Different Commercial models offered by suppliers all have different implications. It is important to understand and establish which model is currently in place and required for the future contract. Bear in mind that each model may have a different impact on the Financial operation and output of the business operations.
Some variations are noted in the below sections:
- Net Income from sales off-set costs incurred & recharged to the client
- The Shortfall or P&L losses = variable subsidy
- Management fees included in P&L as line item cost
- The higher the profit from sales - the lower the subsidy
- Inflation is absorbed through tariff strategies
- Agreed catering subsidy for the year or contract tenure at supplier risk
- Money saved within the budget becomes the contractors additional profit
- Normally costs more than Cost Plus
- Costs remain with the supplier
- Tariff strategy fully recovers food, labour and consumables cost plus management fees
- Supplier operates the service at an agreed Management fee ratio, absorbed within the P&L
- Right - sizing and service - scope reductions are needed to achieve “NIL” subsidy
- Inflation is absorbed through tariff strategies
- Tariff recovers food, labour and consumables and suppliers income through the P & L
- No management fees
- Supplier engineered their profit through the P & L
- Suppliers can look to move cost elements out-of-scope and charge separately to improve the P & L - Alert
- Inflation is absorbed through tariff strategy, but clients retain sovereignty and exercise this at suppliers risk
1. Cost Plus
2. Fixed Price
3. Zero Subsidy
4. Commercial P&L
Different service lines within the same contract can be operated under different commercial models, so understanding this and the financial relationship between the service lines within a suppliers cost model and P&L is a fundamental requirement.
FS-017 Ver 2.1 (Aug 23)
Key Points
Explanation:
Food service operator manages locations and passes all costs (revenue-expense) along with negotiated management fee through to the client
Explanation:
Food service operator manages locations with similar oversight to P&L model but financial losses are compensated at a fixed rate either annually or monthly (1/12th model).
Explanation:
Food service operator operates the service at an agreed % ratio of revenue that is absorbed through the P&L
Explanation:
Food service operator manages service at their risk, no funding from client necessary, however client provides the space, utilities and working equipment
Subsidy notes:
FOOD SERVICE SUBSIDY CALCULATION:
- Total Sales – Total Costs = Subsidy (financial loss for service provider)
- Sales collected at the register and through catering = total sales
- Supplier’s food cost, labor costs and other operational costs = total costs
- If Total Costs Exceed Total Sales, result is a Financial Loss
- Financial loss (plus management fee paid to provider) = “Client Subsidy”
Subsidy is a result of one (or more) of the following factors:
- Employer interest in engineering food delivery program that is financially attractive as a part of a comprehensive Employee Engagement initiative
- Lower prices at register than market dictates
- Staffing model aligned with employer delivery goal
- Hours of operation aligned with employer delivery goal
- Overall client expectation aligned with employee engagement initiative
Subsidy Risks for Client
“Open check book” model - No client control
Traditionally, suppliers are not held liable
Subsidy Risks for Supplier
Minimal risks, without ‘fee-at- risk’ structure, as they are managing services, but not held financially responsible