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The rate of VAT increased from 17.5 per cent to 20 per cent on 4 January. How will this and the increase in food prices affect the catering function of your organisation? What actions do you need to take to maintain its profitability?

13 January 2011

Top tips for 2011    
Client organisations will be keen to reduce risks and cut the cost of catering during this period of economic recovery.

The increase in VAT can be tackled by price increases, re-engineering menus, adding value where appropriate and managing overhead costs more efficiently. Organisations that can offer great customer service will add value to their offer, driving revenue and profitability. So how do you go about it?

1. Contractors
Examine your current contractual agreements and agree with your contactors how you will either increase your tariffs or reorganise your service to shoulder some or all of the VAT rise.

Conduct an intensive cost and sales analysis to determine the gross profit achievable for each dish or product line. This will highlight if all or only some items need to be increased in order to maintain budgetary targets.
Assess upcoming contract negotiations in light of the VAT increase and agree how this will be managed and accounted for now and in the future.

2. Fixed prices
Good management of fixed price and commercial contracts are critical to the profitability of the caterer and delivery of either the return or fixed subsidy to the client.
Conduct an early meeting with all parties to establish how, what and when the tariffs or services will change.

Conduct a thorough customer use review and assess whether all elements of the service are still important to customers. Small changes may remove the need to increase tariffs.
Create an action plan for change and review it regularly.

3. Customers
Delivering great customer service is more important than ever, especially if the rise in VAT leads to less custom in restaurants, pubs and hotels, intensifying competition in the sector.
Ensure there is a training and development plan that includes a refresher on up selling techniques and a full customer service training programme. Execute with staff regularly.
Audit the premises and assess customer satisfaction. Ensure that managers and their teams are skilled, effective and productive and can deliver the service required.

4.Marketing
Execute a marketing plan with discounted offers. Like it or not, discounting is a critical part of the retail landscape. The plan, be it for a restaurant, café or retail outlet must be appropriate to the facility. Differentiate your business from the competition and agree what discounting methods will be undertaken. Allow for the cost of reprinting menus and associated marketing.

5.Revenue
Grow your revenue and gross margin. Re-engineer the menus so that price rises go unnoticed. Add something to the perceived value so people see they are getting something extra. Take care not to devalue the product.
Manage the tariffs and encourage staff to up sell on high volume profitable items. Reward staff for their efforts. Execute your agreed marketing plan.

6. Hospitality
Examine alternative ways of delivering your hospitality services by creating deli, café and retail style services. Explore nil subsidies, commercial or franchise opportunities.
Benchmark operating ratios against competitors and establish where key costs such as labour, food cost and other operating expenses vary. Then take action.

7. Costs
Look at supplier and procurement deals, and negotiate on a regular basis to achieve the best price, quality and value for your customers.
Agree an annual budget. Ensure the correct management controls and audits are in place to report on costs and revenue on a weekly/monthly basis, and take actions as a result.

8. Zero rating
Could you be eligible for zero rating on cold takeaway food?
If you are not a VAT-exempt business find out whether cold takeaway food and drink (excluding crisps, sweets, beverages and bottled water) are being traded as zero-rated.
Adherence to seating area requirements and recording volumes of cold takeaway food sales are critical to satisfying the needs of HMRC. You can also use HMRC’s bespoke retail scheme (see notice 709/1 on the HMRC website: www.hmrc.gov.uk). 


Key points
● Do not overlook VAT increases – they can have a negative impact on catering budgets and subsidies
● Plan ahead. Consider the impact of adjusting your tariffs and communicate any changes
● Add value to your offer to drive revenue and profitability in order to negate the increases
BIFM Catering Special 
Interest Group

Further info
● BIFM Forums The catering special interest group supports and promotes the BIFM, acts as a centre of excellence, shares knowledge, promotes best practice and responds to proposed legislative changes.
● HM Revenue & Customs The National Advice Service (0845 010 9000) has information on VAT changes. HMRC has also published a useful guide: www.hmrc.gov.uk/budget2010/vat.htm

Jane Dean is director of Jane Dean & Associates