C/U FSDs Tighten Their Belts

Rob White, president, and Claudia Scotty, CEO, of Envision Strategies

Financial stress. That single phrase captures in two words the dominant undercurrent tugging at campus dining operations throughout the country. For a look at the practical implications, we turned to Claudia Scotty and Rob White, CEO and president of Envision Strategies, a strategic planning and operational consulting firm that works extensively with clients throughout higher education.

“Intense budget pressures in higher education have meant funding cuts for just about every client we work with. The last fiscal year was probably the worst, and for some the bleeding has stopped, but department budgets are reduced from what they have been historically and this is affecting the services provided to students.

“The cuts have affected other departments as well, and to cope with them, administrations are looking to auxiliary services, and especially at any fund balances that are on their books, regardless of the legitimate reasons those balances may be there. So while the initial shock of the reduced budgets is one thing, the second wave involves raids on fund balances.”

“Catering programs are facing a triple whammy. As catering budgets of other campus departments have been cut, it has reduced the revenue streams of catering departments. In addition, you find that many retail foodservice operations have been financed with the assumption that catering revenue could be used to help subsidize them. They are now experiencing catering-related shortfalls.

“Also, especially in urban setting campuses, you find that street operators' off-campus restaurants have also seen a decline in traffic counts. They are becoming more aggressive in seeking catering business on the nearby campus as a way of making up the difference.”

“The revenue that drives the train on most campuses comes from meal plan sales; but schools are holding down meal plan cost price increases as they've come under pressure to control the cost of education.

“At the same time, administrations are taking a broader look at campus life, seeking ways to more fully engage students early on. That's led to a focus on making the first and sometimes second year a more structured experience, with efforts to get students to sit down to meals and plug in to the community. Dining benefits from those initiatives.”

“The proliferation of retail outlets on campus is continuing, but many have trouble holding their own financially when they're required to stay open in low traffic periods. It's critical that operators track the efficiency of each operation and adjust the service offerings and format to ensure they remain as self-sustaining as possible.

“Directors have become much more savvy about presenting a detailed business model for such operations to internal clients, with projections that clearly delineate both revenue and shortfall potential and the true cost of what the likely revenue and subsidy will be.

“If a loss is forecast, they may point out they can't ask students to subsidize a building's coffee shop through meal plan fees and instead partner with the client to garner financial and other support to make the outlet viable. That's the approach a management company or building tenant would use to address the same challenge.”

“C-stores can often be the most profitable components in a retail portfolio and continue to show great promise in terms of driving sales and ROI on a square foot basis. Successfully managing them requires a different skill set, and operators need to become more sophisticated about understanding the relationship between product mix, contribution margin and contribution profit, knowing which items drive profit and which don't.”

“Sustainability remains the biggest trend in the segment, with students demanding much more accountability from dining departments. We do not have a client that is not seeking a broader and more sophisticated approach to sustainability in every area, from local provider relationships to energy management and environmental stewardship. And the influence of these campus initiatives is bleeding over to every foodservice segment, from B&I to healthcare to the military.”

“Capital improvements were a major focus of efforts to make foodservice better align with student expectations…until the economic setbacks last year. Now, organizations are emphasizing strategic restructuring of operations to deliver better value, not just quality at any cost. We see some of the larger operations outsourcing production of their own recipes to manufacturers, for example. There is much more interest in tying investments in culinary and other resources to measurable outcomes, such as increases in profitability, customer satisfaction and participation rate. If operators can't measure the outcomes, it will be increasingly hard to justify the investments. “