More lo­cal eater­ies find­ing a spot on hos­pi­tals’ menus

Fran­chises are still a pop­u­lar choice for hospi­tal food ser­vice, but more or­ga­ni­za­tions are opt­ing to con­tract with lo­cal eater­ies. Health and well­ness is­sues also need to be weighed

Modern Healthcare - - News - Shawn Rhea

Three-and-a-half years ago, 254-bed Prov­i­dence Hospi­tal in Wash­ing­ton had a self-man­aged, on-site del­i­catessen that, while it served good sand­wiches, was a money pit for the provider.

“We were hav­ing prob­lems with por­tion con­trol,” says Beth Yes­ford, Prov­i­dence’s di­rec­tor of food and nutri­tion.

Yes­ford was grap­pling with ways to get the deli’s costs un­der con­trol when she re­ceived a call from a Blimpie sand­wich-shop owner about the pos­si­bil­ity of set­ting up busi­ness on the hospi­tal’s cam­pus. It wasn’t the first time Yes­ford had heard from the fran­chisee, but this time she was ready to lis­ten.

Af­ter meet­ing with him, it didn’t take Yes­ford long to re­al­ize that bring­ing the ven­dor on cam­pus could ac­com­plish more than sim­ply plug­ging the hole in the hospi­tal’s costly ven­ture; it could also pro­vide a rev­enue source.

En­cour­aged by the op­por­tu­nity, in 2006 Prov­i­dence signed a five-year agree­ment that calls for the Blimpie fran­chise owner to pay $3,500 a month to lease space on the hospi­tal cam­pus and $300 monthly to cover main­te­nance and trash haul­ing. The deal also in­cludes a rev­enue-shar­ing clause that says Prov­i­dence re­ceives 10% of any sales ex­ceed­ing $35,000 a month.

The ar­range­ment has an­other added ben­e­fit: “We were able to trans­fer our deli la­bor­ers to work at a cof­fee bar that we set up,” Yes­ford says. The bar, which brews and sells Star­bucks brand cof­fee, brings in roughly $200,000 in an­nual rev­enue, and the hospi­tal turned a fi­nan­cial loss on the deli into about $4,000 a month in reg­u­lar rev­enue from Blimpie. Pleased with the suc­cess, Yes­ford says the hospi­tal is likely to con­tinue work­ing with both fran­chise brands once the agree­ments are up for re­newal.

Prov­i­dence’s ex­pe­ri­ence echoes those of other hospi­tal sys­tems that have part­nered with branded food fran­chises. Such part­ner­ships are not new, but the deals are gain­ing pop­u­lar­ity as hos­pi­tals seek ways to cut costs, bring well-

liked cui­sine to their em­ploy­ees and vis­i­tors, and sim­plify their food­ser­vice re­spon­si­bil­i­ties. And in some cases, hos­pi­tals are choos­ing to con­tract or fran­chise with lo­cal eater­ies over cor­po­rate chains.

“Hos­pi­tals are al­ways try­ing to have a ho­tel-like im­age, so this is one rea­son they look to food fran­chises,” says Jay Ed­mond, di­rec­tor of food ser­vices for GNYHA Ser­vices, a group pur­chas­ing or­ga­ni­za­tion serv­ing hos­pi­tals in New York, New Jer­sey and Con­necti­cut. “Also, they’re looking to take a los­ing propo­si­tion and turn it into a profit cen­ter.”

Keep­ing em­ploy­ees happy

Bob Juer­jens, se­nior di­rec­tor of pro­gram de­vel­op­ment for Premier, an­other GPO, con­curs, say­ing hos­pi­tals are at­tracted to fran­chise food op­er­a­tions be­cause out­sourc­ing food ser­vices to es­tab­lished brand own­ers makes em­ploy­ees happy and re­moves a sig­nif­i­cant amount of an­cil­lary re­spon­si­bil­i­ties and costs from providers’ plates.

“Hos­pi­tals more of­ten than not sub­si­dize the foods they serve through em­ployee dis­counts,” Juer­jens ex­plains. “But when a fran­chise comes in they charge mar­ket rate, and em­ploy­ees don’t quib­ble about pay­ing that, where when the hospi­tal runs the ser­vices there’s the ex­pec­ta­tion that they should get a dis­count.”

Bring­ing in a fran­chise food ven­dor can also help hos­pi­tals re­duce their staffing costs since in many ar­range­ments the fran­chise owner is re­spon­si­ble for hir­ing, train­ing and em­ploy­ing the work­ers.

Food fran­chise op­er­a­tions can be at­trac­tive to hos­pi­tals for other rea­sons as well, Juer­jens says. “Some of it, from a cost per­spec­tive, is not only la­bor, but also cap­i­tal equip­ment ex­penses, par­tic­u­larly when a hospi­tal is grow­ing and do­ing an ex­pan­sion and they have the space for food ser­vice, but not the funds for the cap­i­tal equip­ment.

“A hospi­tal strug­gles to get the new and best med­i­cal equip­ment, so typ­i­cally food ser­vices ex­pen­di­tures lose the bat­tle” for cash re­sources, Juer­jens adds.

Ven­dors com­ing into a space of­ten bring in the equip­ment they need to pre­pare their foods, re­liev­ing hos­pi­tals of those cap­i­tal ex­penses.

Huntsville (Ala.) Hospi­tal of­fi­cials found that con­tract­ing with fran­chise food ven­dors was a good op­tion as they moved to re­vamp the 806-bed hospi­tal’s din­ing fa­cil­i­ties and bring a nearly 50-years-out­sourced food ser­vices pro­gram in-house.

Un­til last year, the na­tional chain Chick-fil-A had been a pres­ence on Huntsville’s cam­pus for about 10 years. The restau­rant set up shop at the hospi­tal un­der a fran­chise agree­ment it has with out­sourc­ing com­pany Ara­mark Corp., which un­til re­cently had han­dled all of Huntville’s food ser­vices. Chick-fil-A was well liked by hospi­tal em­ploy­ees, but when Huntsville de­cided not to re­new its con­tract with Ara­mark, it also lost the restau­rant.

“I don’t know why, but we couldn’t con­vince them to stay,” says Rudy Hornsby, Huntsville’s se­nior vice pres­i­dent of sup­port ser­vices. “Maybe it had some­thing to do with their con­tract with Ara­mark.”

Go­ing lo­cal

While the loss was dis­ap­point­ing, Hornsby says the hospi­tal saw an op­por­tu­nity to cre­ate a food-ser­vice pro­gram that would cater to the spe­cific tastes of its em­ploy­ees and sup­port lo­cal busi­nesses. In­stead of seek­ing fran­chise agree­ments with other na­tional chains, Huntsville de­cided to con­tract with lo­cal restau­rants to set up kiosks in­side the newly built food court. The hospi­tal struck a deal with a pizze­ria and pasta restau­rant called Mama’s Pizza, about 30 miles away in Gun­tersville, Ala.

“Em­ploy­ees had been clam­or­ing for pizza,” says Char Nor­ton, pres­i­dent of the Nor­ton Group, a health­care food-ser­vices con­sult­ing firm that ad­vised Huntsville on its food-ser­vices makeover. The hospi­tal also brought in a lo­cal Ja­panese restau­rant called Sakura to of­fer sushi and stir-fry dishes.

“We worked out a con­tract where we get a per­cent­age of the sales,” says Hornsby, who calls the ar­range­ments “part­ner­ships.”

“We don’t charge them rent. I think that works bet­ter, be­cause we both will work to make it a suc­cess,” Nor­ton says. “They’re fur­nish­ing the em­ploy­ees and the food, and we give the space.”

The deals call for Huntsville to re­ceive 10% of the restau­rants’ gross sales, and though it’s too early to cal­cu­late, Hornsby ex­pects the rev­enue will rep­re­sent 10% to 15% of Huntsville’s over­all rev­enue from food ser­vices. The hospi­tal also has set up a self-run bar­be­cue kiosk in the food court and still main­tains its cafe­te­ria.

Hornsby says the fran­chise agree­ments with lo­cal restau­rants have al­lowed Huntsville to not only keep dol­lars within the com­mu­nity, but also have greater con­trol over the ar­range­ment. “When I want to do a con­tract with a na­tional fran­chise, it’s a big cor­po­ra­tion, and even though we’re a large hospi­tal we’re small com­pared to them. We’re just an­other site, and the whole process of do­ing a deal over the phone from far away is a lot more dif­fi­cult than go­ing over and do­ing the deal in per­son.”

An­other up­side of the fran­chise ar­range­ments is that Huntsville has been able to re­model its food court with min­i­mal in­vest­ment in ex­pen-

sive kitchen equip­ment, Nor­ton says.

“The hospi­tal is very pleased be­cause they have an old kitchen and re­ally didn’t have the fa­cil­i­ties to do th­ese con­cepts on-site,” she says. “The pizza restau­rant makes its dough off-site, but as­sem­bles and bakes on-site. The sushi is pre­pared off-site, but stir-fries are done on-site with woks and rice cook­ers.”

Hu­sein Kitab­walla, se­nior vice pres­i­dent of the re­tail brand group at food-ser­vices-man­age­ment com­pany Sodexo, says fi­nan­cial gain is not al­ways the pri­mary driver of a hospi­tal’s de­ci­sion to jump into the world of fran­chise food of­fer­ings.

“Some of the health­care fa­cil­i­ties are fairly large, and they don’t want work­ers to have to leave cam­pus, as that can re­duce pro­duc­tiv­ity for them to have to get out and drive around to find what they want,” he says.

Fran­chises also can al­low hos­pi­tals to of­fer more on-site food op­tions to evening staff—some­thing that has typ­i­cally been a prob­lem for providers whose only food ser­vices are those of­fered by the hospi­tal-run cafe­te­rias.

Kim­berly Russo, chief op­er­at­ing of­fi­cer at 326-bed Ge­orge Wash­ing­ton Uni­ver­sity Hospi­tal in Wash­ing­ton, says open­ing a Star­bucks store in the lobby al­lows her hospi­tal to serve late staff.

“Last year we ex­tended the hours to 24 hours five days a week to meet em­ploy­ees’ needs,” Russo says. “That was not to make money, but to give our night shift ac­cess to the same ameni­ties that we have dur­ing the day.”

Prov­i­dence Hospi­tal’s Yes­ford says re­plac­ing the hospi­tal’s deli with a Blimpie fran­chise al­lowed it to ac­com­plish a sim­i­lar goal. Pre­vi­ously, the hospi­tal-run deli closed at 6:30 p.m. “We needed some­thing for our night shift,” she says. The Blimpie fran­chise is open daily un­til mid­night.

The wrong im­pres­sion?

While fran­chise ar­range­ments can pro­vide so­lu­tions and ben­e­fits to hos­pi­tals, they aren’t without po­ten­tial pit­falls. For one thing, hos­pi­tals have to care­fully con­sider whether bring­ing in fast-food ven­dors is in keep­ing with their mis­sion to pre­vent dis­ease and pro­mote well­ness, says Paul Gizara, vice pres­i­dent of prod­uct de­vel­op­ment for Ara­mark.

“For a while there was some skit­tish­ness be­cause of health and well­ness con­cerns with burger joints, but now we part­ner with brands that have strong health and well­ness ap­peal, like Sub­way, Quiznos and Ein­stein Bagels,” Gizara says. “All those brands have menus that speak to con­sumers’ con­cerns about health and well­ness, and have lower fat and calo­ries.”

Still, hos­pi­tals ac­knowl­edge that given the grow­ing na­tional fo­cus on obe­sity and chronic ill­nesses such as di­a­betes and hy­per­ten­sion, strik­ing a bal­ance be­tween of­fer­ing health­ier fran­chise food fare and of­fer­ing the pop­u­lar brands that drive rev­enue can be tricky.

Fred­er­icks­burg, Va.-based Mary Wash­ing­ton Hospi­tal, which has five fran­chise food ar­range­ments on its cam­pus, in­clud­ing a Sub­way sand­wich shop that has been on-site for 12 years, has dealt with such con­cerns by in­volv­ing key clin­i­cal prac­ti­tion­ers in a re­view of any branded food con­cepts be­ing con­sid­ered.

“The whole health and well­ness piece is a big con­sid­er­a­tion,” says Penny Ni­cholas, the Sodexo em­ployee who han­dles on-site food ser­vices op­er­a­tions for 442bed Mary Wash­ing­ton. “We have a staff of di­eti­tians who are in­volved with re­view­ing the con­cepts we con­sider.”

Loss of con­trol over food op­er­a­tions and qual­ity can be an­other prob­lem, say some providers who’ve had less than stel­lar ex­pe­ri­ences with fran­chise op­er­a­tions.

“You have to sort of de­mand qual­ity,” says Yes­ford, who notes that Prov­i­dence had sev­eral prob­lems when their Blimpie fran­chise was un­der a pre­vi­ous owner. “We had is­sues with uni­forms, and the ser­vice wasn’t that good. Some of the work­ers were com­ing in in jeans, and that’s against hospi­tal pol­icy,” Yes­ford says.

Both prob­lems have been cor­rected un­der the restau­rant’s new own­er­ship, but the ex­pe­ri­ence taught Yes­ford to plan for po­ten­tial prob­lems with a fran­chise ven­dor that could af­fect the hospi­tal. “I wrote into the con­tract that the fran­chise will be pe­nal­ized if we re­ceive a bad re­view from food in­spec­tors.”

While bring­ing fran­chise food op­er­a­tions on­board can re­lieve hos­pi­tals of the bur­den of sub­si­diz­ing food-ser­vice costs, the higher prices charged by out­side ven­dors don’t al­ways sit well with work­ers, and hos­pi­tals can also run the risk that they won’t be able to gen­er­ate enough sales vol­ume among em­ploy­ees and vis­i­tors to make a fran­chise a suc­cess­ful ven­ture.

“In a lot of in­stances, hos­pi­tals are sign­ing con­tracts, so if the brand fails, they’re re­spon­si­ble for all the fi­nan­cial bur­den that goes with it,” Gizara says.

As a re­sult, Gizara ad­vises hos­pi­tals to care­fully con­sider the type of part­ner­ship model that will best work for them when looking to bring a branded food con­cept onto their cam­pus. The ar­range­ments be­tween a branded ven­dor and a hospi­tal can vary greatly, he says.

“In some cases the hospi­tal will say, ‘Here’s the space; pay us rent.’ Some­times they say, ‘Pay us rent and a fee,’ ” Gizara says.

Large hos­pi­tals that pro­vide food ser­vices not only to em­ploy­ees but also to a large num­ber of daily vis­i­tors may choose to take a greater risk on their in­vest­ment for the po­ten­tial to reap greater rev­enue.

Ge­orge Wash­ing­ton Uni­ver­sity Hospi­tal part­nered with Sodexo to pur­chase and man­age its Star­bucks fran­chise. Both or­ga­ni­za­tions pro­vided cash to cover the ini­tial fran­chise fees, and the on­go­ing costs are cov­ered by the cof­fee shop’s monthly rev­enue. Sodexo han­dles the day-to-day man­age­ment of the cafe.

Mary Wash­ing­ton, which serves about 3,000 peo­ple a day through its food fran­chise out­lets, has adopted a mixed fi­nan­cial-ar­range­ment for­mula for its var­ied branded food con­cepts.

The hospi­tal pays a tra­di­tional fran­chise royalty fee to op­er­ate its Sub­way kiosk in­side the food court. But for its three Star­bucks kiosks, the provider chose to adopt the cof­fee com­pany’s “We Proudly Brew” con­cept, which al­lows the hospi­tal to pur­chase the cof­fee prod­ucts and branded con­tain­ers and sell those prod­ucts without pay­ing a fran­chise fee.

“The ‘ We Proudly Brew’ ar­range­ment al­lows you to sell some of your own prod­ucts along with the Star­bucks brand,” says Mary Wash­ing­ton Hospi­tal spokes­woman Kath­leen Al­len­baugh, who notes the hospi­tal sells break­fast items made by the hospi­tal cafe­te­ria at some of the kiosks but not at oth­ers. “We also bal­ance a lot of the fran­chise of­fer­ings with our own soups and veg­eta­bles, fruits and sal­ads.”

The Star­bucks cof­fee shop at Ge­orge Wash­ing­ton Uni­ver­sity Hospi­tal in Wash­ing­ton has proved es­pe­cially pop­u­lar with the night staff.

Yes­ford: Food is now a rev­enue source rather than a money pit.

Juer­jens: Fran­chises can help re­duce la­bor and cap­i­tal costs.

Af­ter los­ing a fast-food fran­chise, Huntsville (Ala.) Hospi­tal now dishes out Ital­ian fare from a nearby eatery. Mama’s Pizza owner Sherry Roach dis­plays one of her ap­ple dessert piz­zas.

Hornsby: Lo­cal deals can of­fer hos­pi­tals bet­ter con­trol.

Kitab­walla: Fi­nan­cial ben­e­fits aren’t the only con­sid­er­a­tion.

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