Contract feeders take hit on B&I traffic, food costs

Despite rising costs, slower traffic at some accounts and other challenges stemming from the lethargic economy, contract foodservice providers say they are working to hold their own, with some even reporting slight growth in certain sectors.

Contract feeders in the corporate dining arena have been hit particularly hard in the last year, suffering notable declines in lunch participation as costs have escalated. Meanwhile, contractors serving health care and higher education say they continue to see modest growth.

A national study conducted earlier this year by Corporate Dining Inc., a foodservice consulting firm based in Chagrin Falls, Ohio, found participation by corporate employees in lunch programs had fallen more than 10.1 percent over four years, from 43.4 percent in 2004 to 39 percent in 2007. The data, which were collected for a private study to be used by 80 U.S. corporations, were compiled with 1,000 records from 600 cafeterias across the country.

Another study conducted by the research firm for the Society of Foodservice Management found that on-site lunch participation had fallen from 42.7 percent in 2004 to 39.4 percent in 2006, a decline of nearly 8 percent in two years.

Citing changing demographics in the workplace—namely, the transition from baby boomers to more Millennials in the workforce—as one reason for the drop in participation, Corporate Dining’s founder, Tom Newcomb, told Nation’s Restaurant News earlier this year the data were a harbinger of things to come.

“To me this really verifies the trend, when two separate data pools report virtually the same data, that really locks it in,” he said. “With baby boomers retiring, the Millennials are now a new customer and very different. They are very grab-and-go, convenience oriented. It’s going to be very challenging for [on-site feeders] to get this.”

CONTRACT CHAINS RANKED BY U.S. SYSTEMWIDE SALES

Increased food costs also are wreaking havoc on contract feeders along with the rest of the foodservice industry. With prices rising more than 4 percent last year and, according to the U.S. Department of Agriculture, approximately 4 percent this year, operators are forced to choose between raising check averages or cutting staff to cover costs.

“With the price increases of corn, flour and dairy, self-ops and contract operators are having to adjust pricing more often than they’d like to,” says John Cornyn, founder and chief executive of Portland, Ore.-based consulting firm the Cornyn-Fasano Group.

“In corporate dining it’s very difficult to generate revenues in such a short period of time,” he says. “Because lunch offers a very limited window in which to meet financial expectations, it’s never advisable to diminish quality, but it is advisable to offer far lower-cost options or bundle different items.”

At the same time, the health care and higher-education foodservice sectors appear to be growing, said Michael J. Bailey, chairman and chief executive of Charlotte, N.C.-based Trusthouse Services Group, a new entity composed of three on-site foodservice companies he acquired in April. At that time, Bailey, former chief executive of London-based Compass Group PLC, said his new business would focus on those two sectors because they “are the fastest-growing foodservice markets with the lowest contractor penetration and among the most recessiononsiresilient.”

Consultant Cornyn agreed, saying health care and higher-education foodservice are currently “the two obvious growth and stability industries” to pursue.

According to the National Society for Healthcare Foodservice Management, a growing number of hospitals are making more changes than ever to enhance customer service and participation.

A study conducted by HFM earlier this year found that innovations in the operation of their facilities’ retail restaurants and patient meal services topped the concerns of the more than 270 health care foodservice professionals, suppliers and manufacturers who were polled.

“Expect to see more modern facilities with a variety of services and options focusing on making the customer happy,” said HFM president Mary Angela Miller, who is the administrative director for Ohio State University Medical Center in Columbus, Ohio, and a recipient this year of an IFMA Silver Plate Award.

The study stated that more than half of the respondents said their facilities were planning major construction or remodeling projects within the next two years. Of that number about 40 percent said those capital improvements had been budgeted in excess of $800,000 each. In addition, 37 percent said they offered room service to their patients and 25 percent of that number had begun offering their programs within the past year. Furthermore, the study found that 74 percent of those who offered room service said their patient satisfaction scores increased as a result, with 81 percent saying satisfaction scores went up by more than 10 percent.

CONTRACT CHAINS RANKED BY NUMBER OF U.S. CONTRACT VENUES

More hospital foodservice operators also are introducing cashless payment systems, which allow customers to pay for their cafeteria meals through the scan of a prepaid card, key or an online service, HFM found. Cashless systems, respondents noted, are used at more than half of their health care facilities.

In the sports and entertainment segment of the on-site industry, the economy is top of mind among foodservice executives.

“There’s a big unknown in terms of what type of recession we’re in and whether it will track similarly or differently to past recessions,” says Bill Peterson, executive vice president of operations for Stamford, Conn.-based Centerplate Inc. “Then there’s the rise of commodities, which is putting a strain on our costs and pricing. Everyone is paying close attention to how it will all shake out. We haven’t yet seen the effects that would change our approach to the business. But one advantage we do have is the close relationships we have with our clients.”

Despite the close relationships Centerplate has fostered with its various clients, last August it lost the foodservice contract it held with the New York Yankees after the baseball team decided to self-operate concessions at its new stadium beginning in 2009. The Yankee contract, which Centerplate had held for 40 years, reportedly generates 10 percent of the company’s total sales. The company did, however, pick up a new contract to handle concessions at Nationals Park, the Washington Nationals’ new state-of-the-art stadium in southeast Washington, D.C. Centerplate replaced Philadephia-based Aramark Corp. as the team’s master concessionaire.

Marc Bruno, newly appointed president of Aramark’s Stadiums and Arenas division, says that “understanding where costs are being driven from and taking action against them” are a few of the things the company, because of its large size, has the ability to do.

“We’re managing through the same economic factors facing the whole industry,” he says. “Clearly, the increases in food and gas pricing have spread across the industry. We can make sure our focus is on standards and processes in order to manage through and streamline operations to mitigate some of the costs so they don’t have to be passed on to the consumers.

“I’m not an economist,” he continues,“but clearly these escalated costs are expected to continue through 2009. We’ll continue to see this pressure through the summer and beyond. This doesn’t seem to be a temporary spike, but rather a kind of resetting of what the benchmark will be moving forward.”

And even though fuel prices are at an all-time high in the United States, airport concessionaires say that although business remains brisk, operations are somewhat hampered by rising costs.

“Obviously, the price of oil has affected our food costs, but of course it’s affecting everything in the world right now,” says Todd Cavallaro, director of markets for Philadelphia-based airport concessionaire OTG Management. “It’s even used in take-out containers and in plastics. [Costs have] gone up internally on such items as small wares, but we won’t reflect that in our [menu] prices. It’s definitely a challenge for us to do what we do and make the right decisions at the same time.”

CONTRACT CHAINS RANKED BY TOP 100 MARKET SHARE (Percentage of aggregate sales of contract chains in Top 100)