The B&I segment has been continually stressed in recent years as corporate America has restructured, downsized and decentralized. The management companies that dominate B&I recently have also faced a new challenge: corporate clients that are melding management of their foodservice contracts with those of other outsourced facility operations.
In doing so, many have turned to real estate management companies to oversee “bundled” contract services. In effect, this has created a new kind of middleman, sometimes referred to as a “managing agent.” For additional insights into this trend, we interviewed Tom Newcomb, President of Corporate Dining Inc., a consultancy that specializes in providing management, benchmarking and best practices services to a wide range of clients in the B&I segment.
What's driving this trend? It sounds like an effort to outsource the outsourcing firms.
“The move to using real estate management companies represents a continuing transition from using in-house employees to using contracted employees to oversee office and building services such as copier and office systems maintenance, space planning, security. One aspect of this has been a transfer of responsibility for managing a company's service contracts to companies like Jones Lang LaSalle, Cushman & Wakefield and similar companies.
“ The rationale is that this offers corporate clients a means of broad cost control by way of a single bundled contract with the real estate firm. Sometimes these contracts include dining services and sometimes not. It's a trend that is already widespread in Europe and is spreading here. I would say that, among our clients, as many as a third have outsourced services to one of these firms, although perhaps only a half of those contracts include dining services.”
Isn't that a pretty big jump from copier and facilities maintenance?
“Dining operations are a specialty service in that it is the only service that requires you to obtain revenue directly from employees in order to make the service financials work. There is also a ‘high touch’ aspect to dining services in that they involve a direct relationship and daily contact with the employees. This direct relationship is unique when compared to most other services.
“To make dining operations financially successful, you need to increase participation, enhance a sense of value and obtain target price points and margins. It is the customer contact and relationship that often makes this possible. I have observed the real estate companies who are expanding in this direction and they seem to be working hard at getting better at understanding this dynamic — I think we can expect to see them become more successful at it.
How are RFPs and contracts of this sort outsourced by client companies?
“Typically, these contracts are let by a global sourcing or contract management or real estate and construction division — it depends on the structure of the company. The likelihood of going in this direction doesn't seem to depend on the size of the client or the sector in which the client operates. What they have in common is a desire to become more efficient and gain better control of the overall costs of operating facilities in the new economic environment they face.”
What happens organizationally in this kind of transition? What implications are there for contractors?
“Typically, there is immediately a large turnover among liaisons. They are either transitioned to another part of the company or may go to work for the contractor or managing agent. The long-term relationship they have had with the client will now be different, and the new relationship will be different than what sometimes happened in the past, when liaisons may have left the client to instead work for the foodservice contractor.
“A second element of change is that sometimes the foodservice contractor will continue to have a direct relationship with the client, but sometimes not. That can make his or her job of reaching the client-owner's goals a bigger challenge. The foodservice provider may now represent a third or even fourth party.”
It sounds as if the dynamic can change significantly. In practice how does it work?
“In these arrangements, the management company liaisons typically have multiple service responsibilities, although in some very large global accounts there may still be a dedicated dining services liaison. They now have not only one set of client contacts — with the corporate client — to get to know, but also a second, entirely different group — with the real estate management company. And that's in addition to his or her own company's reporting chain.
“Keep in mind that we may be talking about a single location of a multi-location, global corporation that has signed a contract with a global real estate management company engaging multiple lines of services.
“Say the HR department at the individual facility wants to have a holiday party for building employees and also wants the cost of that party to fall to the cost of operating the dining services in that facility. In the past, the HR department would have worked with the foodservice contractor directly to negotiate how the added costs would be paid for, since this event would fall outside of existing contract terms.
“In the new dynamic, an operator isn't free to make an arrangement like that directly. The decision must instead go through the real estate company chain of command since it actually manages the contract. Because dining services are only a part of a total contract guaranteeing broad cost management, negotiating exceptions is a bigger challenge involving more approvals.
And from the client's point of view?
“The good news is that the owner gets additional support in managing the dining services. However, if that part of the package is not going well, but the other parts are, we have to work harder to have an influence on only the dining services component of the bundle. So this model, which I believe is here to stay, is still evolving to address inter-related quality assurance, customer satisfaction and financial metrics issues.”