CONTRACTING

Tariffs and Tariff Strategy 

Tariffs and Tariff Strategy

What are Tariffs

Tariffs relate to items on sale within- Restaurants, Coffee bars, deli bars, vending etc and are essentially the “Selling Prices” established to provide a solution that is equitable and yet profitable for the seller but affordable to the Buyer.

Importantly

Clients normally drive the Tariffs and the Tariff Strategy and will not grant tariff sovereignty to a supplier

CBRE may have in some cases Tariff Sovereignty

Prices set are normally cheaper than high level retail but not below Supermarket pricing

Annual benchmarking of selling prices is often included with a suppliers agreement

Tariff Strategies

Food Services tariff strategies are a vital commercial driver to and manage the service effectively. Many clients have very specific tariff strategies, however they are a material contributor to achieving optimised customer satisfaction and managing operating budgets for the Food Services in scope.

The Tariff strategy sets out how the individual services perform financially for the prices charged at point of sale and the recharge levels to LOB’s. Some services produce “profit” or positive over-recovery of costs, which off-sets other services which operate at a loss or subsidy.

Tariff for Free Issues

The tariff strategy sets the price-point for all Food Service sales and recharges, governing and steering the price end-users and individual lines of business pay for the services.

Factors and Considerations

Legacy pricing as the baseline, where the tariffs are reviewed annually and the existing tariff is simply increased by an agreed ratio, often set against an agreed indexation such as RPI.

Price-points can bed riven by local “high street” benchmarking against comparable external
products

Price-points driven by local staff demographics, pay grades and perceived disposable income

Subsidy level values or ratios and the tariff required to achieve a defined subsidy budget

Logistic considerations on the site and the feasibility for staff to use alternative options

Customer feedback, customer profiling and survey results

Client culture, well-being and workplace strategy

However, free-issue products and services such as office coffee and pantry consumables, or unique out-of-hours supplementary meal entitlements are within the scope of the tariff strategy considerations, identifying the elements which are available to client staff as free issue.

Free issues can represent a significant value and the scope and options should be regularly sense- checked as part of any tariff review, to ensure that the scope, product specification, quality or scale hasn’t evolved and developed into a cost prohibitive service.

Tariff across Service Lines

Strategy across Service Lines

The way in which a tariff strategy is structured across all service lines can drive commercial benefits whilst enabling wider client and CBRE strategies. Each service line tariff can be structured to deliver benefits to the overall cost of the subsidised Food Services, therefore appropriate overall tariff strategy planning should be applied when reviewing or setting a tariff strategy.

There are sometimes less emotive service lines which can sustain higher tariffs, or where customer expectation is such that a higher tariff is anticipated and readily accepted. These service lines should be optimised to deliver commercial benefits, or at the very least proposed to the client as an option to consider, demonstrating the potential value CBRE can offer.

 Commercial relationship between different service lines:

Labour and Recovery

Recharge tariffs for hospitality/catering and events are usually not owned by or the responsibility of the client, but by the individual LOB utilising the service. Recharge tariff once set and agreed with the client and LOB, has the ability to charge a more commercial rate, allowing over recovery to off-set the overall subsidy for other services.

Labour costs attributable to providing a professional hospitality/catering and events service can be a consideration, which should be built into the recharge tariff structure as an inclusive cost for the products on offer. Alternatively, product cost can be offered at a perceived lower rate plus labour costs as an addition, although this can create unnecessary visibility and additional administration> Separating labour costs should be avoided where possible.

The strategy of over recovery across any service lines can be contentious and politically embraced by the client, LOB’s and their staff. Careful consideration is needed to ensure that a proposed tariff strategy for hospitality/catering and events services is aligned to the client’s overall commercial strategy and cost recovery plans.

Clients who operate an over-recovery methodology on hospitality/catering and events, apply a strategy where they don’t off-set subsidies to reduce their operating budget. Instead they apply the over recovery benefit to refurbishment and Capex works.

Reviews

The tariff review schedule and principles should be agreed from the outset and accurately reflected within the SOS of the supplier contract, especially if a contract amendment is needed to meet local conditions. The tariff reviews are typically conducted at various different milestones driven by client / CBRE preference and legacy considerations.

Tariff Reviews

Establishing the timelines is key, which can follow:

• Calendar year
• CBRE client contract year anniversary
• Client financial year
• CBRE financial year
• Supplier financial year
• CBRE Supplier contract anniversary
• Tax year

January can be a sensitive month for increasing tariffs, due to post festive season impact on disposable income. Significantly higher negative customer feedback can be expected if implemented in January.

Typical Tariff Review Cycle

3 Months Out

Engage client & key stakeholders

Identify any specific client requirements

Identify any potential roadblocks or considerations

Brief the supplier

Agree customer feedback requirements

Present to stakeholders and advise

Sense check overall commercial impact and rationale

Review supplier proposals, support data and recommendations

2 Months Out

Assess the exceptional ratio increase products, both high and low

Present to client and seek formal approval

Market tariff review specifics

Commence drip marketing activity

1 Month Out

Prepare updates to all published tariffs, signage, websites, portals and printed collaterals

Finalise customer feedback methods and associated reporting

Evaluate overall customer feedback reports and publish

Replace all previously publicised tariffs

Implementation

Launch new tariffs

Gauge initial feedback and process responses

Evaluate commercial impact within MI

The Food Service supplier will normally manage the majority of the above activity, but does need to be
managed and direct effectively on the process, to ensure its integrity, ultimate completion and consistent implementation.

Tariff reviews should be conducted to the agreed frequency and individually item-by -item, not as a blanket increase ratio proposal. The expectation is that proposed individual prices shall represent both increases and decreases, to reflect where market product costs have increased / decreased against the
previous tariff review, or where excessive or minimal GPM is achieved. Once a new tariff is approved, individual pricing shall only be altered on the agreed date once CBRE approve with the client and only after the agreed stakeholder and customer communication has been appropriately conducted.