Fair exchange
Jerry Brand I am not complaining about discounts. They are an everyday tool by which you measure the efficiency of your business. If you are growing and you strike a good deal, you will get money off your purchases. Well done. We do it all the time at Host. It is our strategic decision to hand these discounts back to our clients, as we believe that we should manage their business by driving their costs down to outperform our budgets. It does not mean we earn less of a fee from clients; it just means we are transparent in the way in which we earn our profit.
Sean Valentine There is nothing new or different in your model, Jerry. There are many contract caterers who organise their business affairs in this particular way. The management fee described in the client's catering budget is, indeed, the only income that a caterer earns from a client. However, if a caterer decides there are other costs that need to be inserted within a prospective client's catering budget - such as additional lines on the sundry items or an administration fee which is justifiable - then that is down to the particular caterer and how it organises its own business model.
JB I am afraid you've missed the point here. Companies have always said they earn management fees only because the client has never been able to benchmark the costs of a catering operation in a real-time basis. The main issue I am fighting against is where a catering company charges the client a higher price than that which it's paid for food and goods.
SV There is clear evidence this is happening within the industry. Compass told Robert Scott & Sons, a supplier of cleaning products, to charge distributor King UK double its net price for cleaning brushes (48p instead of 24p) and send Compass the difference every month. This practice of taking overriding discounts as a straight return from a supplier should not be seen as common practice among the majority of the food service sector.
But I equally believe that clients have a role to play in the procurement process. In a mature and competitive marketplace a client has a large choice of catering partners. The reasons to choose a caterer include price, quality, track record, food quality, experience in a particular sector and others. The fact is, a client does not have to use a caterer if it sees that their costs for food and goods are more expensive than another. They make that choice with eyes wide open.
JB Sean, I think you may be a little surprised to hear that most catering companies out there are inflating prices and not telling their clients. We have many examples where our net purchasing is between 24% and 64% lower than all sorts of companies, big and small. Given that a standard "start you off" discount from a supplier is about 10%, where is the rest of the difference coming from? Clients do not make a choice with their eyes open, as, once again, the only information they have in front of them is the promise from the sales person that the costs they quote for the food styles required are the costs that they actually can produce them for. Moving on, as a result of the inflated price of raw materials, the catering department has to increase the tariffs to the customer.
SV I agree. Who is benefiting from that effective purchasing, the caterer or the client? I believe the issue of trust and transparency needs to be discussed in much more detail.
JB It no longer needs to be discussed, as we [Host] have the technology to deliver the proof on the day.
SV It is clear at the moment that shareholders' value within the food service sector is becoming more important than customer service, value and loyalty.
JB I disagree. As an independent company, we have a business plan that has a level of investment put in, so we can grow as a national business. We have very little shareholder value until the business achieves its critical mass and eventually either provides a dividend or floats. Shareholder value in the large companies is also pretty poor, as they are losing so much business over the issues they face now.
SV Focusing on clients, focusing on providing customers with consistent quality, food and service in line with their expectations should be at the forefront of every food service operator's mind. This doesn't necessarily mean discussing at length the price of eggs or price of bacon; it is more about providing clients with a complete solution that fits with the culture, the ethos and the needs of their business.
The client needs to feel comfortable with the food service operator that they have chosen to work with. As a catering company, we are operating under our client's roof. They are paying the business rates, gas and electricity, and we are touching the core of their organisation by providing food and service to the staff every day - and usually to the same staff each day.
JB I agree entirely. However, I don't think I have yet met a client who does not want to save money as they feel they are being overcharged (they are normally not wrong). I hear you say I'm going on again about an old issue: "We have dealt with this one. Jerry is old-fashioned. Quality of food and service is what really matters." Get real. This is just the tip of the iceberg. We are currently sitting on fairly shaky economic foundations with the size of financial commitments made by this Government against a backdrop of growth and taxation which are not being achieved. Already the word "cost" is the first I hear whenever I speak with any prospective client.
SV The economic environment that you say is shaky I believe is when food service providers must come out fighting and provide a much more innovative and dynamic solution to prospective clients. The ability to provide a cost-effective service will always be important, but this must be set against other key objectives for an organisation, such as staff welfare, healthy eating, the ability to market and drive sales, drive gross margin and ultimately reduce the client's subsidy [the annual cost of catering per employee].
JB This is exactly what we are showing our clients, with a better service and lower cost. So, can someone please tell me how you attract customers when the tariff for their sandwich is more expensive than the sandwich bars on the street outside the staff restaurant because the cost of the raw materials are so high? I can tell you, there is one major group of people who are entirely behind me: the catering management and staff around the UK. They are fed up with not being able to buy goods because they are barred from buying due to discount thresholds; they are very fed up with having to charge so much for their food because they are being tasked with achieving a budget; and they are very, very fed up about having to lie to their client in defence of the catering company when they - and their customers or clients - know they can buy the food cheaper at the local supermarket.
SV Yes. We are discussing a very important issue. The transparency of purchasing. It is not a PR gimmick. It is what you were talking about during your Russell & Brand days and, indeed, what we are all talking about in the industry at present.
JB I came back to the industry in mid-2004, after eight years' absence. I couldn't find any evidence of anyone talking about transparency until I got my megaphone out and announced my arrival back on the scene. All I saw was a very bloated, mature and overcooked industry, ripping the clients off in a big way.
SV In my role as a committee member for the European Catering Association (ECA) I find it's often on our agenda when we discuss the fine balance between the food service industry, suppliers and clients.
JB You can talk all you want about this. More and more clients now realise that they can reduce the cost of their catering while, in many circumstances, increasing the quality of service and food styles.
SV However, the pressure on the bottom line for food service companies is very evident. I read a recent article with Charlton House talking about a 2% bottom line being an acceptable return so that they are able to offer the level of quality expected by today's clients. I think it is fair to say that a 2% net margin in many other industries certainly would not be acceptable.
JB Charlton House has always had a very small net margin. It is their policy, and Robyn and Tim Jones have proved their longevity in the business by not selling. That said, I also believe the low margin is a restriction to growth for them, and clients are aware that caterers have to make money.
SV I think there is a wider debate on how contract caterers can push up their net margins without the use of overriding discounts or other associated discounts that are unseen by prospective clients. Looking at ways in which food service companies can demand more money for the services they provide in a clear and transparent way, I believe, is the way forward for this industry.
However, to enable the industry to earn the respect and understanding that it needs from its clients, changes must be made. Whether this model is acceptable or sustainable for the larger players is clearly another debate.
Independent price benchmarking services
Quenelles Quenelles has established a database of net food and commodity prices paid by a large cross section of self-operated caterers in the UK. The database, which covers more than 45,000 items, is updated every quarter. Both average and lowest prices are reported. Clients provide core net price data in the form of copy invoices or computer listings Quenelles enters into confidentiality agreements with data providers and clients. Founded in 1992, Quenelles has no relationship with food purchase or supply organisations, consultants or catering companies.
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Catering Price Index Catering Price Index (CPI) is an independent company which has been providing up-to-date market prices for 16 years. Director Jamie Jarczewski says: "The data is provided without strings and not as an introduction to other services such as contracting or purchasing." Clients can compare prices for more than 24,000 catering items against the CPI prices. The CPI data is calculated from into-unit prices, including distribution charges, supplied by contributors every month. The contributors include county councils, schools, universities and blue-chip companies. In return for supplying the information they receive a free copy of the CPI benchmarking software system.
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