Clarion Group Warns of Further Diminishment of Client Base for Food Service Contractors and Employed Operators of Corporate Food Services

January 8, 2013 - Kingston, NH - Food service contractors and employed operators of corporate food services may face further diminishment of their customer bases in 2013, Tom Mac Dermott, president of Clarion Group, a food service consulting firm, warns.

“In addition to continued slow recovery in the economy, companies now have new ways to outsource even highly skilled work to freelance workers all over the world, reducing the need for – and cost of – on-site employees,” he said.

As reported in MIT Sloan Management Review by Evgeny Kaganer, an assistant professor at the University of Navarra in Barcelona, Spain and three other academics, “A third-generation sourcing ecosystem . . . the human cloud is centered on an online middleman that engages a pool of virtual workers that can be tapped on demand to provide a wide range of services to any interested buyer.”

New “human cloud” organizations can now provide freelance talent for at least 15 major work categories, including content generation, sales and marketing, design and optimization, Kaganer et al say.  These are jobs that traditionally are kept in-house, but now may disappear from the office and the food service department’s customer pool.

Human cloud organizations (“platforms”) – the middlemen who connect companies and freelancers – saw their revenue increase by 53% in 2010 and 74% in 2011, the authors said.  The number of active platforms increased to more than 100 in 2012 from about 40 in 2011.

The commercial real estate market also provides a gloomy clue to the pace of corporate hiring.  “U.S. business took on new office space at a sluggish pace in the fourth quarter [of 2012], as employers remained cautious about adding jobs,” The Wall Street Journal reported.  The office space vacancy rate at the end of December, 17.1% is just 0.5% lower than the post-recession high of 17.6% in the Fall of 2010, the Journal said.  San Francisco, New York and Houston, with growing technical and energy-related sectors are among the few exceptions. 

“As rapidly-advancing technology has disrupted other industries, it now is food service management’s turn,” Mac Dermott said.  “Corporate food service operators have to rethink their business models to stay relevant in this new environment.”

“For example, a Clarion client with $1.5 billion in sales and 4,500 employees nationwide has only 250 employees at its new headquarters, where it is just opening a new food service, and  has no food service at any of its other offices,” he said.  “Technology has enabled other Clarion clients to increase sales and profits while reducing on-site headcounts.”

The impact of this sharp and still evolving change in the way businesses operate has an impact on both the food service operator and the company it serves.  Formerly profitable food services may become unprofitable for the operator, and the company may find it has a choice of either subsidizing its employee food services or reducing their scope, Mac Dermott observed.

“The solutions will vary from company to company, but all will involve a change in the way the food service operator looks at, and manages, the business,” he added.  “Companies will have to cooperate with their operators as they both adapt to the new reality.”

For example, at company with multiple buildings on a large campus, closing cafes in all but the most highly-populated buildings (about 1,000 employees) may be necessary.  The other buildings can be serviced by the type of food trucks that now are popular, and successful, on college campuses.

At smaller sites, a mini-café supported from an off-site commissary and staffed by one or two attendants may be a solution.

Vending operators, including some major food service contractors, have begun installing “micromarkets,” a c-store-type, compact facility with no attendant.  The customer selects foods from refrigerated display cases and shelves and pays for the purchases at a self-checkout kiosk. This option only works in a closed environment with a small population, about 250 or fewer employees.

“Change in the way employee food services is provided are inevitable,” Mac Dermott said.  “Operators will have to use technology to counteract the changes technology is forcing on their traditional ways of doing business.”

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