The Buck Stops Here

John Lawn

It is practically axiomatic that if you set out to examine the state of corporate dining, you will find yourself beginning or ending your investigation in a conversation with Neil Reyer, vice president of corporate dining services for JPMorganChase.

Reyer’s quarter century in the segment, virtually all of it spent overseeing the foodservice operations of one of the nation’s largest financial services firms, have long established him as an acknowledged authority on the trends and forces that drive the business of feeding corporate America.

He raised the bar early by demanding the kind of food and service that have long helped midtown Manhattan set the standard for B&I. (Typical: his decision in 1980 to hire Restaurant Associates to operate Chemical Bank’s main corporate dining facilities is often credited with establishing that firm’s beachhead in B&I foodservice.) A long list of awards, including a Silver Plate in 1987 and a Conti distinguished professorship at Penn State, underscores the commitment Chase and Reyer have had to making foodservice a key part of the firm’s business culture. And as the company has grown, its corporate dining services department has established a unique foodservice operating model to support the firm’s continued growth.

Now in the process of executing its first global RFP, it once again is looking to re-invent the way it outsources and manages foodservice in its operations.

Although Reyer no longer sports the unruly mustache that was his trademark for over two decades, he still dresses like an investment banker and his conversation is still punctuated with the pithy "Reyer-isms" that have made him a standout presenter on the foodservice industry circuit. FM interviewed Reyer and Charlie Stock, his vice president of regional operations and planning, for a closer look at how JPMorganChase expects to manage its foodservice operations in the future.

A product of evolution
When he was hired by Chemical Bank in 1978, Reyer ran four cafeterias in New York City with $5 million in annual sales. Today, the JPMorganChase corporate dining services department oversees $41 million in foodservice sales, generated at 29 facilities in nine states.

Much of that growth is the result of a series of mergers that began in 1991. It includes the operations of four primary predecessor companies (Chemical Bank, Chase Manhattan Bank, Manufacturer’s Hanover Trust and JPMorgan) as well as a slew of lesser acquisitions.

The organization that has evolved to support those operations has had to flex and change repeatedly over the years, and the corporate dining department is no exception.

As the company has grown it has also sought to centralize control of many non-financial functions. Two years ago it moved its support services operations from Manhattan to a new location in Jersey City. That’s where Reyer’s seven-employee department is now headquartered.

From an organizational standpoint, Reyer sets the direction for the department and has responsibility for all domestic dining services provided by the firm. Stock, who joined the firm 10 years ago following the merger with Chase, oversees all operations outside of the metro New York area, representing about 60 percent of its facilities.

Another member of the operations team, Brian Bingay, is responsible for New York City metro operations, while a 30-year veteran, Rich Hall, manages foodservice procurement, sourcing and client dining operations. A three-person administrative staff supports their activities and helps organize and tabulate the reams of data collected from five management companies that have been contracted to run the firm’s far-flung dining operations.

Merger reconciliations
Looking back, Reyer and Stock make the case that corporate mergers present at the same time both immense service challenges and the opportunity to establish new service levels that are better than the old ones.

The merger with JPMorgan two years ago is the most recent case in point. At Morgan, meals had been free to employees for many years, and later had been discounted even after foodservice had migrated to a P&L environment. At Chase, meals had long been competitively priced with those on the street, with contract operations managed on a fee basis.

"Almost every merger presents some issues similar to this," says Stock. "When Chase and Chemical merged, we had to reconcile the P&L philosophy of Chase with the management fee philosophy of Chemical. Both firms had quality foodservice programs, but their internal philosophies and financial approaches differed markedly. Today, all our operations are fee accounts."

"It is tough when you merge companies. But it is even tougher when you try to merge the sometimes broadly different palates of the workforces of those companies," Reyer observes.

"You have to find out the expectations of everyone at the executive level of the new partner company, but you can’t stop there. You have to explore the differences the entire workforce perceives between foodservice at the two companies. Addressing and equal izing those perceptions is a large part of what every transition is about."

Demographic variances among the customer bases in different facilities also must be dealt with strategically, Stock argues.

"The challenge is always to find out what a given population of people really wants," he says. "Variety is part of it, but a lot of what operators think is variety is really confusion. Variety is not offering 25 menu items. It is offering eight items, four of which a customer actually wants to buy. You have to hit the target with the variety you do offer. You have to give people more of what they want, more often."

Another major foodservice issue presented by corporate mergers is that the new company may find itself gaining an additional management company and contract.

"In one sense there is homogenization," says Stock. "But in another, there is empowerment. There is value in benchmarking the performance of one provider against another. There is also the opportunity for multiple players to express themselves and their strengths in the context of the new framework that is developing."

Reyer notes that one challenge of having multiple caterers is that "you really don’t want employees to begin saying that one facility’s foodservice is better than another. Any differences have to exist in the context of an overall sense of service equality.

"We are constantly receiving comment cards on which people say, ‘The cafeteria up the block is better than ours,’ even as employees up the block are saying the same thing about your facility. This comparative benchmarking of facilities and foodservices by employees goes on every day in a large organization. You can’t prevent it. So you have to try to address it by ensuring that specifications are uniform."

The JPMorganChase Model
The business model followed by Reyer’s department has long focused on achieving that sense of equality and uniformity while still encouraging a great deal of creativity in terms of making foodservice match demographic and regional diversity of its operations. It has evolved over many years and in numerous respects is unique to the industry.

"In a lot of ways, we operate using a multi-unit management model," says Reyer. "We supply the oversight, but employ outside management companies to operate the units.

"Our approach to managing our relationships with our management company partners reflects the best practices that have been developed at all of our predecessor companies. Everything we do is about driving down the subsidy and keeping our numbers in line."

At the same time, Reyer emphasizes that does not mean the company is not willing to invest in operations in order to make them more successful, or so that they require less subsidy over the long run.

Similarly, the department has long taken the position that it is responsible for specifying the products used in its foodservices, "much as a chain restaurant does," says Reyer. "We simply believe that we are better served by taking responsibility for making our own purchasing decisions and for sourcing and specifying the food products used in our operations."

In practice, Corporate Dining Services directly negotiates vendor contracts with its primary distributors and individual pricing agreements with key manufacturers.

"We also pay the food invoices directly for most locations," Reyer says. "Given the size and scope of our operations, that lets us qualify for volume discounts and marketing support based on the consolidated volume we bring to the market. It also lets us take advantage of any quick-pay discounts that may be available."

Management companies employed by the firm act as its purchasing agents, but internal accounting systems have been modified so that incoming invoices can be submitted directly to Corporate Dining Services.

Up to now, all foodservice contracts have been negotiated on a management fee basis. When new facilities are about to open, the RFP is offered to the three national management companies "and to any regional players whom we feel meet our standards in the given market," Stock says.

In addition to employing Sodexho, Aramark and Compass, the firm also contracts with Lackmann Culinary Services to run one of its Tampa operations, for example, and with Valley Foodservices to run its Monroe, Louisiana facilities.

Although all RFPs are bid as fee accounts, "we look not only at the numbers, but at how the numbers are reached," Stock emphasizes. "We want to know the specific capabilities a caterer will bring to us in a market. We want it to be a true outsourcing partner, bringing to the table the labor, operating and purchasing systems even as we bring the purchasing specifications. As our partner, it is the caterer’s role to ensure that all those areas are run smoothly and efficiently for us."

RFPs are typically awarded as one-year contracts with automatic renewals, with reporting based on direct costs that are clearly associated with the operation of the specific facility. In most other ways, the specific operation of an individual unit is up to the service provider.

"There is a clear line of separation between our department and the employees of our service providers. It is up to the man agement company to identify and hire the right people to fit the needs of a particular operation," says Stock.

Ending the side deals
From the standpoint of the firm, this financial approach to centralization allows the corporate dining services department to more tightly monitor all the expenses associated with dining services.

"That includes not just subsidies, but also the cost of real estate, of free coffee, our various catering activities, etcetera," says Stock. "We know what all of our costs are.

"One of the challenges we had with P&L-type arrangements in the past was that any services which fell outside of the standard P&L arrangement were billed separately. These were difficult to monitor and account for and, from the firm’s point of view, masked what some of our true costs were, muddying the P&L environment.

"Under a fee arrangement, caterers can focus on the marketing, menu, service and other qualitative factors. That puts the burden on us to run our operations just as tightly as possible," Stock adds.

"The financials are our responsibility, and if a break-even or P&L is possible, we expect to achieve that level of financial performance. Our goal every day is to break even at every account, and the fee approach allows us to define the cost of the provider and to call the shots on the other variables in the ways we feel best match our corporate culture."

Assuming a dual role
One of the biggest challenges in managing financials is to identify exactly which metrics will best meet the needs of the top management, Stock says.

From the department’s point of view, the most important figures are average check size and same store sales year-over-year. Fluctuations in participation rates are viewed as less important because ongoing changes in building populations and significant populations of contract employees blur true participation figures.

Operating statements are tailored to match Chase’s accounting cycles, with the department also requiring contractors to provide raw data on operating costs and revenues that its administrative staff manipulates for internal benchmarking and management needs. Centralization has also allowed the department to issue food specifications and standards for purchasing that remain uniform even as it employs a number of different management companies across its operations.

"We believe this creates a level playing field for our management company partners that also lets us take full advantage of their individual and regional strengths," Stock adds. "We see our best results from entrepreneurial managers who take advantage of the latitude we have given them. We of course monitor individual operations, but we also rely on individual managers to develop strong marketing and operations strategies. We want them to take advantage of all the resources their individual companies can bring to the table."

Does this represent a new definition of the role of the contract liaison?

"We have always believed in being proactive as managers," says Reyer. "That’s one reason we do not like to use the term ‘liaison’—it suggests a role in which the manager simply passes the bill from the caterer to the client.

"In reality, you represent the client to the caterer and the caterer to the client. On the one hand, your job is to manage the caterer as an outsourced service provider. You need to be actively involved in managing the food and service-providing process. Sometimes that means taking the caterer to task if it is not providing the service levels that are required.

"On the other hand, you must also become what is essentially an unpaid member of the contract caterer’s organization. You are there to help it avoid pitfalls it might otherwise fall into. When necessary, you need to take the caterer’s case to your company executives and go to the mat on its behalf. A strong manager must be able and empowered to assume both roles."

The department’s philosophy of contracting with multiple providers "often causes people to ask us, ‘which is the best management company,’" Stock says. "It is never that simple. Every one of our caterers operates a given location because it was individually selected to do so. But it is very true that a company is only as good as the manager it puts in place at a given operation.

"A good unit manager brings his or her knowledge of the market, his or her enthusiasm, his or her prior experience to bear on the location-specific challenges that must be met. The unit manager must find a way to supply whatever is needed to make that operation successful.

"That ability can be intangible. We see cases all the time in which a local manager who knows the market will do a terrific job, sometimes far exceeding that done by a degreed hospitality grad who may have been sent there on the basis of credentials but who doesn’t mesh with the local culture and expectations."

Reyer’s department seeks to provide contract organizations with all of the demographic and other customer-base information at its disposal for use in developing initial menus. "At the same time, we look to them to identify the specific wants and needs of a particular customer base," says Reyer. "They have complete control over how those offerings will evolve to best match the customers they deal with every day."

"Continuous transformation"
JPMorganChase’s growth has regularly caused the foodservice department to re-evaluate its philosophy of doing business, a process that continues today and which Reyer refers to as "continuous transformation."

"The firm is now taking a global view of its foodservice," he notes, a view that led Corporate Dining Services to issue its first global RFP earlier this year. Contract proposals to meet its specifications will soon be in the evaluation stage, and could well lead to some significant changes in the months ahead.

"While it doesn’t mean we have necessarily decided to go with a global, single-source provider, it shows we are looking at our options in a larger, international context," Reyer observes. "It is our view that nothing should be off the table—we are always looking for new ways to do business better."