The contract model is the decision
Everything else in food service follows from how the agreement is structured, and organizations regularly go to market without having decided.
Profit and loss. The operator takes the revenue and the cost and carries the risk. You may pay nothing directly, or receive a commission. Simple to administer, and you see almost nothing of the underlying economics.
Management fee. You carry the cost and the revenue. The operator runs the operation for a fee. Full visibility, full exposure, and you need someone internally able to read the numbers.
Hybrid or guaranteed models sit between, usually with a capped subsidy or a guaranteed operator result.
A management fee that looks attractive next to a profit-and-loss proposal is not comparable to it at all. They allocate risk differently, and the comparison has to be on your total expected cost under each, with the variance modelled.
Rebates are the category’s buried issue
Operators receive volume rebates and allowances from food manufacturers and distributors, earned on the products purchased for your operation.
Under many agreements those rebates are retained by the operator. That includes, frequently, management fee contracts where you are paying the food cost. The effect is that your volume generates income you never see, while you fund the purchases that created it.
Require full disclosure of rebates, allowances and any marketing income attributable to your account, and specify in the contract that rebates earned on your volume are credited to your operation. Where an operator will not disclose, that is itself the answer.
Participation is the number that explains the others
Subsidy per employee is a meaningless figure on its own. Subsidy against participation rate is not.
High subsidy with high participation is a benefits decision your leadership has made, consciously or otherwise. High subsidy with low participation is an operating failure: pricing, quality, hours, location or menu. Cutting the subsidy makes it worse, because the people still using it are the least price-sensitive.
Before any sourcing event, get participation by site, by daypart, and transaction values. Most organizations have this data in the point-of-sale system and have never looked at it.
What to put in the RFP
- Participation and transaction data, so bidders price reality rather than capacity
- The contract model you want priced, requiring both if you are genuinely open
- Full financial transparency, including rebates, allowances and marketing income
- Retail pricing structure and who controls it
- Labor and management staffing assumptions, with rates
- Capital and equipment responsibility, including who owns what at exit
- Food standards, dietary and allergen requirements, and sustainability commitments
- An open-book format, so the bids can actually be compared
What good looks like afterward
Rebates disclosed and credited, subsidy reported against participation rather than in isolation, retail pricing reviewed on a schedule, and an annual operational review that looks at the food before it looks at the fee.
Food service sits inside the broader facilities services category. For running the event, see RFP management.
- Participation and transaction data
- The contract model you want priced
- Full financial transparency
- Retail pricing structure
- Labor and management staffing
- Capital and equipment responsibility
- Food standards, dietary and allergen requirements
- An open-book format
Issued in your structure, not the vendor's, so every bidder prices the same scope and the bids can be compared line for line.
How we help
- Spend Analysis: Spend analysis establishes where your organization stands and where value is trapped.
- Procurement Transformation: Transformation decides where procurement should go and what deserves resources first.
- Strategic Sourcing: Strategic sourcing turns strategy into implemented results.
- Value Tracking: Value tracking protects and extends value after implementation.
- Procurement Training: Training builds your team's capability so results last after the engagement ends.
- Fractional CPO: A fractional CPO gives you senior procurement leadership without a full-time hire: someone who owns the function, sets the commercial agenda and builds the team that eventually replaces them.
- Procurement Assessment: A structured diagnostic of how procurement actually operates across six dimensions, evidenced rather than asserted.
- Category Management: Category strategies that survive contact with the business.
- Supplier Negotiation: Negotiation outcomes are decided in the preparation.
- Cost Reduction: Cost reduction judged on what reaches the P&L.
- RFP Management: We run the whole sourcing event: scope, bidder list, document, evaluation and award.
Frequently asked questions
What is the difference between a profit and loss and a management fee contract?
Under profit and loss, the operator carries the financial risk and keeps the result, so you pay little or nothing directly but have limited visibility into the economics. Under a management fee, you carry the cost and revenue and pay the operator a fee to run it, which gives you full visibility and full exposure. Management fee suits organizations willing to manage the operation; profit and loss suits those who want a fixed outcome and accept less control.
Who keeps the manufacturer rebates?
This is the most consequential question in the category and it is often unasked. Operators receive volume rebates and allowances from food manufacturers and distributors. Under many agreements the operator retains them, even on a management fee contract where you are paying the food cost. Require full rebate disclosure and specify that rebates earned on your volume are credited to your operation.
How do we know if our subsidy is reasonable?
Compare subsidy per transaction and per employee against participation rate, not against a national benchmark. A high subsidy with high participation is a benefits decision. A high subsidy with low participation is an operating problem. The cause is usually pricing, quality, hours or location. Cutting the subsidy without fixing it reduces participation further.
What should a food service RFP include?
Current participation and transaction data, the subsidy position, the contract model you want priced, full financial transparency requirements including rebates, a defined pricing structure for retail items, labor and management staffing assumptions, capital and equipment responsibilities, food standards and dietary requirements, sustainability commitments, and an open-book format so bids are comparable.
How often should catering contracts be tested?
Every three to five years, with an operational review annually. Food service contracts often roll for a decade because changing operators feels disruptive, but the economics drift. Subsidy creeps, participation falls, and rebate terms negotiated years ago stop reflecting current volume.