Skip navigation
Contract feeders, restaurants face pressure as financial firms fizzle out

Contract feeders, restaurants face pressure as financial firms fizzle out

NEW YORK —Foodservice operators in this city are bracing for the fallout from the solvency crisis roiling many of Wall Street’s biggest financial institutions.

From the business-and-industry contract feeders that service Wall Street firms to the restaurants that cater their parties and count on big bonuses and commissions to boost sales, operators here know they will be burned by the financial-services meltdown. They just don’t know yet how bad the burn will be. —Foodservice operators in this city are bracing for the fallout from the solvency crisis roiling many of Wall Street’s biggest financial institutions.

“There’s going to be a tremendous ripple effect into the restaurant business,” said Tom Mac Dermott, founder of the Clarion Group, a foodservice consulting firm based in Kingston, N.H., specializing in on-site operations. “Everyone is going to look to cut back, especially as clients go out of business.” —Foodservice operators in this city are bracing for the fallout from the solvency crisis roiling many of Wall Street’s biggest financial institutions.

On-site caterers like Restaurant Associates already are feeling the sting. RA has the corporate account at Lehman Brothers, which recently filed for Chapter 11 bankruptcy after failing to find a buyer. And Aramark Corp. has the contract at Merrill Lynch, which recently agreed to be acquired by Bank of America for $50 billion. —Foodservice operators in this city are bracing for the fallout from the solvency crisis roiling many of Wall Street’s biggest financial institutions.

RA officials said it was too early to assess how the turmoil in New York’s financial community could affect its sales, profits and operations. Aramark declined to comment, as did Sodexo, which also has corporate foodservice accounts on Wall Street. —Foodservice operators in this city are bracing for the fallout from the solvency crisis roiling many of Wall Street’s biggest financial institutions.

“There is going to be a shakeout,” said Dick Cattani, RA’s president and chief executive. “The problem is [Wall Street] is going to have to contract to get back to equilibrium, and [the foodservice industry] is going to have to contract with them. We’ll have to right-size the operations. It is like we’ve seen in the past, in 1987 and 2001, but it’ll come back out of it. What goes down has to come back up.” —Foodservice operators in this city are bracing for the fallout from the solvency crisis roiling many of Wall Street’s biggest financial institutions.

The scope of the shakeout could be huge, said Mac Dermott, who expects “between 3,000 and 5,000 [contract] foodservice jobs to be cut in New York alone.” —Foodservice operators in this city are bracing for the fallout from the solvency crisis roiling many of Wall Street’s biggest financial institutions.

But big players like Restaurant Associates and Aramark likely will weather fallout from the crisis better than smaller firms or street-side restaurants, he said. —Foodservice operators in this city are bracing for the fallout from the solvency crisis roiling many of Wall Street’s biggest financial institutions.

“In terms of the value of their businesses, it’s big,” Mac Dermott said, noting that the size of the contracts at Merrill or Lehman are likely between $5 million and $10 million. —Foodservice operators in this city are bracing for the fallout from the solvency crisis roiling many of Wall Street’s biggest financial institutions.

“But a 10-percent return on a $10 million business is just $1 million,” he said. “What does that mean for a company worth between $5 billion and $7 billion? Not much, but it’s still not fun. They’re not going to go out of business, but there won’t be anything going on to help them.” —Foodservice operators in this city are bracing for the fallout from the solvency crisis roiling many of Wall Street’s biggest financial institutions.

He added, “Assuming [these investment companies] survive after taking several billion dollars as write-downs, they’re going to be looking at foodservice as a place where they can economize.” —Foodservice operators in this city are bracing for the fallout from the solvency crisis roiling many of Wall Street’s biggest financial institutions.

John Cornyn, chief executive of the Portland, Ore.-based consulting firm Cornyn-Fasano Group, said the financial crisis would almost certainly curtail such activities as catering, traditionally a lucrative business for contract companies. —Foodservice operators in this city are bracing for the fallout from the solvency crisis roiling many of Wall Street’s biggest financial institutions.

“For the operator, there will be, if not a complete prohibition of catering, than at least a partial one,” he said. “We’ve seen this occur several times in history, and it’s fairly consistent in the way these cycles go in respect to catering getting shut down to virtually nothing.” —Foodservice operators in this city are bracing for the fallout from the solvency crisis roiling many of Wall Street’s biggest financial institutions.

As creditors begin pressuring troubled financial institutions for payment, Cornyn continued, on-site companies could be left waiting for what they’re owed on multimillion-dollar contracts. —Foodservice operators in this city are bracing for the fallout from the solvency crisis roiling many of Wall Street’s biggest financial institutions.

“Most likely, if [the foodservice companies] want to keep those contracts, they’re going to have to be renegotiated,” he said. “But the bigger question is whether companies like RA even want to stay given they have a bigger outstanding liability.” —Foodservice operators in this city are bracing for the fallout from the solvency crisis roiling many of Wall Street’s biggest financial institutions.

Cornyn advised contract companies working with the troubled institutions to make sure they “secure some financial guarantees,” such as “asking the client to pay upfront—at least a month in advance—in order to get some kind of payment.” —Foodservice operators in this city are bracing for the fallout from the solvency crisis roiling many of Wall Street’s biggest financial institutions.

“At least this protects them for 30 or more days out,” he said. —Foodservice operators in this city are bracing for the fallout from the solvency crisis roiling many of Wall Street’s biggest financial institutions.

RA executive vice president Charles LaMonica said his company is already rethinking future B&I contracts. —Foodservice operators in this city are bracing for the fallout from the solvency crisis roiling many of Wall Street’s biggest financial institutions.

“All options are under consideration because everything is so fluid,” he said. “It’s really all about minimizing risk exposure in an unpredictable environment.” —Foodservice operators in this city are bracing for the fallout from the solvency crisis roiling many of Wall Street’s biggest financial institutions.

Tom Newcomb, founder of the Chagrin Falls, Ohio-based consulting firm FoodMark, said that in order for B&I companies to continue to operate soundly they will have to offer smarter and, perhaps, smaller options to their clients in the foreseeable future. —Foodservice operators in this city are bracing for the fallout from the solvency crisis roiling many of Wall Street’s biggest financial institutions.

“Customers will want to keep their money in their pockets, which will impact the revenue lines and therefore subsidy lines,” he said, “and while every operator is different, I don’t think they can make it up all in pricing. They may have to become smaller and more efficient. —Foodservice operators in this city are bracing for the fallout from the solvency crisis roiling many of Wall Street’s biggest financial institutions.

“Of course, then it will be up to the client to choose [what works best for them]. Contractors are going to have to react quickly in at least providing service changes in order to keep operations running smoothly.” —Foodservice operators in this city are bracing for the fallout from the solvency crisis roiling many of Wall Street’s biggest financial institutions.

TAGS: Archive
Hide comments

Comments

  • Allowed HTML tags: <em> <strong> <blockquote> <br> <p>

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Publish