H/C Needs to Address Capital Constraints with Innovation

Ed Morano

The advancing forces of change in healthcare foodservice remain powerful, whether the year-long effort to embark on healthcare reform moves forward or not. For advice on how operators in the segment can best approach today's operating environment, we interviewed Edward Morano, managing principal of Toronto-based Kaizen Foodservice Planning & Design. While Morano's clients are international, more than half are in the healthcare segment and a significant portion of these are in the U.S.

“In 2010, healthcare will see more of the same pressures it has had: the need to do more with less; a focus on managing rising food costs; an emphasis on improving operational and labor efficiency.

“Lack of access to capital will become more problematic in the coming year, especially in support services. Hospitals continue to talk about implementing room service and upgrading their retail programs, but a director's ability to move these projects forward is very challenged when access to capital is required. With respect to retail initiatives, it is important to build very good business cases when you need capital. The shorter you can make the payback, the easier it is to make the case.”

“When the capital is not there you find that some hospitals turn to contract providers. They can provide capital up front, but that capital is always re-captured over the long run. I have been surprised sometimes by the lack of upper administration's comprehension of this point. Often it can lead them to pay a slightly higher cost for capital availability than they might otherwise pay, although that disadvantage can be seen as outweighed by having capital access when something needs to get done, rather than waiting for internal availability.”

“Hospitals have been under greater pressure to increase quality and patient satisfaction in recent years, but we have seen a shift in emphasis to one of maintaining quality while also maintaining efficiency. An administration may say, ‘Yes, a room service program would enhance satisfaction, but it will often increase labor costs. Are there alternative approaches we can consider that increase patient satisfaction while minimizing any increases in staffing or operating cost?”

“We do a lot of benchmarking analysis, but I am often a bit skeptical about benchmarking comparisons that are used. For example, is portering part of the nutrition budget? Are patient meals delivered to the bedside by nutrition services or by nurses? These factors matter and are not always reflected in comparisons.

“As you look at ratios in the room service model, the best case scenario sometimes will result in it coming out cost-neutral. More commonly, especially after a few years, it tends to have increased labor costs. If you are the right size hospital, lower food costs may offset that. But in larger hospitals you had better understand the labor implications in your facility and situation.”

“There is a great deal of focus on maintaining satisfaction levels that have been achieved while also finding ways to take out costs and achieve more efficiency. Many projects show that even in what are viewed as fairly efficient operations there are many opportunities to improve the efficiency of systems. The key is to never be complacent.

“In coming years there is going to be greater demand to have retail foodservice contribute to the hospital, or have it defray a greater part of the cost of enhanced patient foodservice programs.”

“The biggest goal in hospital retail operations is to find ways of increasing revenue and margins, again, with little capital and a very quick payback when modest capital investment is required. Without capital, a lot depends on how tired a facility may be, but you can obtain some results by focusing on the product mix. For many, that's where the focus needs to be right now. It is important to know your top five to ten items and the five or six things that are truly important to customers and do them really, really well.

“In other cases, it is a matter of fine tuning concept development and the product mix and finding the right balance. You want concepts that increase throughput efficiency, and that sometimes means re-engineering the concepts you have. For example, modifying the traditional deli station where sandwiches are made to order to one where there is more use of pre-assembled sandwiches wrapped and displayed attractively so a customer will opt to just take one.

“People are visual: it is all about how the food is displayed and packaged, and achieving balance in terms of where you put your labor. The contract companies are very good at this. They will sometimes invest a very modest amount of money in signage, packaging and a facade refresh: done right, this can make a significant difference and help create a perception that there is something new.

“It is never harmful to provide added nutritional information. Many people are very into that. Those who want it will read it and find great value in it. Those who don't care, won't.

“Another way of dealing with limited capital is to focus on the people and service quality, making sure you present a professional service look with uniforms and food presentation quality in retail, catering and your room service program if you have one. Look at companies such as Starbucks, which emphasize the presentation of their people as a key element in their brands.

“Especially in healthcare settings, there are many long term employees who haven't had the benefit of formal training that can help them operate most successfully in a retail environment. Operators who deal most effectively with this are recruiting from the outside and putting individuals in charge of these areas who have hospitality, rather than healthcare foodservice, backgrounds. The right people can provide the training that has been lacking.”

“Even brown-baggers can be very helpful to you if you can get them to buy supplementary items like a beverage or a cup of soup, items that provide higher margins.

“Location really matters. If you can get lobby space for a cafe or kiosk, the combination of high traffic, utilization of a recognized brand (either through a franchise or licensing agreement) and margin can sometimes provide a return that helps you extend hours in a cafeteria. Administrations will sometimes make the mistake of asking that such an operation be outsourced,but in doing so, a department will give up a business opportunity that might provide a much more significant margin than the percentage of sales you'd get from an outside vendor. That margin can be put to good use elsewhere in your operation.”