Pricing Goals Apply for Caterer & Client
K Sridhar,
Managing Director,
Fusion Foods and Catering Private Ltd
The business of catering is complicated. On one level, there is the catering – producing and serving food, be it lunch, snacks or dinner. On another level, there is the over-the-counter business, mostly snacks, that involve hot and cold beverages (tea, coffee, juices/milkshakes), branded and MRP items, ice creams, bakery products, etc. Such counters are usually outsourced to smaller individual players by the caterer in question, and there begins my point of view.
Outsourcing can ease up the functional difficulties of a caterer in terms of logistics and service; but there is a downside view to this too. The individuals to whom the counters are outsourced cultivate direct relationships with the clients and pitch to become direct vendors. One of the basis for such a pitch, is the costing – which this small vendor will be able to provide at a lower price than is being given currently. This is one of the ways that they seek not just to make an entry into this business, but for growth as well.
When this vendor pitches for a lower price is when the issues begin. The lower price helps the small vendor gain an entry into the client circle; for the client, all he sees is the better pricing leading to cost saving.
However, what no one sees is the cost, which includes raw materials, labour and other indirect expenses.
Let Me Explain
The selling price is fixed for the term of the contract. The input cost on raw materials is seasonal and fluctuates depending on supplies; manpower costs and minimum wages are fixed by the government. When these are not factored into the pricing, it is a matter of time before your cash flow slides into the negative and you fall into a debt trap. This understanding is not there for the small vendor since he falls outside the purview of the compliance circle and as an individual seller in an unorganised framework, he can ignore all compliance until he grows.
All this then, moves into a vicious circle. When an organised caterer fails to deliver at the lesser pricing expected, he loses the business. Or on the other hand, if he does, then expecting the caterer to adhere to standards on food safety and compliance, would be unrealistic and unfair. Some of the blame for this, lies with the client as well. Clients have to recognise that there is a cost to standards being maintained in the catering business.
Finally, it is Catch 22 – Standards vs Costs. One without the other is self-defeating, and no caterer can survive without either in the long run, since clients will expect standards in safety and compliance to be adhered to. So the caterer who ignores this does so at his own cost. He may, in order to bag an order, offer unrealistic prices, invest in infrastructure and equipment without an assurance as to the longevity of the contract. This is certainly a myopic vision – and certainly not for the long haul.
As for the client, any new vendor/caterer, takes some time to stabilise and offer them the food and services that they desire. Short time contractual relationships therefore, are self-defeating.
Pricing then, should be seen as important and as realistic a benchmark as standards are, in food safety and compliance.