Trends notable in the industry include the drive by clients and contractors towards low or nil subsidy contracts, which has more of an emphasis on a commercial approach. According to the British Hospitality Association, the total number of nil cost contracts reached 713 recently, an increase of more than 20% year on year. However, they still only make up less than 5% of the total market. The success of nil subsidy agreements depend on two key ingredients:
- Having sufficiently large head counts at the site (s)
- The caterer being given high levels of autonomy by the client to enable them to run their catering services appropriately.
Nil Subsidy (Nil Cost Catering)
Is a flexible term, however, it is generally considered that the caterer recovers earnings and overhead costs from the gross profit earned from sales, at no cost or risk to the client. As such the client relinquishes control of prices etc to the caterer.
Clients are increasingly looking towards the nil subsidy model (Nil Cost Catering) as the trend towards cutting catering subsidies continues. However, in reality few locations can meet the strict criteria (such as high menu tariffs and minimum number of employees) required to make these contracts viable.
The biggest pressure that caterers are facing is that of rising food costs which are occurring across the board, due to rising fuel/fertiliser costs and increased demand from areas such as Asia. Market sources claim that recent economic conditions mean that this is the first time that fluctuating food costs cannot be solved merely by re-engineering the menus. This suggests that tariff rises may be inevitable. Fortunately, food cost rises are highly visible, impacting on everyone from the supermarket to the high street. As a result, clients are more likely to be understanding about the plight of caterers and may agree to modest tariff increases.
Move to Nil Subsidy Contracts
Clients will be looking for caterers to take on even more responsibility as the economic situation worsens. This should lead to an increase in profit and loss contracts in the right conditions. Nil subsidy or low subsidy contracts can be run profitably under the right circumstances; this includes having a sufficient footfall in the staff refreshment facility with a head count of around 1,000 deemed mandatory. However, this is dependent on the nature and extent of the food service outlet. Catering operations with small, high volume outlets will have little reliance on skilled labour and overheads can therefore be controlled and managed.
Caterers will need greater autonomy in order to run effective commercial organisations. Running an all-day service is crucial for making nil subsidy contracts viable. The franchising of high street brands is also important although in-house brands are falling in influence.
Next Steps to Nil Cost Catering
So, how do you structure a catering facility to move towards nil cost catering? In short there is no magic bullet but a series of strategies that need to be put in place to ensure that any subsidies are minimised and in some cases, eliminated. Catering Consultancy Bureau has a successful track record in reducing and eliminating catering subsidies. We will work with the client organisation and caterer to ensure that strategies are put in place and implemented.