An Insight Into The Contract Catering Market Under Covid-19

By John Herring, Chairman, Connect Catering

The past 30 years has seen an almost complete change from ‘cost plus catering contracts’ to ‘fixed price catering contracts,’ with most contractors’ preferring to quote with fixed price contracts.  It sounds a good idea, but it comes with some major drawbacks, especially when an unexpected catastrophe comes to call, such as Covid-19.

Many of the fixed price contracts have back fired on the catering contractors, and at the same time caused the client unnecessary stress. Crippling costs and difficult negotiations have left this part of the hospitality industry dramatically damaged. We need to look at the drawbacks.

Firstly, clearly change is inevitable and constantly with us. On reflection, a fixed price contract is going to be out of date as soon as it comes into force, change is so rapid these days, it’s not fit for purpose. In these pulsating times we require flexibility, clarity and a fool proof audit system.

Secondly, fixed price contracts come with long terms and conditions; three years and more. Who wants a long-term contract for a service? Contract caterers are only as good as their last meal. Catering contracts should only have a three-month notice period. It should not need negotiation, if a client wants to change, that is their decision. Changing contractor should be simple and low cost, there is certainly plenty of competition in the market place.

Thirdly, the cardinal rule for all contracts, for both parties, is, ‘How do I get out of this, not how do I get in.’ When the unthinkable happens the exit needs to be affordable and simple.  Cost plus contracts are rolling with just three months’ notice, which puts all the cards in the hands of the client. They are after all paying the bill.

Fourthly, there is no incentive for the fixed price contractor to grow the business and attract more customers. Sales are subsidised with a fixed sum; if the contractor sells more, there is in fact a disincentive. It is also clear that the client’s exit is complex, surely that is not desirable.

The solution for the majority of catering contractors is to reinvent the cost plus management fee contract with different words such as ‘subscription’ or ‘flexible solutions’. If you read the words carefully it is still a cost plus contract, but perhaps not quite as straight forward.

The Solution For The Client

The client may be responsible for the service in a nursery, primary school, secondary school, special school, college, training centre, distribution centre, conference centre, research centre, retirement home, hospice, head office, factory, bank, or laboratory. They all need unique solutions with the Operations Manager concentrating on the service, not the profit margins for his employer.

It’s not just a matter of trust. It’s not fancy words and fancy constructions. The future lies in ‘cost plus’ with open book reporting/accounting. The modern computer records and accounting systems allow reporting to be open with a drill down facility. Every client should ask their accounts departments to request copies of supplier invoices for the first week of the contract and then again at random periods as the months and years go by. Once the monthly account has been submitted, the requested invoices should support the charges. Firstly, does it balance, and secondly, how much have the individual items gone up in price. A shopping basket is always useful to give a broader picture.

All contractors earn some of their income from retained discounts from their suppliers, in one form or another, so the prices charged for all food items and other commodities must not be ignored.

The client should have full visibility on their monthly accounts including the following:

  1. Average spend/cost per head.
  2. Efficiency rate of the catering staff (cost of food purchased divided by hours worked).
  3. Written monthly report by the Operations Manager, including record of attendance.
  4. Full staffing analysis including hours worked, holiday, sickness and agency against budget.
  5. Results of the regular audits including health and safety records.
  6. Food cost percentage.
  7. Analysis of a shopping basket costs from time to time.

The client should be so well supported that, should their Line Manager/CEO ask a question, the client will have the answer to hand, or will be able to get a response that day.

The Final Analysis

The appointed catering contractor should develop and support the catering team to deliver the agreed service; managed by an experienced Operations Manager who reports to the client. The contractor will earn a fixed management fee with a declared retained discount income, with any events and/or hospitality charged at cost. Their success will be judged by: the service they deliver, their control of the budget, the successful achievement of the targets set by the client, and their ability to respond to changing demands. However, pleasing the customer is always paramount.

The caterer should not be an independent business operating inside the host company, motivated by the profit they can extract from the operation.

Connect Catering

A cost plus contract works well for all types of business. Connect operates exclusively on a cost plus basis. We have found throughout our 30 years of experience that putting the client and the customer’s needs first has resulted in excellent working relationships. Many of our clients have unique structures and requirements which the adaptability of the cost plus approach can service without difficulty.

We don’t want to be the biggest. We want to be the best.