The Immutable Laws of Profit-and-Loss

Tom MacDermott

Some immutable laws are understood by everyone: gravity, for example-what goes up must come down. But other immutable laws are not so well understood: To survive, an enterprise must make a profit. Even a "not-for-profit" enterprise must take in more money than it spends.

Among those who understand the second immutable law are the institution-employed ("self-op") managers and directors of college and university dining services. Typically, dining services are considered "auxiliary enterprises," along with the bookstore and other campus support departments that sell goods or services. They are expected to pay their own way and usually, to also provide a return to the parent institution.

Not all students and other customers of these services agree. Some believe the services provided at a not-for-profit college or university also are (or should be) non-profit. In times gone by, many college-employed dining service managers thought so too. They proudly aimed to "break-even." For many, however, their aim wasn't so good, and their operations showed losses. The profits or losses generated by campus dining services were often masked on the institution's books by a euphemism-"gain to (or reduction of) reserves," for example.

Times have changed. Public colleges set up semi-autonomous auxiliary enterprise corporations or faculty-student associations as umbrella organizations for their sales-generating activities. Most non-public colleges and universities have followed suit, setting up auxiliary organizations, not always as a separate corporation, but at least as a separate department. The auxiliaries are held accountable to cover their operating costs, repairs, equipment replacements and, frequently, their facilities' renovations or expansion.

On many campuses, the auxiliaries also are expected to cover the debt service when a new dining hall or student union is built. One way some universities assure themselves that the dining service contributes its share to general overhead is a "service charge"- a sort of internal sales tax-of perhaps three percent on all of the department's transactions.

The college dining service director who fails to meet the administration's financial targets may face the same fate as a non-winning coach-they're replaced. In the case of dining services, the replacement often is a food service contractor. (You can replace the coach, but you can't outsource the basketball team.)

Obstacles to Profit
It isn't always easy for the college-employed dining service director to turn a profit, and it is certainly harder than it is for a food service contractor. Typically, the contractor employs its own staff, controlling wage rates and benefits. The "self-op" manager has college employees or, in the case of many public colleges and universities, state employees. These employees' wage scales and benefit packages often are generous; far higher than those of contractors.

A college-employed dining service worker may earn $15.00 to $18.00 an hour, vs. $7.00 to $12.00 for a contractor's employee. The college benefit package often costs 40% to 50% of direct payroll, vs. 25% for a contractor.

Self-op dining services, except at the giant state universities, don't have the purchasing power of a national food service contractor. They control costs with their wits and purchasing skills to make up for their lack of buying volume.

The self-op manager must rely on in-house talent for menus, promotions, merchandising and marketing ideas, training programs and the like, whereas the contractor provides these services for its on-campus managers. At smaller institutions, when the manager looks around for specialized talent in these areas, he/she must look in the mirror-there is no one else.

So, how do they do it? Generally with imagination and energy. Managers find they must attack their profitability problem on two fronts-reduce costs, especially labor, and increase sales. Here are the ways three college dining service directors have tackled the task of changing red ink to black.

Of all types of dining operations, the commuter campus cafe
poses the greatest challenge to profitability.

At Saint Anselm College, Manchester, NH (enrollment 2,000, nearly all residents), Dining Service Director Rosemary Stackpole was promoted in 2004 to her position from manager of the coffee shop/pub, which she had operated profitably for nearly 20 years. At the time, the resident dining operation was unprofitable.

The college has a debit card meal plan for 1,200 resident hall students. Some 600 of 800 apartment residents also belong to the plan on a voluntary basis. Students can use their cards in the Davison Hall main dining center, the coffee shop/pub, open all day and late into the night, and the new Common Grounds Café, "a non-partisan venue" located in the Politics Department.

It's important to ensure students spend all or most of their debit card balances, because the college permits refunds of unspent balances (after a service charge) at the end of each year.

Stackpole attacked the profitability problem with characteristic enthusiasm from both ends of the equation-costs and sales.

Labor costs, she found, were "way out of line." To bring the costs down, she cross-trained employees to do more than one job and rescheduled positions as an employee left or retired. "One employee's job was to fill dessert cases," she said. "We showed her how she could also take care of other counters as well."

New employees were hired for the academic year only, replacing year-round employees. Some of the 52-week employees asked for, and were granted, summers off, with no loss in their benefits packages. The culinary and bakery departments were reorganized, with fewer employees. The total staff was reduced by 12 positions (18%), but the actual reduction in costs is greater, because many employees are now on a 36-week schedule, rather than 52 weeks.

To boost sales, Stackpole took a retail approach to Davison's offerings. Brand-name bottled juice drinks and milk, bulk candies, packaged hummus, packages of cut fruit and vegetables and even chewing gum were introduced as grab-and-go items. When bottled juices were introduced last spring, sales reached $26,000 in the remaining eight weeks of the semester. Bulk candy sells at a rate of 25 to 50 pounds a day, she says.

A new pizza station, where pizzas are made and baked at the counter, and an "action station," where foods are made to order as the diner watches, were introduced. Both have proven popular at price points that yield an above-average profit.

The service reached profitability in 2005-06 and is on track to be profitable this year.

Of all types of dining operations, the commuter campus café poses the greatest challenge to profitability. With no mandatory meal plan revenue, the commuter campus dining service relies solely on retail sales. Unlike a restaurant on the street, selling days here are limited by the academic calendar, typically two 15 to 16-week semesters spread over nine months. Sales are less than half of a full day's sales on Fridays, the days before holidays, reading days and exam weeks. When all these low-sales days are factored in, the dining service is lucky to have 100 to 110 full-sales days.

Chronically unprofitable operations are common at these campuses. Often, the manual operation is kept alive by commission-revenue from vending services, which generally are very profitable on these campuses.

That's the situation Peter Wynn faced when he became dining service director at Cincinnati State Technical and Community College (enrollment 8,500) near the city center. When Wynn became director at the start of the spring 2006 semester, the dining center had been long operating at a loss.

He has some advantages-the college is housed in three buildings, connected by walkways. The café is located on the first floor of the main building, adjacent to a new, six-story parking garage.

Wynn saw two primary challenges to turning a profit: increasing traffic by persuading students to prefer the café to off-campus alternatives-"getting them to make purchases"-and making the labor force more efficient.

Wynn, who learned the business at the Ritz Carlton Hotel in Boston, is bringing the luxury hotel chain's attitude ("customer service is the first priority") to the staff. "I hire only people who can smile and have no experience," he says. "I can teach them everything else."

"I hire only people who can smile and have no experience.
I can teach them everything else."
—Peter Wynn

He recently introduced Brueggers' Bagels and both Starbucks and Seattle's Best coffees, all premium products that will help increase morning business.

"I want to change the concept from ' cafeteria' to 'café.'" Wynn says. "When people hear 'cafeteria,' it brings to mind where they ate in grade school and high school."

The hourly staff is currently half state employees and half "temporary" employees. The temps are temporary only in a technical sense. They may work full time, but are not eligible for state employment status or benefits. Wynn recently obtained state-employee status for one such temp, who had worked at the college full time for four years.

He says his goal is to have most of the staff state employees to gain "a more stable workforce." He says this advantage, and the efficient use of employees, will offset their higher wages and benefits and 52-week schedule. He says summer business is good enough-about half of academic year business-to support the staff, as long as they are productive. The addition of several summer academic camps for local high school students has helped greatly.

So far, he says, his efforts have been paying off. The café's check average is up eight to 12 percent over last year. He expects to turn the corner to profitability within three years.

The target's the same-turning a losing operation into a profitable one-at Indiana University's campus in South Bend, another all-commuter college. South Bend has an enrollment of 7,500, but only 60 percent of them are fulltime students. Half are nontraditional students, 24 years or older.

Steve Rose, director of dining services, picked up the challenges here just before the start of the fall 2006 semester. It was quite a change from his prior position, senior production manager at Notre Dame University, across town, he admits, but he's enjoying the opportunity to run his own show.

Among his challenges is the spread-out campus, with three dining facilities, including a new one, the Northside Café. The Grille is a full service café, open for lunch only, Monday through Thursday, in the Administration Building, facing a spacious mall that intersects the campus from east to west. The Courtyard Café, across the mall from The Grille, is open from 8:00 a.m. to 7:00 p.m. (closing early on Fridays) to accommodate evening students and serves to-order wraps, subs and grab-and-go items. The new Northside Café, primarily serving snacks and beverages, is in the northwest corner of the campus.

The multiple locations mean higher staffing costs, but each is located in a building adjoining a parking lot, which is a benefit in attracting traffic.

Rose says he's attracting traffic to the new Northside location with "Burma Shave"-type signs along campus pathways. (Burma Shave promoted its products with limericks, a line of doggerel on each of a series of small signs spaced along rural roads in the 1930s and 40s.) He also promotes sales for all locations with discount coupons in the student newspaper.

Rose said he found that "there was no history"-no useable sales or production records from prior years when he arrived. He's introduced new systems and streamlined inventory. "There was a lot of wasted food," he says. He's also adjusted staffing since he arrived.

"Sales are up a bit [from last fall] but not as high as I'd like," he said, but they're increasing. Is the service in the black? "We're becoming profitable," he says.

None of these tales is particularly unique. A random sampling of self-op college dining service directors would probably elicit similar stories of trying to push up sales and push down costs. But they illustrate the ingenuity, imagination, resourcefulness and determination these managers must utilize on their own in order to develop and maintain operations that serve their constituencies well-and turn a profit.

Tom MacDermott, FCSI, is President of Clarion Group, a Kingston, NH-based consultantcy that specializes in helping colleges, schools and institutions maximize the value of their onsite dining services and facilities. For more information, go to www.clariongp.com