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Contract Management is a Study in Contrasts

As contractors look for growth in multiple segments, they also need to cultivate new business models.

On page 36 of this issue you'll find FM's Top 50 listings, an annual feature compiled by our executive features editor, Mike Buzalka. Its mini-profiles provide a reminder of how stratified the contract management sector has become and also plenty of evidence of the continuing health of the many smaller players in the marketplace.

It also reminds me of how different the business models are for onsite operators, whether they are contract or independent. Consider the widely varying service requirements, financial dynamics and production needs of venues as diverse as school cafeterias, high-end corporate dining facilities, patient feeding and sports venues.

For example, Business and Industry, the segment that spawned contract foodservice, continues to face constrained growth prospects and the cost-cutting demands of a corporate America focused intently on leveraging the human and physical resources of the workplace. Contractors compete fiercely for this business and to find ways to grow it, whether that means managing conference centers, overseeing foodservice in call centers outsourced to other countries or finding cost-effective ways to service decentralized B&I locations.

Despite the challenges, B&I continues to offer opportunity. For evidence, look no further than Guckenheimer Enterprises, a mid-market B&I specialist that was still able to grow its revenues over 10 percent in the last year.

College/University dining remains one of the most dynamic segments. It offers the widest variety of opportunities in single accounts, from all-you-care-to-eat dining halls to c-stores, food courts, large-volume catering and facilities management services.

On the other hand, C/U dining brings client administrations that have come to rely on contractors for capital investment infusions and relentlessly increasing contributions to their general funds. When these demands are combined with the need to meet today's student and parent expectations for meal plan value, quality and flexibility, this segment is an increasingly complex one in which to operate. C/U dining business remains attractive, but the cost of landing and keeping it will only increase.

Correctional foodservice, at the opposite end of the spectrum, is a highly specialized segment and one in which only a few contractors operate. At the same time, it is one where volumes and profitability can be misleading because offenders usually provide the bulk of the labor at low or no cost. Management companies do not publicly discuss this segment much, other than with investor groups, but it has proven its worth and receives plenty of attention internally as a major growth opportunity.

K-12 nutrition services was seen as a segment ripe for penetration a decade ago, much as colleges had been in the 1960s. While contractors have indeed assumed a meaningful share of this business, the original expectations have been tempered somewhat by the realities of the market. Margins are tight, labor challenges are often difficult and regulatory and political issues grow more complex all the time.

Still, this segment has become an important contributor to contractor bottom lines. And as government reporting, nutritional and procurement requirements in K-12 grow more complex, contractors will market their systems as a one-stop solution to target districts. It remains to be seen how well group purchasing organizations and software providers help independent K-12 operators cope with the same requirements.

Healthcare foodservice has been a high priority target for contractors for many years, even as the vast majority of the segment remains self-operated, often determinedly so. It may be the segment seen as having the greatest additional contract potential over time, but the low-hanging fruit has been picked. Contractors are responding with ever more aggressive marketing and sales efforts, and the segment will remain a real battleground.

Finally, it's worth noting how much the Sports and Entertainment business has changed, going high-end and high-revenue, following the big money that's flowed into new stadiums and arenas across the country. Compass Group's Levy organization changed the rules for this segment in many ways, demonstrating just how much more it could be than simply a high-volume concessions business.

It is also a reminder that while contract foodservice has its cultural roots in B&I, its future growth will largely come from other segments, and very likely other rule-changing business models. In the end, cultivating such innovation and the people who can create it is the largest challenge facing operators in every onsite segment.

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