Mandatory college foodservice fees quash competition, spark complaint

Nation's Restaurant News, Nov 4, 1996

Contract foodservice providers, in an effort to win bids, for decades have offered prospective clients creative-financing schemes to generate cash or pay for the construction or renovation of feeding facilities.

For instance, an airport-foodservice contractor, in exchange for a 10-year contract, might offer to front an airport authority $5 million for the construction of a food court or guarantee financing for such a project. Through such an arrangement the contractor helps a cash-strapped management entity pay for the new facilities it believes the traveling public wants. For its part, the contractor negotiates a contract it believes will leverage the near-captive status of the people passing through the airport into a revenue stream that will not only repay the loan but yield a reasonable margin as well.

In recent weeks a controversy has arisen at the University of Alabama in Tuscaloosa, centering around a new twist in creative financing for the improvement of foodservice facilities.

To help repay loans for the development of a new food court and the renovation of existing facilities - all managed by contractor Aramark - school administrators levied on the freshman class a $400-per-year-per-student foodservice fee. It buys students a debit card, or "Dining Dollars," which may be redeemed only at campus feeding outlets. The fee will be phased in by class level, with all students scheduled to pay it within four years.

Not surprising, Tuscaloosa operators are upset about the program, claiming it puts them at a competitive disadvantage and ultimately will divert $6 million a year in food-service sales away from operations not affiliated with the university. The city council has adopted a resolution characterizing the fee as "an unfair business practice," and it questioned the "joint-venture business arrangement [with Aramark] in the private sector by an otherwise-tax-exempted state educational institution."

Several thousand students are reportedly angry about the school's attempt to tell them where to eat.

As a result of complaints, students no longer forfeit unused credit remaining on their debit cards when they leave. Even so, by forcing students to pay the fee upfront and by requiring them to seek the refund, school administrators are pressuring their charges into buying on campus.

We agree that the mandatory fee, while a clever way to pay for construction, does constitute an unfair business practice.

We see nothing wrong with asking consumers to help pay for foodservice facilities development at venues run by tax-exempt entities when the financing schemes center around recovery through inflated menu prices. Diners can accept or reject higher prices based on their perception of the convenience afforded by eating at such facilities.

However, a mandatory foodservice fee, such as the one implemented at the University of Alabama, takes away the ability of off-campus operators to compete on any level - be it price or convenience.

If school administrators believe new facilities are needed, they should build them and pay off the debt through the tuition structure. If that is not an acceptable approach, the school could entertain offers of aid from Aramark, which might or might not be willing to help with financing if it knows upfront it will have to compete on equal terms with other area operators.