The Open University - Catering Strategy - November 2000
The Open University
Walton Hall, Milton Keynes
Catering Strategy
Executive Summary
November 2000
The Russell Partnership
The Open University - Catering Strategy - November 2000
Executive Summary
Consumer Led Catering
This paper is written to detail the catering brief set by the Estates Department at the
Open University and the process, research, analysis and proposed strategy
recommended by The Russell Partnership in response to that brief.
The Brief
The Open University Estates Department commissioned The Russell Partnership to
answer the following questions:
• How many food outlets should there be on campus
• Where should these outlets be
• What style and price range should they operate within
Throughout the last ten years, the Russell Partnership have pioneered a consumer
led approach to catering strategy, and have developed a Catering Retail Model to
direct and support the process of consumer focus.
The Process
The foundation of consumer led catering is understanding and delighting the
customer, thus the process must commence with detailed consumer research to
create an accurate and complete information base. Thorough analysis follows,
creating clarity of understanding and the required actions to satisfy the consumer
needs. It is then, and only then, that a consumer led strategy can be developed. The
agreed strategy can be clearly followed by product development, implementation and
production. This process is in stark contrast with traditional catering methodology
where production capacity leads the consumer!
The catering retail model as applied to the Open University necessitates four levels
of research: desk, quantitative, qualitative and site analysis. Each will have a marked
impact on the final output. Research analysis provides preferred choice, volume and
frequency of use.
The site analysis establishes market constraints and volume potential. With this
knowledge established, market focus, segmentation, outlet styles, unit size, price and
locations can be recognised. On completion, the structural alignment of the operating
departments needs to be addressed in order to meet the acknowledged new
challenges.
The Russell Partnership
The Open University - Catering Strategy - November 2000
Desk Research
The desk research undertaken has evaluated three prime sources of data. The
research reports analysed were National Trends to the Year 2005, The National
Lunchtime Report (which was conducted in Great Britain by RSGB 15th - 18th March
2000 as part of a nationwide general omnibus survey of 2,000 adults) and historical
research undertaken by QA Research for the Open University in 1997. Each report
provides an essential element in formulating the style and food offer required at
Walton Hall campus.
Below we summarise the key findings of each report.
The National Trends document is split into three key areas of research: The Future
Market, Catering Requirements of the Diner and the Future Demands on the
Operator. The growth in travel and the explosion of retail choice has led to a highly
educated customer when it comes to food and drink. The market is in a state of
dynamic flux, with change occurring at an ever-faster rate. Casual, simple dining are
the key 'buzz' words. Branding is well established and it will only grow over the
forthcoming years.
Diner requirements are changing. We no longer need to be hungry to eat, the dining
experience counts, the environment has to be fun, and we wish to be in control of the
pace of dining. The ease of purchase coupled with the need for value are overriding
in the diner's requirements. All day speciality coffee and healthy options are
essential. For the operator, the pressure is growing. There is a need to understand
the market, provide fresh produce, invest in people and create a fun and interesting
environment.
The Lunchtime Report provides further clarity on spend parameters, uptake and
offer. The report supports the previous items of research summarised. Average lunch
breaks taken in the year 2000 are 36 minutes; average spends £1.98, with 60% of all
adults taking lunch. The major food item consumed at lunch was a sandwich, with
just under a 50% uptake. Lunch was still seen as a snack with 86% of the
respondents identifying their main meal was in the evening. The popular food offers
included sandwiches, salads, soup, pasta, pies, snacks and yoghurts.
In February 1997, QA Research was commissioned to review the on-site catering at
the Walton Hall campus. The aim of the research was to assess staff attitudes
towards the catering provision. Key findings were: Over 75% of respondents were
on-site users; convenience and social reasons were prime drivers to use but users
were most dissatisfied with decor and ambience. Value for money and overall
satisfaction were perceived as average. The most cited reason for non-use was
price, and over 75% claimed cheaper prices and better value would encourage
usage.
The Russell Partnership
The Open University - Catering Strategy - November 2000
Quantitative Research
An electronic questionnaire, designed to span diet, catering requirements, outlets
used, frequency of use, reasons for visit and average spends, was distributed to all
on-line users on site. 350 responses were received, which was an excellent response
and demonstrated the interest generated by catering on site.
Respondents were requested to grade all catering outlets on campus using a score
from 1 (poor) to 10 (excellent). The following key conclusions were recorded.
The main Refectory received the lowest score in four of the eight criteria evaluated;
ratings were particularly poor for both price and value. There were no redeeming
factors. The Open University Shop scored particularly low on price and value; the
only criteria rating above average was service. The Beale Suite rated highly on
environment, however it received a very low volume uptake. Venables was midrange on all criteria evaluations except food and drink selection, which, along with
that of the Berrill Cafe were rated particularly badly.
The Beale Bistro received praise for quality of product and staff and environment,
however, once again, price and value were rated as poor. The Cellar Bar was the
one unit that received evaluated comments over 5 for all eight criteria, scoring
particularly well on service staff, and receiving the highest evaluation for selection of
drinks on campus!
The Pavilion received a consistency of evaluation (c 6.0) with staff rating highly. The
BBC Restaurant was the only outlet on site to receive evaluations in all criteria of 6.5
and over; the unit received the highest rated venue on 5 of the eight criteria. The
evaluation of environment was particularly high against other venues.
The research highlighted sandwiches, jacket potatoes, salads, hot meals, vegetarian
offers and soup as the key food requirements.
To conclude, the evaluations on all counts were very low, demonstrating widespread
disappointment and dissatisfaction with price, value, service and environment. The
units scoring lowest were units operated by the contract caterer on site - Baxter and
Platts. This highlights the need to re-evaluate the caterer on site and the nature of
the contract in operation.
The Russell Partnership
The Open University - Catering Strategy - November 2000
Qualitative Research
Eight focus groups lasting one hour were held with internal members of staff over a
twoday period. Fifty-six people in total took part, covering all Open University levels.
All respondents were encouraged to convey their views on current and future
catering arrangements on campus, covering aspects such as pricing, environment,
quality of offer, future requirements and service levels.
High occurrences of common issues were raised which are detailed below.
Convenience of location was a key driver to usage, with consumers highlighting that
a period of 3 minutes was the maximum they were prepared to travel to a single
outlet. Good quality food was the only reason to increase this time restriction. This
travelling time restriction is also compounded by the fact that once at the outlet,
queuing time can be excessive. This essential element of the delivery system
requires a major overhaul. A high percentage of diners used the same outlet on a
regular basis, indicating habit dining.
The convenience of location was supported by the fact that consumers will combine
catering with activities such as a visit to the book fair, shop or a social activity. The
current food offer was perceived as poor value, poor quality, with poor service and
characterised by queues. The volume and ferocity of comment was overwhelming.
The general environment was described as clearly cramped and depressing. The
consumer preferred to eat at the desk, or in some cases, the car! Price was seen to
be a rip off. The majority of the customers questioned felt that the offers on site
catered for a 'captive market'. The majority felt that they used the facilities through
necessity and had to 'put up with' what was on offer. Many felt, however, that there
was an "opportunity waiting to be grasped"
With reference to the future offer, sandwiches, healthy options, pasta and pizza
received high acclaim. High Street brands were not seen as the solution with
perceptions of high price and junk food.
The perception of a captive market may be diminished by the implementation of a
brand philosophy, which will reap the benefits of increased consumer confidence and
improved perception of price. If in-house brands are introduced fully (with the benefits
detailed later in this summary) and that product pricing is not increased, value
perception will improve, as consumers' expectations are that branded products carry
a higher price tag. There is an apparent need to move away from all units offering the
same products.
The service staff were also highly criticised as disorganised, under-resourced,
unhelpful and rude. The delivered service offer rated very poorly with comments such
as "It's a joke", "It's awful", "We buy in from outside" and "It frequently doesn't arrive".
The product offering on site was seen as inferior to that on offer on the high street,
and a growing vegetarian/healthy requirement was apparently not being met.
In conclusion, it is rare to receive such overwhelmingly negative comment relating to
all aspects of catering. The consumer is now significantly more dissatisfied than in
1997, and urgent change is required across all areas of product, service and
environment.
The Russell Partnership
The Open University - Catering Strategy - November 2000
Site Analysis
A frequent and sustained series of operational visits were made to all on-site
locations. We would make the following observations:

The site displays uniformity of offer, price, presentation and style. The current
approach is trying to meet a wide span of appeal - a scattergun tactic, trying
to be everything to everyone. We would propose a strategic shift to develop a
collection of niche products, with clear identity and differentiation to appeal to
a targeted group of consumers - a rifle gun strategy. This proposal is driven
by the clear segmentation of customer's needs, unit usage/price ranges,
identified within the qualitative and quantitative research.

An attitude demonstrating 'lack of ownership' predominated in many outlets:
slow table clearing; low levels of team working, lack of pride and motivation
were evident. A major customer care programme is required to attempt to
resolve this low morale. With consumers seeking increased choice, their
increased awareness of image, and clear market segmentation, brands are
here and here to stay. All new on-site development must follow brand design
philosophy. The research clearly segments the market and highlights the
urgent need for brand implementation. It also clearly rejects the import of high
street brand names, for fear of inferior products and inflated high street
prices. Thus, in-house brands must be developed, designed and
implemented. The common elements of the brands will include simple, limited
but distinctive menus, strong decorative theme (covering every visual aspect
of the operation), the them carried through to the signage, a number of unique
selling points, and agreed standards of performance. Areas of investment will
include marketing, kitchen/specialist equipment, refurbishment, crockery,
cutlery, glassware, uniforms, menus, signage and printing.

The operation displays an outdated cost margin driven approach to pricing.
The necessity to shift to a retail approach to pricing must be recognised and
implemented if optimum revenue and maximum cash margin are to be
achieved. Included in our research findings is a section on the use of menu
engineering - a step by step process through which management can
evaluate current and future menu pricing, design and content decisions. The
menu engineering approach requires that attention be focused on three
critical elements - customer demand, menu mix and contribution margin. The
concept requires management to focus on the number of pounds that a menu
item contributes to profitability, not to merely monitor cost percentages.

When margin is the difference between revenue (i.e. delivered from volume
and spend) and costs (driven by agreed quality of products and services
offered), the opportunity to increase margin rests with the ability to change
volume, spend or costs.

Operational analysis would support the view that staff and operating costs are
at a minimum (in some cases below acceptable levels). Minimal opportunities
are available to reduce costs; the opportunity is in volume and spending
growth.
The Russell Partnership
The Open University - Catering Strategy - November 2000

With the quantitative and qualitative knowledge of on-site price sensitivity,
price increases only provide minimal opportunities to increase revenue
growth. An external price validation exercise was completed to establish price
comparisons. This highlights that the internal market displays lower prices
than the high street. It should be noted, however, that value is seen as very
low.

Therefore, volume is the vehicle remaining to influence margin. Later in this
summary, volume growth opportunities are explored - they reflect the
increase in current usage to reach the potential market. We would understand
that future growth would need to result from the exploration of improved
volume market.

Inconsistent operating standards on site are widespread, with a multitude of
operators, the Club, the contractor and many one-off delivered services.
There is a need to curb 'bought-in services', many of which were seen to
arrive in the back of cars, breaking all hygiene and health and safety
legislation. The Club offer would also 'better fit' under the central catering
ownership, providing an opportunity to control/develop advertising, promotion
and maximise staff utilisation.
The catering service on site needs an urgent revolution to create a product and
service compliant with the needs of the consumer in the year 2000.
The Russell Partnership
The Open University - Catering Strategy - November 2000
Financial Evaluation
The figures supplied by Baxter and Platts show annual revenue of circa £500k,
including delivered services/functions of circa £250k. A food gross margin of 50%, a
wage cost of circa £175k and operating costs of circa £45k provide an estimated
profit of £30k to Baxter and Platts. If the revenue figures are accurate, this would
create an average spend per person per day ranging from 23p throughout the
summer, 29p through October to December and 27p January to June. This figure is
exceptionally low when compared to empirical daily average spends of c£2.20.
A menu mix and costing exercise was carried out on a selection of items, the
outcome of which would suggest the current achievable margin is closer to 60% than
50%.
The figures supplied have therefore been viewed with caution. A basic financial
model has been developed based on empirical data and on-site research, the
outcome of which generates a potential revenue of £1.4 million and operating profit of
£175.000. This excludes an allowance for management fees.
The potential financial strength supports the view that the existing operator is
significantly under-performing and that the current contract style of a nil cost is
inappropriate. The operation should be put out to tender and a new Cost Plus
performance guarantee contract be put in place.
Model Outputs
With the research and detailed analysis in place, and the consumer needs
understood, the model outputs of number of units, locations, styles and price range
can be calculated.
Unit Configuration
The ideal number of units on a given site is driven by potential volume spend and
customer flow patterns - the two are inseparable. When establishing the ideal
number of units, understanding peak volume and designing to meet those needs is
imperative. At the Open University, this peak is throughout lunch service - 12.00 14.00 hours. It is this peak volume that is the base to establish optimum outlet
numbers.
A historical customer penetration exercise (current consumer uptake as a factor of
total consumer population) provides the present market uptake. Current penetration
is extremely low at the Walton Hall campus; daily penetration levels are as low as
29%. The research undertaken would suggest uptake to be low because of the
extremely poor quality of product, service and environment, outdated delivery
systems and the lack of designated social seating space. Using the same research,
post the creation of acceptable quality of product, service and environment, and
applying generic national statistics, a projected peak penetration can be calculated.
This figure stands at 60% - almost a 250% increase on current uptake.
The Russell Partnership
The Open University - Catering Strategy - November 2000
This volume uptake drives the financial projections, demonstrating the commercial
opportunity of catering on site.
Overlaying realistic spend patterns on this volume projection an annual revenue in
excess of £1.4m is achievable (current revenue £500k). These figures assume no
volume or spend growth in delivered services of function business, an area that is
currently highly under-developed.
The penetration exercise confirms circa 2150 as the maximum potential lunch
volume. To calculate the ideal number of outlets, spend and movement patterns
need to be overlaid on the volume projections.
Research supports an average lunch spend of 62.00. This spend would support the
majority of food consumed will be light snacks, sandwiches and hand-held meals as
opposed to formal dining.
On-site consumer movement patterns would support the development of a central
Food Hub as opposed to the creation of additional outlying satellite units. This
concept is further informed by researched consumer preference. The central Food
Hub development also maximises staff utilisation, production capacity and facilitates
de-skilling where possible. Thus, it is proposed that the outlying units remain,
providing 335 covers, and a new central Food Hub is created to cater for the balance
of the lunch cover volume.
An additional 95 covers are required, plus extensive open, social and meeting space.
It is assumed that the outlying areas will also go through a brand and service delivery
makeover to ensure increased volume management capacity is deliverable.
Price Range
The National Lunch Report supports a lunch spend of 62.00 and this is further
reinforced by the local qualitative and quantitative research undertaken.
The price on campus is inelastic. A minimal price increase will result in extreme
volume shortfall. The current spend threshold is low, driven by low quality of product,
service and environment, however, the research suggests following increased quality
delivery, menu price increases will be acceptable in time.
A local price comparison exercise was undertaken at units visited by Open University
staff. In 90% of cases, competitive pricing was higher than the on-site offer,
demonstrating the consumer's flexibility to increase their spending if quality and
environment are acceptable.
The Russell Partnership
The Open University - Catering Strategy - November 2000
Proposed Ideal Food Model
The future ideal catering model reflects and responds to the identified researched
needs. The following pictorial pages illustrate the current and the proposed style of
offer.
The illustration denotes Unit Location, Food Concept, Theme, Model, Operating
Buzz, Theatre and Seating
The Russell Partnership
The Open University - Catering Strategy - November 2000
The Russell Partnership
The Open University - Catering Strategy - November 2000
The Russell Partnership
The Open University - Catering Strategy - November 2000
The Russell Partnership
The Open University - Catering Strategy - November 2000
The Russell Partnership
The Open University - Catering Strategy - November 2000
Key Elements of the Proposed Strategy

A strategy to drive a revolution in catering

A customer driven, not production led, strategy

A strategy built on understanding market opportunities

Outlets designed to manage diversity

A policy in place to drive consistency not uniformity

The use of menu and market engineering

The development of in-house product and food brands

An opportunity for staff to develop ownership

The implementation of intelligent IT/IS systems

A rifle not shotgun marketing approach

One single operator on site, operating in partnership with the Open University

Formulation & development of a strategy to reap the opportunities of the
latent demand for conference and function business within the geographical
area

A strategy to meet future growth of population on site
The Russell Partnership
The Open University - Catering Strategy - November 2000
A Vision for the Future
The clear vision is a collection of highly targeted, niche brands delivering efficient
service and management with a consistent product, to a well understood and
informed market.
The Russell Partnership
The Open University - Catering Strategy - November 2000
Next Steps
In order to develop this strategy, the following actions need to be undertaken.
 Design and develop a central Food Hub with attention paid to social space.

Procure a new and exclusive catering contract.

Brand and makeover outlying outlets

Take over operation & ownership of the Shop

Introduce menu engineering.

Develop a culture of ownership via tailored reward packages.

Review and design a holistic conference and banqueting sales and marketing
strategy.

Introduce a retail awareness programme to all operating units and personnel.

Introduce an appropriate management information system for catering outlets.

Sell the strategy to stakeholders.

Develop a financial business case/plan for all new developments.
The Russell Partnership