Bonus Points? More like PROFIT MARGIN POINTS
a guest Jan 13th, 2018 110 in 21 days
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- Bonus Points? More like PROFIT MARGIN POINTS
- Once again, the intrepid beancounters at IIT have found another way to squeeze additional revenue out of its unsuspecting students.
- For those not in the know, IIT has made a number of decisions, effective next semester, which make the acquisition of bonus points from meal plans much more difficult that it was before. Long story short, before the upcoming change, students could avoid eating at the commons by getting the Create Your Own meal plan and convert 175 meals to 1225 bonus points. After the change, only 30 meals can be converted. If you don’t live on campus or are unaware of the bonus point system used to purchase food at any on campus dining location other than the commons, you should still probably read on, as there are some absurd numbers coming up.
- I will perform a top down analysis of where all the money goes from the perspective of the financial audit reports of both IIT and Sodexo, but first, lets take a bottom up approach at analysing what drove the decision to essentially restrict the number of bonus points available to students, starting from the individual students themselves.
- The student demographic most impacted by this change are those living on campus, as students on campus are bound by their room contracts to purchase one of the three most expensive meal plans offered. The new restricted Create Your Own costs $4,994 per year, up from the old cost of $4,802 and comes with 125 bonus points and allows the exchange of 30 meals out of 175. The meal exchange program, official documentation for which is practically nonexistent, will allow, according to a student member of the Food Advisory Board, the use of a Common’s meal to purchase a “Meal” at Center Court or Talon’s. For those not in the know, a Center Court meal consists of a half sandwich, chips, and a drink, while a Talon’s meal is a half cold sandwich and soup. Want to buy anything else at these places? Better cough up some personal extra-meal plan bonus profit percentages. Its also quite interesting, and frustrating to note that the value of a meal exchange is still around 7-9 dollars, much less than the value per meal we are paying, $13.55, arrived at by taking the cost of the meal plan ($4994/2 semesters - 125 bonus points per semester) and dividing it by the number of meals purchased (175).
- The new 14+ costs $5,333, comes with 175 bonus points, compared to the old price of $5,125. If you are on the 19+ plan, you obviously have some intense, enduring love for the commons, and could care less about bonus points, or you are more likely just about ready to burn down the commons before eating there again. If the latter is true, you should definately read on.
- Let me take a quick pause here and note that according to the US Treasury, the rate of inflation for the dollar throughout fiscal 2014 was a flat 0.0%. Seeing as how meal plans are ultimately a reflection of a service, not a capital asset, it will take a lot of explanation to make me believe that other cost factors such as depreciation apply here to justify the 1.04% increase in price charged.
- Now lets take a look at what the cost breakdowns are for the average commons meal. As stated before, under the new CYO meal plan, a commons meal costs $13.55, the cost of each exchanged meal, under the new program, is about 7-8 dollars depending on the venue. Lets say you are a very hungry student who only eats the highest cost density items served at the commons. The real value of a hamburger at the commons is around a dollar. At wholesale prices, the patty, bun, and cheese is delivered to the commons at about $1 (according to Costco), the two food workers employed at the grill make hundreds of burgers a day and are probably paid at most a few hundred dollars a day, insurance and benefits included. Labor, therefore, adds only a few cents to the cost of each burger.The energy costs of refrigeration and heating the burgers, scaled to the hundreds of burgers processed, are also on the order of cents. The entrees served at the other lines are also likely purchased in bulk at comparable prices, and though they may require more labor to prepare, the end value of an item there does not exceed more than a few dollars. Also, if you’ve ever worked at an establishment that serves fountain drinks, you would know that the cost of the beverage contained in a 32 oz paper cup is comparable to the cost of the cup, so ditto to drinking your way to thirteen dollars.
- Surprisingly, the highest cost-density food at the commons is probably found at the salad bar. Although it takes minimal labor to serve, the mid tier “Spring Salad Mix” on Costco costs nearly seven dollars for three pounds. This cost becomes higher if you went with a more exotic salad dominated by tomatoes, onions, spinach, and that purple leafy stuff. (I’m not a vegetarian by any means) Moreover, salads have a calorie density of about 100 calories/lb, bumped up to at least 150 with the croutons, eggs, and dressings people usually pile on top. A very hungry student looking to get 600-800 calories from the salad bar could conceivably consume about five pounds or ten dollars of salad before the sheer volume of plant fibers in the student’s stomach deterred further consumption. Given the effects of that much fiber on the digestive tract, it is also very conceivable that the student will be deterred from eating that much salad ever again. There is, however, the additional cost to the janitorial staff in cleaning the stalls used by such a student, which shall be left to be determined...
- In summary, even in the absolute worst case scenario, the Commons still makes about $3 per meal. The average hungry student who gets 3 or so burgers and entrees, something from the salad bar, and a drink or two, probably incur a real cost around $6 per meal. The final profit margin per meal in the commons is probably in the neighborhood of 50%.
- The cost analysis for bonus points is much easier. First off, bonus point prices at various outlets across campus are inflated to the tune of at least 15% against a comparable item at seven-eleven. The only notable exception would be the coffee served at global grounds, the bonus point price of which is comparable to a drink at Starbucks, and possibly the alcohol served at the Bog. Under the old CYO plan, 2,401 USD purchased at most 1225 bonus points. Each bonus point then costs $1.96, and if you are buying anything other than beverages, is worth less than a real dollar, and Sodexo should be making a hefty margin comparable to if not above the margin at the Commons. However, one notable difference here is that the ratio of employees to customers at the bonus point venues are significantly higher than the ratio at the commons. The commons only has to be fully staffed during its short dining hours, and it serves a large volume of students. Other dining venues must be kept fully staffed for the entire time in which they are open. This incurs a significant difference in cost to Sodexo, who ultimately pays the employees.
- From these observations we conclude that at 2014 meal plan prices, IIT really shouldn’t care what students buy, Commons meals or bonus points. The profit margin for the commons meals are slightly higher, but still comparable. Sodexo is the party here with the most incentive to pressure students to eat at the commons, where labor is more efficient at serving a volume of customers. I guess the fact that IIT is conceding to the pressure from Sodexo is representative of the negotiating leverage Sodexo holds over IIT. At this rate, the Sodexo Institute of Sodexology might no longer be an April fools joke a few years into the future.
- Before we close, lets take a quick look at how many people are paying for meal plans. The number of students living on campus, and therefore forced to buy one of the expensive meal plans, is around 2000, deduced from the fact that on campus housing is operating at capacity and that there are 1106 mailboxes in MSV. Two thousand students paying around $5,000 per year for meal plans brings the meal plan revenue to $10,000,000.
- For comparison, according to the 2014 financial audit of IIT, the revenue from tuition net of scholarships was $145,353,000. The financial audit does not say exactly how much money is being paid to Sodexo, but being a publicly traded company, Sodexo has its own published financial reports. In fiscal 2014 Sodexo had 420,000 employees and generated 18 billion euros in revenue. Most of their revenue actually comes from corporate and healthcare services, but lets be very generous and say that the average Sodexo worker on campus is as effective at generating revenue as an average Sodexo worker overall. I estimate the total number of workers hired by Sodexo on campus to be around 200. This generous overestimation would suggest that Sodexo charged IIT $9,338,571 in 2014. From this we conclude that IIT was making money before the change, and once again Sodexo, not IIT, is the one who stands to make more money after the upcoming change, through reducing the amount of labor hours required to open numerous venues on campus.
- I have one final number to put on the table, and it comes straight from the IIT financial audits.
- For at least the past two years, IIT has been operating solidly in the green. In 2013, IIT chalked up an increase in net assets of $43,792,000. For 2014, the number came in lower, at $23,354,000
- Now that there is hopefully less mystery around just how much it costs IIT to feed you, or more accurately, how much IIT makes by paying Sodexo to feed you, I would like to encourage the 2,000 students living on campus to consider my current opinion, addressed to IIT:
- The total cost of paying Sodexo to feed us students is a very small part of the IIT budget. While I understand this is still a significant sum of money, this particular sum of money has a massive impact on the quality of student life. Everyone has to eat, and the significant portion of the enrolled students who are living on campus have no option other than to purchase expensive meal plans. These meal plans should, and are stated to be, a positive factor on the quality of student life. However, by effectively forcing students to eat at one venue on campus, you are severely limiting the perceived freedom of us students, which is an action extremely unlikely to increase our perception of the quality of student life on campus. Furthermore, by imposing this limitation, you are only further degrading the image of the commons as the place where all students without expendable income beyond their tuition and fees have to eat all the time. Even if you significantly improved the quality of food in the commons and extended the hours, it is very unlikely that the negative comments regarding the commons, already a pervasive complaint among the student body, will improve in the slightest.
- As an educational institution, you have the right to dictate to us students that we must pay a certain fee to be enrolled, that we must pay another fee for certain classes, that we must live on campus for the first semester in order to orient ourselves. After all, we chose to attend this school. However, even as minors in high school, we were used to the choice of not eating a school lunch and brining or buying our own food. The only cases in real life I know of where adults are forced to pay for a specific type of food that is forcefully imposed on them are food deserts in extremely impoverished areas, and the penal system.
- I fully understand that setting up new plans and allowing additional freedoms through the bonus point system will likely cut into the profits of IIT and Sodexo. But is the satisfaction of your students less important than a few tenths of a percent of your revenue? Is the cost of allowing me the option to buy the food I want really too high a cost for IIT to bear? I believe that IIT has the interests of its students at heart, and wishes to create the best possible student experience. After reviewing the information presented above, I very truly believe that IIT can make much better decisions in this regard.
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