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.
No comments:
Post a Comment