The Office Meal Catering Business

Posted by fshsfhsfh on Tuesday, July 5, 2011

This is a food business that is seemingly very attractive from the outside, but extremely painful once you get into it. I do not see this as a viable business model. Why?

1) The price points companies are willing to pay is very low (In Bangalore the typical rates for an office lunch is around Rs. 40/45 all inclusive). To run a sustainable/profitable business you need to be very large (e.g. RKHS, Sodexho, Nammura etc.), so that the volumes justify the low price points or be a local proprietary firm (i.e. you, as the owner buy the raw materials, cook the food, pack and deliver it to a small set of clients in the area).

2) One of the major attractions for folks to get into the food business is that, this business is a "Cash Positive" business - i.e. you collect your revenues instantly, while you can pay your suppliers later. For a catering business, where the company pays you, they will typically have a credit period - i.e. they will pay once a month/fortnight, requiring you to manage receivables and cash flow issues.

3) A number of companies are moving to the "Cash & Carry" model, where employees directly pay the pre-negotiated amount to you while picking up their lunch. The trouble with this model - you need to forecast and manage the volumes - i.e. there is no order commitment from the client. This is definitely better than the monthly invoicing model, though, and you don't have to deal with TDS (Tax Deducted at Source) issues.

4) Transportation costs are significantly increasing and is making the business un-viable at the price points expected by customers.

5) The employees (the end customers) are generally unhappy with the quality of the food - they just get tired of the same caterer and no single caterer is able to provide the variety that will keep the end-customers happy on on ongoing basis.

My prediction on how this business will evolve:

1) This business of preparing food in an external kitchen, transporting it to the office and setting up a food pick-up area everyday will vanish. The entire process is too inefficient, expensive and hygiene issues will become more visible.
2) Larger Companies will move to a food court model, where they will offer space for external brands to set up their units within companies - maybe push them to offer lower prices, by subsidizing rent, utility costs.
2) Small companies will stop offering this facility and some of them may just offer a cash equivalent or food coupons, in lieu of arranging for a caterer to come in and serve food. Employees will need to use options available in the locality.
3) Manufacturing set-ups will continue running their canteens, where the food is prepared and served on-site by a contractor.
4) Companies which do not have enough space to house external brands, will carve a small pantry area for atleast an on-site cafe/juice/snack stall - like a Juice Junction, so employees can atleast have some option on-site. Again, this will be contracted out.

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