The Catering Opportunity: How Food Businesses Are Regaining Profitability
February 23, 2021
While food delivery apps have gotten all the press in the last few years as the food industry’s modern gold rush, another revenue opportunity has been growing in the shadows—and it’s one many food businesses can’t afford to ignore: catering.
As a revenue channel, catering isn’t just for big foodservice providers anymore. Traditional restaurants, food trucks, and even ghost kitchens are getting in on the action. From 2011 to 2017, the catering industry grew from a strong $37 billion to a massive $58 billion.
Catering spending is at an all-time high, with no end in sight for growth.
In an era of shrinking traffic, low margins, and rising costs, many food businesses are finding catering a powerful way of regaining brand equity and profitability—and so can you.
In this article, we’ll discuss…
- Why catering can be 4-5x more profitable than normal restaurant service
- The challenges any new caterer needs to anticipate
- 3 things all successful caterers have in common
Can catering help your business regain profitability? Let’s find out.
Why Restaurants Can’t Ignore Catering
With companies doing everything they can to attract and retain talent, skilled workers are often given the royal treatment, which had led to corporate catering exploding as an employee wellness perk. Even social catering requests for personal events, birthdays, and parties have grown dramatically, accounting for 63% of orders.
“We are very attracted to the large-party delivery catering in Olive Garden, where our average order is $300,” according to Gene Lee, CEO of Darden Restaurants. “That makes a lot more sense for us to market and pursue than running around delivering $10 entrees.”
But catering orders aren’t just bigger orders. They’re more profitable orders.
When you add up the increased revenue of a bulk order, the decreased cost of goods sold, and the optimized labor, it’s easy to see how margins can shoot up.
In fact, pre-tax profit margins for caterers is often 15% or more, which dwarfs the standard 3-4% margins for the greater restaurant industry.
That’s 4-5 times as profitable, which makes it obvious why established chains—including Panera Bread, Wing Stop, and Chick-fil-a—and independent restaurants alike have rushed towards catering as a means of growing their businesses.
Challenges New Catering Operations Need To Anticipate
Launching a catering initiative isn’t as straightforward as putting your restaurant on a food delivery app. There are some considerable challenges that need to be worked through before you can begin experiencing those wild margins.
- A ship without a captain. It’s important to identify and empower someone who can lead the catering charge. Changing systems, getting employee buy-in, tracking progress—it’s not a small task, and someone (or some people) need to make sure the execution is controlled and cohesive.
- Vans, drivers, and extra gear. Who actually gets the food from your location to your customers’? What vehicles do they use? Do you need to purchase other items, like insulated containers or drink carriers? Think through every step of delivery to ensure you don’t ruin an order because of something simple.
- Finding time to fulfill orders. If your restaurant’s kitchen is quiet during certain hours, those can be great times to build in catering fulfillment systems. However, this doesn’t always work—Jason’s Deli gets the bulk of their catering orders complete before their stores even open so that they’re free to accept last-minute orders. Take an honest look at when you have the time and resources to fulfill orders, then make a thoughtful plan around those times.
But the greatest challenge isn’t in the logistics themselves, it’s in preserving the customer-centered brand experience. Your customers love your restaurant for a reason—and it’s not just the food.
As Bruce Schroder of Moe’s Southwest Grill puts it, “The big failure in catering is when people forget about the fundamentals. You how to show up on time, take care of the guest, and if anything is not right, you need to take care of it—because this is a high-touch business.”
3 Things Every Successful Catering Operation Has In Common
Whether you’re looking at established chains or independent restaurants, it’s easy to see a few patterns amongst the most successful caterers. Here are three of them.
They Create A Catering-Specific Menu
Successful caterers know when something offered in a restaurant won’t present the same quality when delivered to a catering gig. Corner Bakery’s best selling grilled panini doesn’t show up on its catering menu because it doesn’t travel well. The same goes for the bulk of Firehouse Subs’ hot sub menu. Instead, they’ve optimized catering-specific menus of cold sandwich platters and salads.
But sometimes it’s less about the quality, and more about finding a high-demand offering that’s easy to scale. Chick-fil-a’s has nugget platters. Jason’s Deli has cold sandwich lunch boxes. Qdoba has bulk taco bundles.
Leaning into your strengths to create a catering-optimized menu helps you streamline your offerings, reduce operational strain, and get a taste of those juicy catering margins.
They Build The Business On Relationships
In catering—and especially corporate catering—there’s extraordinary risk for the person ordering \food. They’re spending more money on the whole office. There’s a strict delivery window. There’s no back-up plan if the delivery driver doesn’t arrive.
When there’s more risk, there’s a greater need for trust. And the best way to build trust between you and your customers is to build a relationship.
Good caterers behave less like automated ecommerce stores and more like relational salespeople. Great caterers take it a step further with sales reps that take the role of a customer success agent, connecting with leads and customers on a more emotional level and helping them solve their problems.
Get to know the people behind the catering orders, and they’ll be far more likely to pick you over another faceless chain.
They Master Their Planning, From Production To The Financial
You may have read at the beginning of this article that some caterers see margins of 15% or more and thought to yourself, “Wow… if we could only get 10%, that’d change everything!”
But why settle for a 10% margin when you could have 12%, 15%, or higher?
The caterers that achieve this level of financial excellence don’t just create great food, refine it in a catering menu, and make relationships. They optimize their entire back-of-house operation.
And here’s how…
- They learn how to stop over purchasing and producing food
- They cost their food in real-time so they can make recipe changes on the fly
- They simplify their production processes so you spend less on labor
Most restaurants can’t do any of these things (which explains the meager 3-4% margins), but they’re essential parts of the puzzle to 15% or higher margins.
That’s why we created Galley: to give everyday food businesses the clarity, organization, and planning power of their food data.
Our users can cost food in real-time and make recipe changes today that boost margins tomorrow (instead of doing the books in three weeks and hoping the numbers add up). They automate inventory and purchase fresh ingredients in seconds. They create optimized production guides that reduce wasted food and labor.
And with higher margins, smoother operations, and more time and energy, you’re able to focus on the things that really matter for your business, like become a highly profitable caterer.'Photo by Katarzyna Pracuch on Unsplash
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