Foodservice Economics: Maximizing Efficiencies to Build Revenues and Continue Growth

With the challenging business environment making capital improvements harder to come by, foodservice operators from all segments are learning to make the most of their existing resources.

There's a new, more conservative business model taking shape in the foodservice industry among operators from all segments. It's the age-old idea of using what you already have to think outside of the box and generate new ideas for growth without overspending or digging into more debt. It also means improving on the strategies, systems and resources already in existence.

When it comes to operators, the manifestations of those ideas vary greatly among the commercial and noncommercial segments, naturally. Hospitals are zeroing in on customer service and ROI plans. Universities are redesigning existing dining halls to be more flexible in terms of both offerings and dayparts. When it comes to chains, many are scaling back on new store expansion and looking to revamp and remodel the locations they already have. And almost everyone has sought to boost efficiencies — in labor, energy use, equipment selection, kitchen redesign and operations — as a way to build on existing revenue streams and/or create new ones in a more economically challenged industry — and country, for that matter. It's a postrecession new world. It's also a postrecession foodservice industry.

Here, we break down the issues facing three different operator segments. However, it's important to note that the best practices revealed in each segment can apply to all. Operators, dealers, manufacturers, consultants and everyone else, take note.

College and University Foodservice
Colleges and universities are on the leading edge when it comes to menu, concept and design innovation, even surpassing restaurants in some cases. But, they too, were hit hard by a recession that challenged the industry as a whole; and as a result, budgets have grown tighter, and demands for higher student satisfaction levels have grown stronger, says Georgie Shockey, principal of Ruck-Shockey Associates, Inc., a leading foodservice management consultant in the noncommercial sector.

"All budgets are definitely getting cut, but especially state university budgets," Shockey says. "Obviously, dining services become a piece of that cut." As a result, expansion and growth in the physical sense of the word have stalled a bit, as have capital expenditures for new investments unless they're heavily supported by major ROI documentation, and even then it's a challenge. So these institutions have to focus on what they have, essentially reinvesting in their existing structures.

Flexible Feeding
That has translated into a lot of revamping of existing dining structures as opposed to major new construction projects, Shockey says. "There is a lot of reinventing dining halls so they can be more flexible," she says, and that flexibility comes in the form of food offerings as well as service hours and staffing needs.

The easiest way universities have accomplished this is by streamlining stations, making them adaptable to accommodate different foods and times of day. "Stations are not as clear-cut as the grill or the deli anymore," Shockey says. For example, the same flattop grill station may be used for eggs and bacon in the morning, run through a burrito and taco lunch service, switch into other themed entrees from time to time, and stay open late night for burgers and paninis. Even in the commercial world at the restaurant level, investing in multiuse equipment allows many operators to expand their menus to include a wider variety of dishes, small plates and more without heavily changing their overall kitchen processes.

Servicing the Students
"Tuition is going up, but not just because general expenses are going up," Shockey says. "Some universities are taking the position that if tuition is going up, there's a perception that the quality of education is better." Still, that purposeful move creates a double-edged sword. "If they can raise the tuition, there's a huge expectation for all the services to deliver more."

That includes student dining, of course, so the pressure is on to serve better-quality meals with better service and better service hours. Big time.

"The student still is the primary customer, even more than ever, so operators are really trying to step up the quality of service and price point," Shockey says. First-year students generally are a shoo-in to become dining services customers because they have prepaid meal plans. But once they become second-year or third-year students at the bigger institutions, many choose to live off-campus, so campus dining has to work that much harder to bring them back in where they can.

That means capitalizing on technology and existing frameworks to generate new ideas for improving customer traffic. Digital enterprising, for one, is a good place to start. In the same vein of "there's an app for that," there's also an app for sending promotional and other marketing messages to students once their e-mail addresses have been captured as freshmen. Apps can also be used on smart phones for building rewards points used for discounts, or as virtual card readers for payment, among other uses.

Beyond that, careful menu engineering and innovation will help boost student traffic, Shockey says. "College and university foodservice operators really have to focus on being authentic. You can't just do some weird, funky barbecue; you have to do some research and maybe focus on different regional barbecue styles, like St. Louis, Memphis or Texas. You can't just throw anything out there without doing your homework because students want more transparency and thoughtfulness."

Also, operators need to avoid generating boredom in offerings, displays and presentation. Repetition begets mediocrity, but redesigning spaces with more flexible stations as previously mentioned can help in this regard, Shockey says.

And using basic foods that can be easily changed in the same pursuit of flexibility forms the basis for menu innovation as well. "Operators can consolidate their purchases to order just one kind of chicken breast but use it in 42 different ways and add on different sauces and toppings that can be changed out quickly," Shockey says. Plain proteins, therefore, become an easy starting point for more inventive sides, garnishes and other additions.

Hardwiring the Help
Training staff well is one thing, especially in the college/university setting where turnover isn't just rampant, it's unavoidable. But "hardwiring" those training regimens and other best practices into processes, tools, equipment and foods and then documenting those SOPs is imperative for these institutions, in Shockey's view.

"A manager might come in and save money by doing portion control, but if you don't really train and retrain and reinforce that, it's not hardwired into the employees," Shockey says.

Improving labor efficiencies is also another step toward maximizing what you have. "Some of the busier campuses with multiple outlets know they can cross-train staff to scale up or scale down production at the various outlets in cases of extreme climate changes, school schedule lulls and other situations when they know students aren't going to come out as much," Shockey says.

Health Care Foodservice
With the Obama administration's health care reforms going into effect in 2014, hospitals and other health care facilities have an even more pressing need to meet that one, ongoing goal: improving patient service. That's according to Bill Klein, president, chief executive officer and principal of DM&A, Inc., in Buffalo, N.Y., and a highly respected foodservice management consultant for the health care industry. The new federal legislation was introduced in part to make sure patients were treated with a little more empathic care and personal attention from doctors and nurses as well as better pre- and post-diagnosis and treatment analysis and planning, Klein says.

Though not immediately apparent, these pressing goals for better patient service absolutely affect the foodservice aspect of the operation, according to Klein. The more positive attention a patient — or even a visitor — receives anywhere in the hospital, from the lobby to the room to the cafeteria, the more likely it is that they will not only return to that hospital but also refer others and, most importantly, mark higher scores for the hospital on customer satisfaction surveys. It's precisely those surveys, conducted by a handful of research organizations, which determine the amount of government subsidies the health care facility will receive, among other financial rewards/reductions and budget outcomes.

Boosting Customer Service
The trick to boosting these patient satisfaction goals, Klein has found, is to reaffirm customer service at every customer interaction point in the health care facility. From the valet worker outside to the host who greets you the minute you walk in the door, to the back waiter pouring your water, customer service requires specialized training and daily reinforcement.

In a hospital especially, many of us have had the experience of walking through hallways and instead of a staff member looking us in eye and saying "Hello, how can I help," the person instead looks away, Klein points out. "No person should walk through a corridor and not be greeted," he says.

Constant reaffirmation of service becomes a key part of training, even among the staff positions with the highest turnover. Klein compares it to football. "There should be a daily huddle to reaffirm what the goal and play for that day will be," he says.

At the same time, improving customer service and employee training involves making management more accountable for their failures as well as their successes.

"Holding people accountable to a baseline standard that has been established is where great organizations excel and others wallow in mediocrity," Klein says. "Great leaders beget great results." The challenge for business owners, however, is to develop the stomach to be the "tough guy" when it comes to that management accountability.

Better Buying
Just as equipment dealers come together through buying groups to leverage their purchasing power, health care facilities and other operators are starting to do the same. Klein notes, however, that this can sometimes negatively impact those same dealers by cutting them out of the picture.

"Hospitals are beginning to better leverage their buying clout through group purchasing organizations," Klein says. A relatively new move for the industry, one GPO may negotiate better prices on equipment, pharmaceuticals and other needs, including expanded, stronger partnerships with major foodservice brands like Subway and Starbucks.

"These GPOs will come in with their money and pay both rent and licensing fees to these brands so the hospital can expand its operation with little money down and immediately bring in another piece of revenue," Klein says.

Revamping Retail
In addition to partnering with national brands, health care facilities can still find just as high or higher ROIs by creating their own brand offerings. Kiosks in particular cost little to set up and can easily and effectively boost these internal brands as well as the points of sale throughout an operation — that means more profits.

"You can open a coffee kiosk, charge $4 for a cup of coffee and make your payback really fast with your own brand," Klein says, pointing out a particularly successful program he designed at a health care facility in Spokane, Wash. Building on the hospital's already successful main coffee shop/juice bar/snack shop, Klein opened up additional kiosks offering limited selections of these items throughout the campus, rolled in some lunch carts at strategic points and helped the business easily ramp up its revenue with limited labor needs as well; kiosks typically only require one staff member, and they can rotate their hours of operation to hit different dayparts.

Restaurants are finding the same benefits to building an alternative revenue stream, such as retail, Klein points out. That could mean jarring and selling the restaurant's branded sauces or selling bottles of wine at the front of the store, even through branded retail kiosks at off-site outposts such as airports.

Creative Cafeterias
In addition to retail, getting more creative at the cafeteria level can lead not only to increased revenues, but also to improved customer loyalty and higher marks on satisfaction surveys.

Whereas health care foodservice used to be all about migrating to room service from tray service for patients, newer business plans focus on revamping the main dining center. "Room service is a preeminent driver of patient satisfaction, but it's not a panacea," Klein says. "Its allure wears off after a few months. The program is not as sharp. People start taking shortcuts." This goes right back to the accountability Klein was talking about.

As an alternative, Klein has a few tricks up his sleeve for revamping health care food courts or cafeterias. Number one is using technology if possible. Electronic menu boards, similar to those in high-end restaurant chains, allow operators to continually change up their menu items, specials and other promotions. And many menu software programs can also be integrated into marketing, inventory and other management practices.

In addition, digital menu boards become a tool for health, which is an increasing consumer demand across all foodservice segments. While hospitals are not required by various state laws to display menu nutritional information like some chains, there is a strong potential for federal legislation to come down the pipes in the next year or so that could drive change in that area.

Another idea is to use the closed-circuit channels in TVs throughout the rooms to announce upcoming specials and other events, say, chef demos in the main dining cafeteria. That said, demos from local and even celebrity chefs, if possible, help drive traffic. So does sushi freshly made on-site by an outside sushi chef; a greeter at the cafeteria entrance to bring more smiling faces to the area; revamping the foodservice page on the hospital's website; and using any existing in-house publications such as weekly or even daily printed and/or e-newsletters distributed by the hospital to continue the marketing efforts, just to name a few of Klein's ideas. Again, these tips and tricks can apply to any segment of the foodservice industry, he says.

Chain and Commercial Restaurants
When it comes to restaurant chains and the commercial sector building in best practices used by their noncommercial siblings, and others has helped maximize the resources they already have.

It is, after all "during tough times that the leading organizations thrive and leave the competition in the dust," says Juan Martinez, principal of Profitality and a frequent FE&S guest contributor. "When the tough times started a few years ago, some concepts decided to clamp down, hoping the storm would pass quickly. Others realized we were in it for the long haul and, at a minimum, opted to initiate efforts to become more efficient with their existing units."

And, as Martinez has heavily documented over his many years in the industry, improving efficiencies and waste reduction is the number-two way to drive revenues and profits, aside from simply focusing on driving sales. This has, perhaps more than ever, been the case with chain restaurants that have looked to scale back both on new-store expansion as well as physical space and instead concentrate on revamping and renewing existing stores and prototypes.

There are a few ways to improve efficiency and reduce waste: invest in the right equipment and technologies and reshape operating designs "that will simplify the employee's functional requirements and facilitate the delivery of customer service and hospitality," Martinez says. "Without a doubt, chains have to be more creative in how they use their current resources in order to keep operating costs down. During these types of efforts, concepts may be willing to spend on capital, but it must be with a purpose; it must have a clear-cut return on investment.

Equipment Efficiencies
Again, the strong need for ROI seems to carry through both the commercial and noncommercial sectors. Flexible, multiuse equipment purchases help in that effort. One burger chain, for example, was able to speed up cooking time and service by switching to a double-sided grill, Martinez says.

Others have looked to shave off time where they can at the drive-through. When McDonald's first introduced its McCafé line of specialty coffee drinks, the chain didn't haphazardly choose just any old espresso machine, Martinez points out. They chose a highly automated system that could cut down on the need to train staff and avoid introducing new, more complicated production processes into the mix. That came at an initial cost, sure, but the payoff was dramatic: they were able to compete with the largest coffee shop business in the country, Martinez says.

Space Savings
It's the same message stated again: do more with less space. We've heard it a million times, but that message has grown stronger in this postrecession world, with harder-to-come-by real estate, reduced opportunities for loans, and of course, rising overhead costs in the form of higher energy and water bills.

That's why, Martinez notes, we've seen countless restaurant chains introduce new prototypes with dramatic square footage reductions. In fact, he's hard-pressed to think of a chain that hasn't taken this step.

"Miniaturizing is king; the smaller you make your space, the better," Martinez says. "I've always said if I could create a back of the house that's only one square foot by one square foot and let the rest go to the customers I would, but obviously I can't." That said, there is a possibility of going too small, he says. Employees still need room to work and move through an area.

And, within these smaller spaces, many chains are finding lower-cost ways to refresh the look of their designs, from a new paint job and some new furniture to changing up the counter style, lighting and colors. McDonald's and Starbucks refreshed interiors and modifications to their exteriors are two major examples, and there are countless other chains that already have started on that path.

Conclusion
The film "Apollo 13" features a notable scene with actor Ed Harris. Overhearing two NASA staff members mumble something about how "this could be the worst disaster NASA's ever experienced," Harris's character abruptly interrupts, "With all due respect, sir, I believe this could be NASA's finest hour." There's a little shrug, followed by a nod with a look that seems to say, "Well, that's a much better way to look at it."

That's because it is a good way to look at it. The foodservice industry certainly has had its challenges in recent years and will continue to face them. In fact, those with a half-empty viewpoint saw the recession as the potential "worst disaster ever." But Harris, Klein, Shockey and Martinez have said precisely the opposite: true leaders come out of true challenges. And true leaders are the people who lead us toward brighter paths. Our finest hour has come.

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