FS-025 Ver 2.1 (Aug 23)

1. Budget Parameters for Consideration

Food Service Budgets

Budget management and development aligned with identified program outcomes is critical.  

It is important to understand how all costs are apportioned across the different service lines, such as labour costs being split between staff restaurant and hospitality.

This is a legitimate and sound commercial practice, which helps to manage, charge and report costs accurately. Food Service budgets  should be:

• Reviewed annually
• Contained within the SOS
• Applicable to identified outcomes
• Aligned with quality and performance standards
• Aligned with anticipated population rates and volume
• Aligned with anticipated check averages and cost-per-head metrics

Issues can easily develop where costs are not accurately processed, which may result in the potential of “double-counting” of expenses within the budgeting process.  Supplier partners should provide a budget rationale, strategy, and assumptions and we as reporting and transparency requirements.  Supplier partners should provide details on staffing levels along with staffing

structures both permanent and ad-hoc. Always look out for Supplier partners attempting to charge a central overhead cost to try and recover an amount of labour outlay.

This practice should be challenged and avoided. If assumptions are inaccurate or inappropriate for CBRE or client strategy they can and should be altered to refine the data, before Go-live. 

Building Population

Badge in Rates

Service Participation

Average Spend per head

The predicted total number of available headcount within the building, including client staff, contractors, visitors and sub-tenant staff who use the Food Services.

The average number of people within the building, which can vary on specific days of the week, with Fridays often representing low badge-in rates

The average daily utilisation of each of the Food Services, calculated off both badge-in and population stats

The average “Check” spend at the point of sale, calculated off both badge-in and population stats

Food Services

Budgets

Contracting

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2. Labour Cost Projections

Labour expense:

• Represents the highest single-budgeted expense element within a suppliers Food Services budget, depending on the scope and style of the operation
  
• Note potential for under-representation of labour expenses and using leverage later to realign resulting in higher costs to the client
  
• Note potential for labour expenses to be inflated to show higher levels of expense within fixed-price contract models and validation and viability within a P & L model
  

Supplier partners can also make assumptions on restructuring the staffing establishment of a prospective contract without making this clear within their proposals. It is important to fully understand the assumptions that have been made in relation to staffing costs, structure and benefits packages in order to assess the resulting service delivery impacts

Utilizing existing program "brain trust", the pressure-testing of current Supplier partners or those responding to an RFP initiative will prove invaluable. For example, understanding guest flow, volume and peak periods will allow for effective supplier partner associate deployment i.e., suggesting four (4) cashiers as opposed to the usual two (2) with a swing associate deployed during peak periods.

Key points to remember and consider

TUPE 

Where legal Transfer of Undertakings (Protection of Employment) Regulations (TUPE) exist, in-coming Food Service suppliers will require the existing staffing structure details. These regulations are normally in EMEA, although other country's legislative requirements on transferring existing employees between supplier partners must also be identified to ensure compliance. 

This is an additional cost that must be identified and accurately reflected within the suppliers labour budget as the outgoing supplier will reconcile, pay and charge CBRE

Labour Cost Savings

Aggressive labour cost savings against baseline costs require justification and explanation to ensure that the planned actions of the supplier partner in terms of labour resources meet the CBRE / Client requirements ahead of transition and implementation

Burden On-Costs

Burden or on-costs within a Supplier partner labour cost breakdown are where we can produce material reductions.

Supplier partners can seek to attribute additional on-costs for holiday accruals, sick pay, absence cover, training, administration and benefit assumptions that may be both inaccurate and an attempt to hide margin. 

It is important to review the labour breakdown and challenge individual costs to establish if the associated labour costs are accurate or potentially over-estimated

Food Services

Budgets

Contracting

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FS-025 Ver 2.1 (Aug 23)

3. Budget Fixed and Variable Costs

Food service suppliers are willing to fix some costs or ratios or to opt for a complete fixed subsidy value. 

RISK: Supplier partners may often propose higher costs to build-in a margin of error to mitigate commercial risk and fluctuations or miscalculation within their cost proposals.

Note:

1. A fixed subsidy cost can be higher than a cost-plus agreement
2. A cost-plus agreement, if not tightly managed, may also significantly overspend and exceed the proposed fixed cost

SOLUTION: Fix the costs within a equitable and transparent agreement, ensuring that potential additional supplier partner margin has been identified and removed.

4. Cost of Sales Ratios

1. Supplier partner estimates on cost of sales ratios are frequently under-estimated due to "in-to-unit" pricing strategies ( incremental price increase or decrease range and primarily used in vending or micro-market program applications as well as within equipment / vessel pricing)
2. Supplier partners typically initially apply a high-cost banding or product cost as their opening offer. Supplier partners operate tiered "in-to-unit" price bandings on products and produce and often select the most internally beneficial (or expensive) "in-to-unit" price banding
3. Pi (process instrumentation - front-of-house / back-of-house "service flow" metric

Supplier partners should be challenged to:

1. Justify their projected cost-of-sales ratios, managing a reduction within the overall cost and driving down the cost-of-sales metrics. Gross profit Margin (GPM) will increase, reduce potential subsidy and management fees
2. An acceptable metric is 1% -2%. If demonstrated ratio is higher, negotiate "batch-cooking"
 

Note: Wastage ratios differ dramatically from site-to-site, driven by different factors, including service style, service offer, quality of produce, volume served, batch cooking or theatre style.

5. Operating Cost Projections

 Suppliers should be challenged to:

• Provide a line-by-line breakdown of the operating costs, to allowed for review and discussion around each element
  
• Justify operating cost ratios providing a valued narrative as to how each cost element is derived assisting with financial reviews and the monitoring of developing cost increases
  
• Clarification of the strategy applied to deriving disposable product cost as these elements are frequently under-stated as a part of "selling" a model"
  
• Demonstrate how identified SLA's are applier and achievable i.e., equipment replacement recommendations
  
• Clarify the costs in relation to the central marketing and merchandising, stationery and printed materials provided as their “branded service offer or concept”
  
• Justify recommended "new" cost allocations that cannot be validated by recent operational experience

Other Important Factors for consideration

Where a client has robust CSR policies extending to composting, anaerobic digestion procedures and waste segregation, there may be a call for compostable disposable products. These compostable products are often twice the cost of the non-compostable alternatives, (dependent on the quality and type of product). Accurate budgeting is key, particularly where significant consumption volumes exist.

Food Services

Budgets

Contracting

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FS-025 Ver 2.1 (Aug 23)

6. Management Fee Ratios

7. Budget Key Metrics to use

KPIs should include the following dimensions and metrics to meet the minimum standard within a Food Service/Catering Contract:

Building Population - The predicted total number of available headcount within the building, including client staff, contractors, visitors, and sub-tenant staff who use the Food Services

Badge-in Rate - the average headcount within a building inclusive of client associates, contractors, visitors, and sub-tenant staff with access to food delivery programming noting varying levels of occupancy i.e., Friday

Services Participation - The average daily utilisation of each of the Food Services calculated on both population and badge-in rates

Average Spend Per Head - The average “Check” spend at the point of sale calculated against either population or badge-in rates

You should refer to the KPI section for further details on developing the right KPI's for your requirements

Category Management implementation of Management Fee ratios should be fixed at an agreed ratio and calculation methodology with each supplier partner. These will be consistent for all CBRE accounts. 

Suppliers should be challenged to:

• Provide an explanation of the management fee methodologies and calculations
  
• Provide a breakdown of their proposed management fee structure across each service line
  
• Add a "management fee-at-risk" plan aligned with client flow-downs that remains easily administered
  
• Ensure management fee percentages are "market relevant" and engage the CBRE Global Lead for guidance

Reference Templates:

Food Services Budget Template

8. Useful Links

Food Services

Budgets

Contracting

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FS-025 Ver 2.1 (Aug 23)

9. Example Budget Summary

The example supplier summary budget below shows the typical headings and how the costs are usually structured as a standard P&L format.

Following this format allows ease of review, as the individual data for each service line is shown separately and also rolled-up as an overall summary.

Across the full year of program activity to produce accurate monthly budgets such as flat-phasing, the recommended phasing for Food Services is to phase all aspects of the budget by trading days.  An exception to this is labour costs that are equally allocated to reflect payroll cycles reflective of client-identified holidays as well as adjusted for seasonality.

The budget format will be unique for each Account, depending on the scope of services and the client’s expectations around content and format. The budget format and structure will drive the reporting format and content and as such the reporting format should accurately reflect the budget format, creating clarity and flow of information between the two documents.  Regardless of the type of supplier commercial model, fixed-price, variable or nil subsidy / commercial, budgeted costs must be validated.

Food Service supplier partners should always supply an appropriate narrative or commentary in support of the budget, which sets out the rationale, strategy, and assumptions made to derive the data and ultimate cost. It is important to ensure that the Food Service supplier's rationale and assumptions are completely understood and can be revised to refine the data, before go-live. Restructuring budgets mid-term, due to inaccurate assumptions or misguided rationale, exposes CBRE financially and also damages credibility.

The budgets and associated narratives should be embedded within the SOS. This will help ensure consistent data and to create one version of the truth for any future management of the supplier partner and for hand-over of responsibilities between CBRE Account Teams.

Food Services

Budget - Example Summary

Contracting

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FS-025 Ver 2.1 (Aug 23)