Contractors

Noncommercial segments find cost-effective paths to improved quality and service

By Scott Hume, Managing Editor -- Restaurants & Institutions, 9/15/2003

Until this year, Tennessee Tech University had been the state’s final holdout, the only higher-education institution with a self-operated foodservice department. But over the past several years, state budget cutbacks have necessitated diverting what money there was for new foodservice equipment or dining-hall repairs to buoy academic programs.

“We got to the point where I said to the university president, ‘Don’t you think it’s about time we looked?’” says Terry Rector, vice president for business and fiscal affairs for the 8,900-student university in Cookeville.

Tennessee Tech did look at the option of hiring a contract-foodservice manager and on June 21, the Chartwells unit of Compass Group North America took over campus foodservice. It followed a review for the account that included Philadelphia-based Aramark and Gaithersburg, Md.-based Sodexho USA as well as Raleigh, N.C.-based Compass— the three largest foodservice contractors in North America.

The reasons Tennessee Tech opted to switch to a contractor help explain why revenues for the three top foodservice-management companies increased an aggregate 19% from 2001 to 2002 while the foodservice industry itself struggled to best 2% growth last year.

Tennessee Tech told each of the bidding companies it would need at least a $4 million return—in cash commission, renovation investment or a combination—over five years. All three offered at least that much, says Rector, but Chartwells’ promised return “was out of the ballpark.” The contractor not only remodeled the main resident dining facility and created a cafe in the library, it made improvements to the university president’s house that make it more conducive to catered fundraisers. All campus foodservice employees were retained, with no reduction in benefits. And the food’s better, Rector says.

“If you can get as good or better an operation [under contract] for less money, why wouldn’t you?” asks Gary Green, Compass Group North America CEO, echoing the value proposition that has propelled the segment’s growth. “The dedication that comes with volume is not something that you, as a self-op, are going to be able to replicate. We’ve got 150 people who do nothing but develop [technology] management systems for foodservice. We have 130 people who do nothing but buy food and beverage.” Other departments are dedicated to merchandising, training and all other operational aspects.

Opportunities in every market
That muscle explains why business and industry now is, by Green’s estimate, 90% contracted. In education and healthcare, contractors’ share is perhaps 30% to 40%, he says, but growing rapidly. Compass’ sports-and-entertainment catering is booming, he says, with Chicago-based Levy Restaurants (in which it owns a 49% stake) and New York City-based Restaurant Associates leading the way. But all three of the top companies have plenty of room to grow, Green adds.

“Overall, the market for outsourced services remains rich across all sectors, and we see many opportunities for growing our client base,” says Richard Macedonia, executive vice president and COO of Sodexho USA. “Our signature brands, such as Jazzman’s coffee bar concept, have been extremely successful in driving sales and building customer traffic.”

Tennessee Tech asked each of the contract contenders to provide an example of work it had done for another client. Aramark invited the review committee to visit the University of Florida’s Gainesville campus (UFG), where it has installed its Fresh Food Company concept. Replacing what had been a traditional cafeteria is a strikingly modern operation where all food is freshly prepared at a series of stations.

“You won’t see a big central kitchen in the back or prepared food brought out to food wells,” says Naala Royale, vice president of marketing for Aramark’s Campus Services division. “You will see people walking up to stations and you’ll see food—from Cuban sandwiches and pasta sautés to desserts—prepared in front of them.”

Traditionally, resident dining-hall foodservice generates very little cash business, Royale says. But nonmeal-plan sales have doubled since UFG’s Fresh Food Company facility opened, drawing commuter students, faculty, staff and local residents.

In July, Sodexho USA won a four-year, $100 million contract to handle foodservice for Atlanta Public Schools’ 53,000 students. High schools will get the contractor’s CrossRoads Cafe concept, while elementary and middle schools will have Kids’ Way Cafes and E.D.z (Energy Download zone) food and nutrition programs.

Such offers are increasingly difficult for foodservice departments at budget-constrained schools and hospitals to refuse.