Help! Our Dining Provider Can’t Turn a Profit!
One of the most common issues we’ve seen in the post-COVID higher-education field is a sudden lack of profitability for food service Operators. This is not surprising with fewer students opting to reside on campus and continuing supply chain issues; but understanding the new realities of higher-education food service doesn’t make it any easier to stomach the never-ending subsidy statements from your food service Operator. Unfortunately, we’ve seen many Operators struggle and fail to find a solution to this problem. Thus, it’s up to you, institutional leadership, to find creative ways out of the red. Here are five potential solutions that you might implement to move your dining services back towards profitability.
- Consolidate as Many Services as Possible
Consolidating all food services (dining, catering, vending) is the most straightforward solution possible for institutions looking to decrease their subsidy. Economies of scale come into play here; the more services (and thus, revenues) that fall under an Operator’s purview, the easier it will be to maintain profitability. If your institution currently contracts its food-related services out to different Operators, consider consolidation.
- Mandate Meal Plans for Non-Residential and Commuter Students
The loss of residential students on meal plans has been the biggest hit on revenue generation for higher-education dining. A guaranteed source of income makes planning for upcoming semesters easier. Operators can aim to keep costs below meal plan sales, and greater meal plan sales provide leeway in incurring costs. Consider introducing a modest declining balance meal requirement for non-residential students. A modest $200/semester plan for 500 commuter students could add $200K in guaranteed revenues to offset an Operator’s costs. Mandated plans also have the benefit of encouraging non-residential students to stay on campus longer and integrate with the larger residential community.
- Market Event Spaces to Third-Party Clients
Many higher-education institutions have beautiful but underutilized event spaces that are only available to student groups, alumni, and institutional leadership. While allowing third parties to host events on your campus does complicate event booking and security policies, it can also be a great source of revenue. Not only does this result in incremental catering revenue (as a rule of thumb, catering is much more profitable than dining), it also results in event rental revenue direct to the institution. Many third-party corporate and social clientele are willing to pay a premium for use of a ‘non-traditional’ event space. These event rental fees could go directly towards offsetting an Operator’s potential subsidy in the dining operation. In highly populated metro areas where space is at a premium, minimal marketing efforts can effectively fill an event calendar and guarantee additional revenue.
- Develop Off-Premise Catering Relationships
If your institution is unwilling or not able to host third-party events on campus, another potential solution might be to bring your catering department to the third party. Under this scenario, a food service Operator would utilize the institution’s kitchen to prep catered meals for off-site client events. This can be a great solution for institutions in metro areas with numerous office parks nearby. To offset any increased wear and tear on kitchen equipment, look at implementing a percentage of sales maintenance/repair/replacement charge-back to the Operator. If successful, some institutions may even be able to negotiate a percentage of off-site catering sales commission to further offset any potential subsidy in the dining operation.
- Look at Developing a “Master RFP” with Other Institutions
This should be an institution’s last resort in the quest for profitability. While this solution frequently results in big savings, it also reduces control over your dining services. This approach effectively maximizes the consolidation of food services on campus by combining your institution’s food services with multiple other higher-education institutions. This can be particularly advantageous for higher-education accounts with smaller residential populations; three Universities with a combined 6,000 student population are much more attractive to an Operator than a single university with a population of 2,000. This ensures greater revenue for an Operator and also results in reduced costs through sharing of labor and a common supply chain. If you have developed close relationships with nearby peer institutions who are in a similar predicament, this may be a great solution.
A word of warning for these and any other potential solutions; make sure to do your homework! Share your thoughts with your food service Operator and ask them to run detailed projections for any proposed changes to your dining services. While these solutions can be very helpful in certain scenarios, they can also have negligible results in others. Creating a dedicated event rental site for your institution, for example, might cost more than the incremental revenue generated from event sales if your institution is located in an area with limited venue demand. Regardless of your initial proclivity towards any solution, work with your Operator to determine the best approach towards profitability.
JGL is always happy to expand our network, have informal conversations, and share industry insights. Contact us to chat about your operation!