Food Service Management Company Part IV

In this segment, I will explain some tactics that I have seen used by some FSMC’s.  I assure you that if you are reading this, you will not see this information provided anywhere else. 

What follows is an actual description of only three of the tactics I have seen employed by a FSMC.   Many State Agency and school district personnel simply do not have a clue of how some (not all) FSMC really operates or how offering a free – no charge breakfast to students or promoting a $.10 breakfast can actually move money from the district to the FSMC.  Don’t believe me – read on. 

Actual Occurrence #1 

A school district has a contract with a FSMC that specifies a minimum “guaranteed return”, but the company’s monthly P&L shows that the district is making more money than the minimum guarantee.  The company wants a larger share of these “profits” than their bid price would allow and the company needs to legally get a portion of the district’s profit, that is the portion that exceeds the minimum guarantee specified in the bid.  After all the FSMC wants all the funds other than that which the bid specifies must be guaranteed to the district.  How can this be done legally?   It’s very easy and done under the “guise” of promoting “Breakfast at School”. 

Let’s assume for purposes of this discussion that the school has a “per meal” bid with FSMC – “X” that calls for payment of $2.00 per reimbursable meal served with an allowance for conversion of ala carte sales to “equivalent meals”.   This contract provides payment to the FSMC of $2.00 for every reimbursable meal served which will include lunch, breakfast and ala Carte equivalents.   Now you may think that manipulating ala Carte sales is the way for the FSMC to get those extra funds from the district’s side of the ledger.  Right?  If you think that is true you are wrong.  The way to do it is to offer “Free (no charge) breakfasts to all students or a Breakfast Special for $.10.  Think about that for a moment. 

The FSMC is paid $2.00 for every reimbursable meal served, including breakfast, which is the least expensive for the company to serve.  Let’s assume it cost the company $.75 (food & labor & misc.) to serve a reimbursable breakfast for which they receive $2.00 from the school district.  By promoting a “no charge” breakfast, the company loses nothing but actually gains $1.25 on each breakfast served.  Since most of these breakfasts would be from the “paid” category, the district will receive only “paid reimbursement” from the state and federal government and nothing from the student for the “service of the no charge meal”.  The end result is the district actually pays the FSMC from its “school meals” account and forfeits the student-selling price for the meal.   The company has now successfully reduced the amount of “profit” the school/district is making and legally “moved” a major portion of those funds directly to the bottom line of their Profit & Loss Statement.   I have seen a FSMC employ this tactic 2, 3, and even 4 times a month, depending on the number of free – no charge meals served.  Assuming that the “logistical problem” often associated with breakfast at school is not an issue, who would question a company’s effort to “increase breakfast participation?” 

Actual Occurrence  #2 

I have seen districts that have contracted with a FSMC for some years, and established a very “amicable” relationship with the company.  The district trusts the company, they normally will like its manager (and district manager), probably makes a bit of money (profit) each year, and is happy to keep the same company when it is time to “re-bid” the contract. 

When this scenario occurs a representative of the FSMC will contact the district business official and enumerate all the positive things they are doing for the district, the security of having a “local manger”, the profit the school is making on the company’s operation, and all the “hassle associated with a transition to a new company should they, the incumbent lose the bid.   When this occurs, the school will be willing to “bend the bidding laws” to try to keep the same company and of course the company is happy to assist in any way it can.  How is this done?  Easy, the company will offer to assist the district in preparing the bid specifications (which is not allowed by regulations).  The resulting bid specifications will not fully reveal all the data necessary for a “new bidder(s)” to properly prepare a competitive bid or in the manner described in #3 below, will impose unrealistic requirements for the bidder.  Often the number of reimbursable meals, ala carte sales, cost of labor, etc. can be significantly under reported in order to cause the new bidder(s) to bid higher than they might otherwise bid.  I have also seen school districts advertise the bid with minimum public notice, schedule a mandated “walk through” late on a Friday afternoon, and run the public advertisement on a holiday weekend (e.g. Memorial Day) when few read “classified ads”.  All techniques that is legal but used to discourage a competitive bid, thereby giving the advantage to the incumbent.  Of course the incumbent promised the district they would keep their bid low or at the existing level in return for the quiet bid.  Thereby securing the district’s share of the program’s profit.  

While it is true, that in this scenario, the district will make more money than it did the previous year, the FSMC will make much more.  Why?  Because it will have a contract that is presumably good for a 5-year term (or more) and had the bid been truly competitive and fair, the incumbent would have bid much lower to win the bid against its competition, thereby reducing its profit and increasing that of the school district.  The result, the incumbent company wins, and the school district thinks they benefited as well.  Actually the district will lose much more money than it thought over the 5 year contract term mainly because they liked the great job the staff of the incumbent contractor has working in the district.  What they didn’t realize was that if the bid went to a new company, that company would probably retain the same staff and produce the same meal but for a much lower price that would surely have resulted from the “competitive” bid. 

Actual Occurrence #3 

I once bid a contract in a situation where the school district wanted desperately to keep the incumbent contractor so their bid was a “fee based bid”.  (Fee based bids are described later in this booklet but essentially they allow for payment of a “management fee” plus reimbursement of actual and allowable operational expenses). This type of bid is not longer allowed in some States.  In my example, this particular bid specified that a cash security deposit of $50,000 had to be submitted to the district with award of the bid.  The security deposit would be held for 4 years and returned in the fifth and final year of the contract.  Two other prospective bidders refused to bid on this contract stating that the bid specifications and terms were skewed to retain the incumbent and impossible for any other company to comply. 

Well I calculated the cost of operating this particular program according to the information provided in the bid specifications, for my client (a competing company).  Most of this information was indeed skewed and misleading, but I knew the program and knew the “real” revenue potential, and so I was able to calculate a fair and realistic bid.  I even calculated the interest cost to my company for the $50,000 cash security deposit.  At the bid opening the incumbent bid a management fee of $4000.00 per year.  Remember under a Management Fee type of Bid, the “management fee” must represent the company’s profit since direct operational costs are reimbursed based on invoices, payroll records etc.  So a $4,000 annual fee meant that if the company operated the program “legally” it could only make a profit of $4,000.00 per year, and it would take many years, (certainly more than five years), before they could recoup their $50,000 cash security deposit and realized a real “profit”.  Of course, the security deposit would be returned upon termination of the contract but.... I knew the company would make their money in other ways and seriously protested the award of the bid. 

To make a long story short, the bid was awarded to this other company.  I immediately filed a complaint with the State Agency, and now this state no longer permits a Management Fee bid for schools cafeteria contracts.  My edification came when the school district “re-bid” the contract after the first contract year because under the winning company’s operation, the district experienced a loss of over $70,000 of their fund balance.  That’s $70,000.00 not the $4,000.00 administrative fee that was “bid”.  After skewing their bid specifications to retain the incumbent contractor, that contractor took advantage of the district to the “tune of  $70,000”.   Moreover, any clear thinking individual would know that the company didn’t lose a penny and probably made a huge profit ( that $70,000?).  The reason?  If the company had lost a singe cent, they would have been the ones who wanted the contract re-bid, not the school district.  

Note: the above and all articles in this Food Service Management Company series are the property of Frank Rinaldi (DBA SLANT Consultants), and may not be copied, redistributed, or used in any manner, unless approved in writing by Frank Rinaldi.  All Rights are Reserved.

Food Service Management Company Part III

The Bid Specifications 

First let’s be clear about a bid.  Whenever I use the term “bid” I am referring to a formal bid process not an RFP (Request for Proposal).  What’s the difference?  An RFP is simply that - a request for a proposal in which you ask potential vendors to provide you with a proposal that is a summary of what they will do for you for a specific fee.  In an RFP the solicitor will in effect say to all interested vendors, “I have X amount of money to (for example) in program revenue – tell me what you will do (how, etc.) for that amount of money.”  Then all vendors can submit their proposal, for consideration.  Each vendor will have a different approach and idea for completing the project but each would receive the same amount of money.  Often there is a rating system in which the vendor’s response to certain aspects of the RFP is weighted and a final score assigned.  Then a decision is then made as to which vendor receives the award. 

A formal bid, is very different.  In a bid you set forth the terms, the conditions, the specifics and basis (cost) on which the award will be made.  Essentially you ask each vendor how much they will charge you to provide the exact same service(s) that meet the criteria and time frame set forth in your bid specifications.

Essentially in an RFP the service and approach to delivery of the service differs by vendor but the fee received could be the same for everyone.  In a formal bid, all bidders quote a price for delivery of the same service as detailed in the specifications.  So the price differs but the service should be the same. 

Once a school decides to “bid out” the operation of its school cafeteria, the real work begins.  Unfortunately many school business officials think that once the bid is awarded, the management company takes care of everything and they have little more to do with respect to the food service program.  Wrong.  It is the School or District as the Sponsoring Agency who is charged with protecting the financial and nutritional integrity of the Child Nutrition Programs operating within their school(s).  Leaving most food service management companies without oversight and direct involvement is (in my opinion) granting them a license to steal from the program.  The most important first step in getting a reputable management company and one who will work with and for the school district instead of for them is the bid specifications that will be used.

 The bid specifications is the instrument by which the school “levels the playing filed” for all bidders, protects itself from unscrupulous bidders, and ensures the financial and nutritional integrity of its Child Nutrition Programs.  Some school districts use a formal bid process, others use an RFP (Request For Proposal) Process, while some others (believe it or not) simply pick a company and sign the company’s standard contract. 

If you want to have the best company operate your school’s lunch and breakfast programs at the best price a formal Sealed Bid Process is the only way to go.  This process entails developing a set of standardized bid specifications, issuing public notice, mailing copies of the bid to several management companies, scheduling a mandatory “walk through” or “pre bid meeting”, and having a set bid opening date and time with the award of the contract going to the lowest (responsible) bidder.  

Bid specifications should set forth for all bidders certain information that each will use in calculating their bid or with a “re-bid” at the end of the initial contract term.  Bidding regulations and requirements vary by State and you should consult your applicable State Agency before preparing or issuing bids or bid specifications to ensure that you are in compliance with all local and State laws.  However the following are items that I believe should be included in the detailed specifications accompanying every bid.   These include:

Average number of Breakfasts and Lunches (and Snacks) served on a daily basis by category – free, reduced price, and paid.  This is necessary for calculation of available revenues.

• The selling price for all meals and ala carte items– reduced price and paid student meals, adult meals and all ala carte items.  Also for calculation of available revenues.
• A sample breakfast and lunch menu for the elementary and secondary schools.  This menu should depict the types of foods the school community wants offered.  So all companies are bidding on and considering food costs for the same type of menu.
• A requirement to submit an insurance certificate for at least $1,000,000.00 naming the school/district as a co-insured.  To protect the school/district in the event of a lawsuit.
• A Performance Bond equal to a minimum of 10% of the projected operational costs for the year.  To protect the school/district in the event the company goes bankrupt or vanishes.
• A (Optional) request for a Guaranteed Return to the school/district.  This is predicated on the total available revenues to the program and the amount of money that a food management company truly needs to operate the program allowing them a fair profit margin.  Business Managers must calculate this amount by using the process described above that the FSMC would used to calculate available revenue.
• A listing of all current employee positions, number of hours worked, and current salary.  This information is provided to protect the current staff from a company “low balling” the bid and then cutting the salary of the staff to make their bid work.  These food service workers are members of the school community and really should be protected to the greatest extent possible.
• A summary of typical operational expensed and whether the district or the FSMC will be responsible.  For example, who will be responsible or pay for:
• Trash Removal from the building
• Cleaning of the kitchen each night
• Wiping down cafeteria tables between meal periods
• Replacement of flatware
• Telephone and long distance service
• Laundry
• Equipment repair
• Storage costs
• Sales tax
• A meal conversion rate for Ala Carte sales
• Standard of Identity for foods served in the program.
• An indicator of the type of Menu Planning Option the school or district is requesting.  Remember the district not the company must make this determination.
• Sanitation requirements
• Staff development and training programs
• Emergency closing of school
• Licenses, fees, & taxes
• Financial Accounting, Books & Record Accessibility
• Term of the contract and termination
• Date of mandatory walk through
• Items required by State and Federal Regulations and more

 I cannot emphasize enough the importance of the bid specifications to protecting the school during this process.  Once the bid specifications are prepared and issued, everything possible must be done (especially on a re-bid) to encourage competition and the submission of bids by multiple bidders.  This last point is so very important and one which many Business Officials do superficially when a “likeable”, “long-term” company has operated the district’s program.  They become comfortable and trusting with the company, and its representatives.  Often this leads to “skewing” the bid specifications to favor one company over other bidders.  This is a huge mistake and will always cost them money.  The purpose of bidding is to bring competition and with competition will come lower prices and a resulting increase in “profits” for the school. 

Lastly with respect to bid specifications, the district must always prepare the bid specs.  Never allow the incumbent or any FSMC to assist or consult on the content of the bid specifications.  New and/or inexperienced Business Managers will often allow an incumbent company to write the bid specifications in an effort to “assist them”.  Obviously the company will skew the bid specs to benefit them and limit their competition.  Good for the company, bad for the school/district. 

Next Posting - an actual description of only three of the tactics I have seen employed by a FSMC.   Many State Agency and school district personnel simply do not have a clue of how the FSMC really operates or how offering a free – no charge breakfast to students or promoting a $.10 breakfast can actually move money from the district to the FSMC .  Don’t believe me – read on.

 Note: The content of this and all postings in this series - regarding Food Service Management Companies remain the property of Frank Rinaldi.  All rights are reserved.  No portion of this or any of these postings may be copied, reproduced, or distributed without the written approval of Frank Rinaldi.

Food Service Management Company Part II

When the FSMC I worked for was “acquired”, I sat listening to the President of the new company conduct an orientation session for our staff and I was amazed at the things I heard.  Nothing he said surprised me but I was amazed that they were spoken aloud.  I immediately knew the corporate sharks were in town and could only correlate what I was witnessing to the movie “Pretty Woman” and the Richard Geer character that “acquired” small companies.  These companies use the word “acquired” not “purchased”, or “merged with”.   To me that says a lot about their philosophy, vision and true goal.  

At any rate, I listened as this individual explained that his company only operated schools in the K-12 category.  Imagine one company to operate only K-12 school cafeterias in this country.  That is amazing.  He explained that their corporation owned another company to manage colleges, another for business and industrial accounts, and so on.  He boasted that his K-12 company had a huge operating budget; I forget the number but it was something in excess of one hundred Million dollars, and that he could do things others could not and it was obvious that he wanted to grow the company much larger. He then went on to say that they would be focusing on school breakfast because of the huge available market.  He actually had a “hit list” of schools/districts that he wanted the company to target.  Nothing wrong or illegal with any of this but hearing it said aloud can have quite an impact.  At least it did with me. 

As he continued to speak, he explained the difficulty his company had in “bidding contracts” in New York State because “the process” was so difficult.  He side they had repeatedly tried but “just didn’t’ know how to bid low enough to win those “Per Meal Bids” in New York State”.  I liked hearing that because as a former NYS Child Nutrition Program professional, I was part of the team that established that process years before.   Anyway, he said that the number of contracted programs was increasing in New York State (as well as the rest of the country) and the potential was so huge that he decided to “acquire” our small company to “get a foot in the New York State door”.  As I said, all this was nothing I didn’t already know but I was shocked to hear a corporate giant say aloud that there was huge profits to be made in the K-12 school lunch community.  

Through the years, I have conducted an extraordinary number of Financial Assistance visits to schools and Financial Management Training Seminars all intended to help school cafeterias operate on a “self-supporting” basis.  School cafeterias (even small ones) have the ability to generate huge amounts of revenue each year.  In my opinion they all should operate “in the black” and can generate a profit.  I know we are not supposed to use the word “profit” in school feeding – after all we are non-profit but let’s face it, profit is what we are discussing and profit is what the FSMC sees in school cafeterias.  And it is time School Food Service Directors across this country started talking about “making a profit”.  

For most school’s Food Service Directors in this country operating at a profit is a challenge.  He/she will encounter many obstacles and must clear many hurdles before a profit can be made.  These hurdles and obstacles include employee contracts, the politics of the school/district, the need to keep everyone happy, the occasional lack of administrative support, limited budgets, the lack of the acceptance of “change” by staff, and of course there are individual philosophies on nutrition, and making a profit.  Often the School Food Service Director has a background in nutrition, health care, was promoted from a “head cook” position or was just an active member of the school community who “can cook”.  The problem is that most of these individuals do not have the business experience to operate the program in a “profitable” manner.  Conversely if a person has the business experience they normally lack the food and nutrition experience.

When a school district is searching for a new food service director, I inevitably hear suggestions to secure a Registered Dietician, to operate the program, and there is nothing wrong with this.  But RD's are trained in nutrition, not hot to operate a business or cost control.  Consequently I see many programs operated by a RD that are incurring an operational loss.  My point here is not to "put down" any dietician but districts need to have the best of both worlds, nutrition and financial cost control.  If the business office provides the financial oversight and works as a team with the dietician, the program can succeed both nutritionally, and financially.  The FSMC doesn't have this problem, they hire managers/directors who are capable of running a "profitable" program and have a staff of dietitians at the corporate level to handle the nutritional end of things.  But "on site" it's all about making money, never forget that.  If the program's doesn't meet the profitability margin that the company wants, the manager goes, and another fund who can meet the "bottom line" expectations.  The company has the best of both worlds, does not have to contend with the politics of the district (with respect to its staff).

 The FSMC does not have to contend with any of these obstacles and so the “playing field” is not level.  The FSMC is at a distinct advantage.  However with proper training and administrative support, (and where applicable union support), the school’s Food Service Director can succeed.  When a school business official, the board of education, and purchasing agent know how to write bid specifications, know what restrictions must be placed on the bidder, and know how to “control” the FSMC once the bid is awarded, they will succeed in maximizing their return while minimizing the FSMC profit. 

The FSMC is at a distinct advantage when they “target” a program and they know it.  Their sales staff is professional, they can promise a “guaranteed return” or a “no cost” to the taxpayer program.  Both options are very attractive to a school business official or a Board of Education who is struggling with an increasing budget, loss of revenue, and the potential for an increase in local taxes.  A FSMC can guarantee a return to the school/district because it knows the amount of revenue that the program can generate.  And more importantly they know exactly what its operational costs will be, so calculation of the potential profit or the amount that can be “guaranteed” becomes a no-brainer. 

As for a “no cost to you” program, that promise doesn’t give the school/district anything; it only allows the FSMC to take all the profit.  Nothing is ever at “no cost”. 

So, why does a FSMC want to operate your cafeteria?  Money, large amounts of money, with little or no risk for them.

What Does the Management Company Do Differently?

 What does the Management Company do differently?  Actually, Not very much.  But what they do, they do well and they are professionals.  When a school contracts with a food service management company they are “buying management”.  That’s it – Professional Management. The management company will normally use the same staff, pay similar salaries, pay limited or no benefits, and purchase from some of the same vendors that the school previously used.  The real difference is they will monitor operational costs and participation rates constantly, control inventory and employee work hours, and merchandise, merchandise, merchandise. Remember a management company will never bid on or agree to operate a school food service program unless its revenue pool is sufficient enough to cover all costs and leave a 10%-30% profit at years end. 

Once the company knows the amount of revenue available, the rest is easy.  Develop a budget based on food, labor, and other costs that will leave 15% to 20% for the bottom line, offer bonus incentives to managers who meet and exceed the “bottom line” and they are “off and running”.  Of course the budget for food, labor, and other must be realistic and based on past operational costs, which are always trimmed back to create a realistic but challenging goal for the manager and District Manager.

Look at your budget and evaluate just how much you pay in benefit costs, if you didn't have to pay those expenses, all that money would go to the bottom line.  Then think if your food cost were in the 30%- 35% range, how much more money would go to the bottom line.  Well, that is the real difference in a FSMC operation.  They essentially have that extra money for their "bottom line".  You could do the same if you had the company's purchasing ability and could get out of your benefit contracts.  But that is easier said than done, and without the staff and union's cooperation, it is virtually impossible.  And, the FSMC knows that, and they simply sit back and wait their time.  

I can say this because this is my blog, but look what union contracts and benefit costs have done to the auto industry in this country.  And in almost every district that turns its food service program over to a FSMC, the same scenario has taken place.  

When we would take over a program's operation, I would look at the revenue pool (as explained above), and of course the staffing level and their hourly rate.  I didn't care about benefits because we didn't pay benefits to anyone other than the manager/director.  Staff could buy into our health plan but they had to pay the full premium.  Anyway, I would sit with every member of the staff and tell them they has a job at the same hourly rate.  If someone said "take this job and shove it", I didn't care, because I could always hire another.   Also, I could afford to pay more per hour, if I had to because I wouldn't be paying the benefit costs.  In today's economy, it would be easy to hire someone for even 2 hours per day.

Next posting -- Bid Specifications

All rights reserved.  The content of this posting may not be copied, redistributed, or used by anyone for any purpose without the written permission of Frank Rinaldi.

 

The Food Service Management Company Part I

In recent years, the Food Service Management Company (FSMC) has become an integral part of Child Nutrition Programs particularly the School Lunch and Breakfast Programs operating in many states.  Some administrators see management company involvement as a positive factor, while others see it as a negative.  I have had the unique opportunity to experience the FSMC from several different perspectives.  That is as a State Child Nutrition Program Administrator, as a member of the Senior Management Team of a Food Service Management Company, as a Consultant, and as a trainer and educator.  I am often asked and often debate the questions, “Are Management Companies good for School Food Service”, “Do they Really Belong?”, and "What is the difference between them and a self-op?" 

It seems nowhere in the food service profession is the term “Food Service Management Company” received with such mixed reaction then it is at the elementary and secondary level of the school community.  To the school’s food service manager, the FSMC is a threat and perhaps the ultimate evaluation (of sorts) of his/her managerial ability.  To the food service worker, a FSMC is perceived as a direct threat to his/her employment and/or the level of fringe benefits they receive.  To the school’s Business Administrator, the FSMC is often considered as the only remedy he/she has to a program experiencing declining revenues, loss of participation, and a bottom line that is showing “red”.  However all to often, once the program’s operation is contracted out, the Business Official seems to take a “sabbatical” from the food service operation, trusting the FSMC to “do all the work”.  In these instances the Business Official forgets that it is the responsibility of the School Food Authority (SFA) to ensure that the program conforms to regulations and the requirements of the FSMC contract.  It is the school, not the FSMC that is responsible for meal prices, the quality of the food served, and monitoring the program (including the annual self-review).  

 The question remains, “are management companies good or bad for Child Nutrition?”  The answer actually depends on the company, and the philosophy of those who make the critical operational decisions for that company and to a certain extent to the School’s Business Office. 

 I know that most Management Companies is creditable and I also know that some are not.  I can however assure you that all FSMCs are “in it for the money”.  If there were no money to be made, the management company would not be interested in operating a school’s cafeteria. So why do schools contract out the operation of their cafeteria if there is money “to be made”?  And more importantly, once they decide to contract out the program, how can a school prevent a FSMC from “taking all the money”? 

I spent four years working as a member of the Senior Management Team of a small regional food service management company operating in New York State.  That company was extremely creditable and went to extremes to recruit me specifically because of my background, and because they were commitment to ensuring their creditability by protecting the financial and nutritional integrity of the school lunch and breakfast programs they operated.  Initially my primary function was to ensure that everything from purchasing to menu planning was done according to regulations and with the student in mind.  My role eventually changed to be one of training, administration and policy development.  My philosophy and that of the owner of that company was that if we were honest and creditable in the school community, word of our honesty and integrity would spread thereby dispelling some of the negatives associated with a management company.  That would provide us the opportunity to bid on and win more contracts.  And of course, it was our hope that success would follow.  Well, each of these things did occur, word of our creditability spread, and the company was successful.  In fact it doubled in size during the four years that I was associated with the company.  So successful was our effort that one of the largest food service companies in the world decided that they wanted to own our company and (as the saying goes) made an offer that could not be refused.

Why Would A Food Service Management Company
 Want to Operate Your School’s Cafeteria?

 

The answer is easy.  Money.  School Lunch and Breakfast Programs are big business.  Many school cafeterias (even unsuccessful ones) generate Millions of Dollars in Revenue each year.  You don’t have to be a financial genius to know that when any business venture has the ability to generate considerable revenue, there is a profit to be made and someone will attempt to capitalize on that.  Moreover, most State Agencies either do not have an adequate “bid process” established or they lack staff who are adequately trained and do not know how these companies really make their money in school cafeteria bids.  When I worked for New York State’ Office of Child Nutrition (which was a very progressive State Agency, with a model FSMC contract process), I thought we knew it all and that I was as competent an auditor as I could be.   Wow was I ever wrong.  As I look back at that time, I really did not “have a clue”.  The same holds true for the Staff of many State Agencies today (with respect to Management Companies), they simply don’t have a clue.  Having worked on both sides of the fence I know first hand that even in a very large progressive State Agency like New York the staff will never fully audit a FSMC school district with respect to anything other than the requirements of CRE (Coordinated Review Effort).  Why?

 §       Their experience is normally from outside school food service. 

§       Few of them have ever worked for a FSMC

§       They do not have the time to spend on an in depth audit of a FSMC’s billings

§       They believe it is the school’s responsibility to audit the company’s billings.

§       They really do not know where to look or how to find the way some of these companies make their money.

 As I said earlier, the company I worked for was honest and creditable and we did everything “by the book”, I made sure of that.  However the “book” allows a great deal of latitude and flexibility in the contract process.  It is up to the School to know what restrictions to place on the FSMC, where to place them, and how to ensure compliance.  But most of them rely on the State Agency for direction, advice, and training.  Unfortunately and not to be redundant but most State Agency staff just do not have the “hands on” experience necessary to provide this sort of direction.

 When it comes to larger school districts, those with multiple buildings and growing enrollments, a FSMC can and often does guarantee a return to the school.  Often this can be a substantial amount of money ranging from a few thousand dollars to tens of thousands.  And despite this “guaranteed return”, the FSMC will still make an extremely large profit.  

As for small one building schools or non-public schools, the company I worked for would always submit a bid to operate the program even when other companies were not interested.  Why, because, once again, there was money to be made and making less on a small account is not so bad when (because of the lack of competition) you can bid much higher, and “get it all” - that is all the program revenue generated each month.    And although they were making a lesser amount on each school, if you have 8 or 10 small schools under contract, in a year’s time that lesser amount can easily equate to a hundred thousand dollars or more.   

 All rights reserved.  Content of this post may not be used, or copied, or redistributed in any manner without written permission from Frank Rinaldi

 

Increased Free & Reduced Price Eligibility vs Cost of Preparing & Serving a Lunch

Currently unemployment nationwide is at its highest point in 60 years and it is estimated that the number will continue to grow in the year(s) to come.  As you know, families that are being impacted by unemployment immediately become eligible to receive a free or reduced price meal at school.  So my question, "will this increase have a positive or negative impact on your cafeteria budget?" 

Traditionally, every school food service director and Business Official hoped for an increase in free and reduced price eligibility, for with it came increased State and Federal Assistance and added revenues for struggling cafeteria budgets.  Although an increase in free and reduced price eligible students will result in increased Aide to the district, I am not sure (at least with respect to the cafeteria) that an increase in the number of eligible students will benefit the food services program financially.  Consider the following: 

1.    Currently each free and reduced price lunch generates $2.57 in Federal revenue for the program (plus whatever your State contributes). In New York State this amounts to approximately $2.63.  How does this amount compare with the fully accrued cost of preparing and serving a reimbursable lunch in your district?  At one time the difference was a positive number.  I am not sure that is true any more.  The increased cost of food, labor, and benefits has driven the full cost of preparing and serving a school lunch to $3.00 or more in some districts.  What is it in your siatrict?  Will your program benefit or lose money from an increase in free and reduced price students? 

2.    If we assume that an increase in the local unemployment rate will translate into an equivalent increase in free and reduced price applications, how will the increase impact your 2009-2010 cafeteria budget?  Will processing additional applications cost the program more time, and labor?  Will the added applications result in a greater operational loss on the program? 

3.     Recognizing that Wellness Plans have resulted in reduced revenues in many districts, and many States are planning additional restrictions on what can be sold in a school cafeteria, how will a disparity between the cost of preparing and serving a meal be balanced with reduced program revenue?  Specifically the loss that results from a decline in ala Carte and snack sales, combined with the possibility of a negative cost per meal versus the free and reduced price reimbursement rate?  Will your district subsidize the program, request voter approval for a subsidy, or consider other options (the food service management company (FSMC))? 

4.    Will newly eligible free and reduced price students participate, or will they feel embarrassed and choose not to participate?  If they do not participate, will this result in a drop in “paid lunch” revenue because of their family’s lack of money? 

5.    Will newly eligible free and reduced price families still have money for their child(ren) to spend on ala Carte, or snack items in the cafeteria? 

This issue is an important one and one that I do not hear being discussed by State Education officials, or addressed in this media, or by food service managers/directors.  I have committed myself to working with Child Nutrition Programs for over 30 years providing training, and technical assistance to districts (formerly) as a member of the State Education Department Child Nutrition Administrative team, and (currently) as a private consultant.  Please know that my intent in writing this article is not to be “self-serving”, rather that I want to see school food service programs that are intended to operate on a self-supporting basis succeed.  Moreover success may be predicated on the preparation of a realistic and accurately prepared 2009-2010 budget.   I also want programs to succeed because of:  

§       My belief that every program has the ability to operate on a self-sustaining basis.  Of course this often requires change, and often the change necessary requires a paradigm shift, and that involves making some difficult decisions. 

§     My commitment to helping districts retain a district operated program, which means keeping the food service management company out of school cafeterias.  While there is a time and a place for everything (including the FSMC), it is normally the hard working, dedicated food service staff (taxpayers and members of the school community) that is impacted when a management company enters a district. 

§       The fact that many of the state’s food service directors and managers are known to me, and they are hard working, caring members of the district’s total educational process.  Unfortunately, we are in very  difficult financial times and food service managers/directors do not make many of the decisions that impact so forcefully on the financial status of the program they manage. 

In closing, it is my hope that the issues I have brought forward here will be addressed in your cafeteria budget this year.  Perhaps more importantly it is my hope that they become an argument for increases in State Assistance to Child Nutrition Program, instead of the reductions that we have already seen. If not, the food services program could find itself operating at a significant loss next year placing the Business Office and the Board in the position of having to make some very difficult decisions.