FS-022 Ver 2.1 (Aug 23)

Food delivery programming offers a distinct opportunity to evolve with a focus on efficient space utilization, supplier partner employee deployment, and production.

Additionally, engineering touchless systems, production based upon placed / online / app-based orders, pick-up / delivery options, dedicated space for small gatherings and collaboration, and crafted in-house catering menus are among many drivers that support savings and efficiency design.

Savings and Efficiency in Operations

2. Savings Drivers / Triggers

• Existing Supplier partner contract sunsets within six (6) months
• Cost-plus supplier over-spending
• Renewed savings strategy
• Program optimisaton that redefines client objectives, SOW and levels of transparency
• Transitioning a Supplier partner
• Review of food delivery program tariff strategy
• Material changes in population and / or participation rates

1. Food Services - Save Lever Tool

The Food Services "Save Lever Tool is structured by service-lines to enable a high-level look-up of the potentially relevant areas of focus applicable to each service-line independently. 

Note: Potential Saving levers for staff restaurant service-lines ie., cafe /  restaurant, service requirements will not align with those specifically related to vending, deli, catering, or hospitality levels of programming.

There is no generic solution that provides for specific Savings to be made.  Try the "Save Lever Tool" to self-engineer a food service program, by service line, using the available quick look-up specific to relevant areas of focus.

You can CLICK HERE

We must remember that Savings are often linked to a Client contract and this must form an integral part of the Contract negotiations with the supplier.

Identify deal breakers early in planning

3. Useful Links

Food Services

Savings Drivers and Levers

BID

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Supplier Savings Strategies - Approach and Mitigation

Approach...

Mitigation...

Review population and participation rates, review options to increase participation rates / general programming. Review Supplier partner headcount, hours of operation and tariffs 

Establish financial performance range KPI's. Review supplier partner headcount deployment reports monthly. Negotiate a sharing percentage of GPO rebate structure (GPO rebates range - 4% - 18%) and transition to cashless program

Sales Revenue underestimated

Cost of Sales

The lower the Gross Profit, the higher the subsidy and less risk to the Supplier partner. Always try to ensure that the Supplier partner achieves at least 30 %Gross Profit. This may be lower with low menu Tariffs or higher if lower cost products are sold

Gross Profit

Supplier partner may look to enhance the labour cost to achieve an increased subsidy and management fee. Ensure that labour rates are aligned to local regulations

Labour

Supplier partner can enhance the cost of equipment required to deliver the service. Ensure to obtain a full breakdown of all equipment to be used to deliver the services and the associated costs

Equipment

Look at using more Cashless operations to enhance service output and reduce risks

Cash Collection

These may be reflected in the monthly fee.  Ensure that these costs can be validated

Marketing Costs

The Market rate is normally set around 10% which is made up of 5% fee plus purchasing income.  Challenge any fees in excess of this

Management Fee

Savings- Stripping out Hidden Margins from Supplier partners

Credit Card fees

Credit card transaction fees are often passed on by Supplier's, and in many cases with a markup. Be sure to check the Banks Credit Card processing fee directly with the respective bank to validate these charges

Traditional price adjustments should be conducted on a yearly basis. It is common for Supplier's to try and make excuses that due to other market forces they must review prices more often, sometimes even quarterly. Whilst prices for fresh produce change weekly there must be an agreed review date/period, not ad-hoc

Bracket Creep

Restaurants and other food outlets sometimes try to pass on government and other fees as a service charge. This must be negotiated out of any contract in the early stages of contract preparation.  (Note: Not applicable in all countries.)

Service Charges

Identify likely cost elements related to "hidden margin". These may include equipment amortization, credit card / transaction banking fees, regional management fees, telephone / IT-related expenses, supplier partner marketing expense

Direct / Indirect Costs

optimize delivery model i.e., reduce stations, order-specific delivery, touchless programming

Program

Address barriers to participation, manage operating hours

Revenue

Optimize headcount and manage through established metrics

Labour

Reduce waste, manage through established metrics, GPO rebate sharing %

Food Expense

Fiber, Point-of-Purchase expense

IT Related Expense

Validate equipment deployment and amortization schedule

Equipment Amortization

Validate supplier partner banking rates

Transaction Fees

Transparent allocation

Management Overhead

Transparent allocation

Training / Travel Expense

Food Services

Savings Strategies

BID

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FS-022 Ver 2.1 (Aug 23)

Strategy

Services

Equipment

MRO

Description

Direct Negotiation with Supplier partner

Yes

Yes

Yes

Direct negotiate with incumbent supplier partner to determine best options to offset increase (ie., - SOW optimisation, frequency, specification modifications, fixed prices) etc.

Manage RFP initiative to test market and ID all qualified supplier options

Yes

Competitive Sourcing Event

Yes

Yes

Explore alternative brands, service approaches, materials, sizes, volumes, specifications, etc.

Yes

Alternative Products / Services

Yes

Yes

Reduce demand for product or services (ie., cut back cleaning services for minimally used facilities or spaces, defer maintenance, control out-of-scope spend)

Yes

Demand Services Reduction

Yes

Yes

Optimize food delivery program taking advantages of current industry best-practices, innovation, space design, touchless technology

Yes

Reengineer SOW

Yes

Standardize and bundle products / services to leverage buying power   

Yes

Consolidation / Bundling

Yes

Yes

Establish expected pricing to align with market relevance and pressure-test through supplier partner co-solutioning or management of an RFP initiative

Yes

Should Cost Modelling

Yes

Yes

Pass through inflation cost increases to customers (where applicable)

Yes

Pass-Through

Yes

Yes

Food Services

Savings Strategies

BID

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FS-022 Ver 2.1 (Aug 23)

A common approach to potential cost reduction is to review the Tariff strategy across all aspects of Food Services. Increasing and also decreasing selling prices can have a positive impact on subsidy levels, however, there are potential negative effects of adjusting selling prices to consider and to factor into the business case and planning. 

Individual product sales mix analysis and gross profit margin / COS extrapolation of existing data help to identify potential opportunities to increase or decrease selling prices both up and down. Having the individual product sales mix volumes allows easy identification of both high and low-volume products, allowing the net effect to be weighted appropriately.

Increasing selling prices is typically a very efficient way of decreasing subsidized levels. Reducing and adjusting the selling prices for high Gross Profit Margin (GPM) products typically stimulates increased demand for that product, driving “potential” commercial benefit and subsidy reduction through increased volume and associated margin enhancement, albeit at a lower GPM percentage. 

The example below illustrates a daily product matrix and related gross margin profit contribution demonstrating the resulting increase in Gross Profit Margin (GPM) driven by lower prices offset by increasing sales volume and velocity.

Noting the minimal daily impact of the strategy, the annualized subsidy would be reduced by $6000 demonstrating that a structured tariff review developed for the comprehensive product range would be material.

Additional considerations include:

• An overall impact on sales mix resulting in an overall demand reduction potentially affecting higher margin products
  
• The potential of increasing participation
  
• Value of "loss leaders" i.e. bottled water at cost, increasing participation leading to increased "other " product purchases

What are the impacts of a comprehensive price increase of 10% (remaining demonstrably lower than the localized market) on an annualized revenue program of $4.0M anticipated then to reduce the annual subsidy by $400K:

• Likely fall in participation, testing other market options in the form of "protest"
  
• Spend per head may decline understanding of demographics, disposable income, market factors, and culture
  
• Associate satisfaction may decline impacting engagement initiatives, view of employee entitlement programming, and further impacting associate retention
  
• Potential increase in wastage thereby increase in food cost percentage
  
• Pre-packaged meals may increase among falling program revenue potentially resulting in the increased cost of disposables and consumables

Looking at a staff restaurant tariff review, where the strategy is to increase the tariff to reduce subsidy; A 10% increase to selling prices where annual supplier point-of-sale revenue levels are $4M may appear, to effectively reduce the subsidy by $400K, as the additional GPM falls straight to the bottom line, however, the following aspects also need to be considered:

•  Participation levels will undoubtedly fall as a result, potentially only a “protest” short-term impact, depending on the local alternatives available to customers
• Spend per head may actually decrease, especially where customers may have price points on their daily spending, often driven by demographics, disposable income, and culture
• Customer satisfaction may be negatively affected, a key metric for many clients' CSAT scores
• The supplier may experience increased wastage of unused food products as participation or spending per head reduces, negatively impacting the GPM and increasing the COS
• Client staff may see the increase in tariff as eroding their entitlements and employment benefits, leading to a dissatisfied client workforce
• Perception of value for money will decrease, a driving factor when customers are making purchase choices, especially where alternatives are readily accessible
• Complaints may increase as the expectation level rises, impacting KPI metrics
• Alternative local external outlets may be favored over in-house services, where the delta between price points has been eroded and reduced
• Packed lunch customer ratios may increase, potentially reducing revenue, but also increasing the non-revenue generating cost of disposables and consumables, such as napkins and condiments, used by packed lunch customers
• May reduce the staff attraction / retention advantage, “staff benefits” appear less favorable and therefore impact retention and attraction
• Additional disposable and food waste clearance and waste removal volumes generated through increased packed lunch usage

 Seek support, involvement, and guidance through regional Food Service SMEs where appropriate. Escalate any need for support through your line manager and seek regional platform support as required. Food Service financial dynamics can be complex and demand the appropriate level of Food Services commercial experience to deliver the required outcomes.

Conclusion:

• Seek support by engaging CBRE Global Procurement Solutions Lead - Food for guidance
  
• Each CBRE client-level solution is unique
  
• Market conditions presently enable the opportunity to consider client-level options that deliver at even higher levels of exceptional outcomes

Food Services

Savings Example

BID

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FS-022 Ver 2.1 (Aug 23)