What is the difference between a commercial foodservice venture and an institutional foodservice venture?

In other posts we’ve explained how the non-commercial foodservice market is an opportunity for food companies to expand; these are venues like education, healthcare, and business and industry. We’ve also explained how institutions in these spaces often outsource their food service to contract foodservice management companies (CFM), and how you can approach these businesses.

In this post, I’m going to go over the other side of this: the food service operations that are managed internally by the institution itself, known as “self-operated,” or “self-op” for short.

You’re definitely going to want to sell to these folks. It’s not an either/or, self-op or contract-managed, situation. You’re going to want to go after both. But it’s important to know the differences so you can prioritize your strategy and see how you fit in.

Speed

The first difference is speed. Selling to a self-op institution will likely go faster than selling to a CFM, as they can make their own decisions about which suppliers to use. They’ll have a buying department, but the process is not nearly as lengthy as becoming an approved vendor at a CFM. What MAY slow this down is their need to have your product in the system of their distributor — but if they want your product, they’ll usually find a way to bring you in.

Valuing differentiated products

As well as being faster, a self-op program is likely to be more discriminating and value a unique product that makes their dining program stand out. CFMs are large corporations whose primary responsibility is to maximize profits. But the motives of a self-op program are different. Their mission is to provide the best possible foodservice program for their particular institution. Yes, they want to make a profit, but that is not their primary purpose. Self-op programs are usually self-op because the institution wants to have a high-quality, differentiated program, customized to that institution. They’re looking to stand out. Colleges, for example, use the quality and uniqueness of their dining program to market the college to prospective students and their parents. So if you have a differentiated niche product, or an improvement of an existing category, you may have a more receptive audience. If an institution wanted a more generic program, they’d likely use a CFM.

Prestige

Some of the most prestigious and higher-end institutions, whether they are colleges, prep schools, or hospitals, happen to be self-op. Colleges like Harvard and Stanford, and hospitals like Johns Hopkins, for example. So, if you can gain access to some of these marquee self-op food service programs, your brand is going to get a major lift. And, as mentioned above, these better institutions are more likely to value a higher-quality or differentiated product, as it reinforces their own mission of delivering a high-quality and unique program.

These foodservice operations are looking to be distinctive, cutting-edge, and relevant. For example, if you have a product that scores high on sustainability, whether environmental or social, these folks are likely to be interested. What you need to do is plan out how your brand aligns with the institutional brand you’re trying to sell to, and capitalize on that similarity.

The Consumer Rules

Either way, what really matters, is that you have a product that resonates with the consumer and/or solves a real problem for the foodservice operator. Does it fill a real gap in the market? Is it different, better, more interesting, and/or more relevant to the consumer? Is it solving a real problem for the dining service operators?

Downsides

The main disadvantage of selling to self-ops is lack of scale. You have to win each account, one by one so your cost of sales is potentially higher. However, making it a little easier in this respect, the self-op sides of college and healthcare have their own associations and trade shows that serve these foodservice verticals. These are important points of aggregation and provide great opportunities to sell to these fragmented markets.

Conclusion

To conclude, whether to sell to self-op or contract-managed is not an either/or decision. If you are interested in the non-commercial sector, you’re going to want to approach both of these types of foodservice operations. With that said, self-ops are a great place to start if you’re a smaller business looking to get traction, and will help you build your proof-of-concept, your sales, and your brand.