” Mac Dermott says, “because it inevitably means higher prices and maybe fewer services when the food service has to pay its own way.”  He says he has seen conversions completed with minimal disruption and customer acceptance – and disastrously.

“The worst way to convert from subsidized to “P&L” (the operator has the risk of profit-or-loss) is all at once.  Customers come in one morning and the price of everything is higher.”

In one instance he cites, customers in a central city corporate headquarters almost completely boycotted the food service.  Sales dropped by two-thirds overnight when prices were increased by 20%.  “Nobody protested, they just began bringing their own meals to work or went out to the dozen or so nearby restaurants, delis and fast food outlets,” he said.

“The losses were so severe that within a month, the food service operator was threatening to terminate its contract.  Two months later, a new operator was in place.”

The new food service contractor had some advantages, according to Mac Dermott.  “The dirty work – price increases and service reductions – had been done by the predecessor.  The new operator gave the café a modest facelift, restored some services, introduced a new menu and rejuvenated what had been a mediocre operation into a model food service program.”

“Customers returned and sales rose to their former level, although prices hadn’t been reduced; they saw greater value in the new operation and meals offered for the prices,” he said.

“Companies use long-range planning for the management of their businesses, development of new products or services, advertising and marketing, equipment purchases and the like,” Mac Dermott noted.  “They should do the same when they want to eliminate the food service subsidy.”

The most effective way to eliminate or reduce the subsidy, he says, is gradually.  In cooperation with the food service contractor, a conversion can be made gradually, over a period of two years with minimal, or no, customer backlash.

“In any situation, an abrupt, all-at-once increase in prices is counterproductive,” he says.  “Often, when prices are increased, sales remain no better than level, because customers ‘buy down.’  Most people come to work with a specific amount they’re willing to pay for lunch.  If their $5.00 to $8.00 won’t buy what they want, they’ll select something that fits their budget – or stop buying altogether and bring their meals to work or go out to a low-priced alternative on the street.”

In a planned conversion, a schedule can be set in place with three- or six-month mileposts to assess progress.  The process should take two years, Mac Dermott advises.  Steps that will make the conversion work include:

• First, tighten up the internal working of the operation – better purchasing practices, waste reduction, staffing, for example. 
• Raise prices selectively and periodically, especially when the cost of a product rise in retail markets.  Customers will understand that if they have to pay 10% more for a chicken breast in the supermarket, they’ll have to pay more in the staff café, too. 
• Instead of raising a price, repackage some items in different sizes or combinations that justify a higher price, or offer, say, a smaller portion for the same or slightly lower price.  If the cost of an item can be reduced by 10%, the operator can afford to reduce the price by 5%.  Smaller portions can be justified by tying the move to the widely-publicized anti-obesity movement. 
• Introduce new menu items at a profitable price point.  There’s no comparison for customers to make and resent. 
• Introduce all changes, to the menu, to the servery or other aspects of the food service with effective marketing, merchandising and promotions, so the changes will be seen as benefits, not take-aways. 

“Every business needs to increase prices from time to time,” Mac Dermott notes.  “A company’s food service is no different if it’s to be viable.  The customers have to perceive value in what you’re offering.  The more value they see, the greater will be the sales and profitability of the operation.”    

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