2004 Forecast - Agenda Watch

Noncommercial segments, already accustomed to tight budgets, look at cost containment

By Allison Perlik, Senior Editor -- Restaurants & Institutions, 1/1/2004

The forecast is for mostly cloudy skies with thunderstorms possible. That’s gloomy but acceptable when it follows a period of hurricanes and floods.

Chicago-based researcher Technomic Inc. predicts a difficult year ahead for noncommercial foodservice: business and industry (B&I) declining by 2%; education posting 1.9% nominal growth; healthcare inching up 0.9%. It would be a depressing assessment if it didn’t represent improvement over 2003, when almost no real growth resulted in major retrenchment in all noncommercial sectors.

What corporate-feeding, school, college and hospital foodservice operators have to work with this year is breathing room, a bit more maneuverability to come to terms with the “do more with less” reality that has descended in recent years. Budgets may not be appreciably larger in 2004, but foodservice directors have become more creative, making service improvements that require limited investments.

Control costs while finding additional revenue and profit sources is the common mandate. Despite the expectation of minimal growth, noncommercial segments have shown that the pursuit of excellence continues regardless of budget constraints.

Rise of the Machines
School administrators will push to give the U.S. Department of Agriculture (USDA) authority to formulate nutrition guidelines for competitive foods. These products, sold in vending machines and à la carte in schools, are not covered by federal guidelines that set minimum nutrition standards for school meals, according to Donna Wittrock, executive director of food and nutrition services for Denver Public Schools and current president of the Alexandria, Va.-based American School Food Service Association (ASFSA). The organization will urge USDA to establish regulations on items such as soda, chips and candy sold in vending machines. Many districts already have responded to criticisms of vended snacks by replacing them with more-healthful options.

Congress in October reauthorized funding for childhood nutrition programs—including the National School Lunch and Breakfast programs and the Summer Food Service Program—for another year, but school meal programs continue to be under debate. The USDA last year voiced concerns about over enrollment of school children for government-subsidized meals and is expected to increase its scrutiny of eligibility guidelines.

Dennis Barrett, executive manager of food and child nutrition services for the Dallas Independent School District, says federal authorities need to clarify the qualifications necessary for free or reduced-cost meals. “School districts must verify a certain percentage of students who are eligible,” says Barrett, “yet, up to 77% of households in this district will not provide proof [of eligibility]. Many parents are afraid. They don’t want to give out [immigration] or Social Security information. So school districts lose federal money.”

Free and reduced-price meal participation numbers are used as a basis for allocating other federal funds as well (including Title I grants for disadvantaged students), so any move to reduce enrollment is a threat to more than just school foodservice administrators.

The ASFSA has lobbied Congress to eliminate reduced-price school meals and expand access to free meals. Even the 40-cent fee charged for reduced-price lunches can be a significant barrier for many families, ASFSA officials told a congressional subcommittee in July.

Wage Worries
Labor costs include not only salaries but benefits, and both concern noncommercial foodservice operators. Pressures to boost the federal minimum wage may be less immediately problematic than continuing jumps in the costs of medical benefits.

“Who will pay for increased insurance premiums, the employer or employee?” asks Peter Napolitano, this year’s president of the National Association of College & University Food Services and director of dining services at California State University-San Bernardino. “If employees pay, it means less disposable income and shrinking retirement funds. If employers subsidize the additional costs, it means higher menu prices.”

Hundreds of hourly employees in the 17 schools of Rockdale County Public Schools, Conyers, Ga., face salary freezes, according to Peggy Lawrence, director of food services. “It doesn’t do much for morale,” she says.

Her goal is to improve self-esteem through job training and mentor programs. “Learning new skills boosts employee confidence and gets workers enthused,” she says. It also reduces absenteeism and job turnover. Encouraging teamwork between departments also helps solve common problems. “Every success is praised. If a staffer saves $100, we brag about it to our supervisors,” Lawrence adds.

Healthcare foodservice also faces cost-containment issues but with special challenges. “The healthcare industry is less impacted by what goes on in Washington than [are] school systems that depend on state and federal money and commodities,” says Michael Giuffrida, executive director of the Washington, D.C.-based National Society for Healthcare Foodservice Management.

“Healthcare needs to maintain excellence in services while reducing costs. As revenue streams decline, the cash issue becomes a greater focus,” he says. Medical facilities need more well-trained employees, including foodservice.

“There will be need for 1,000 new hospitals, 238,000 more beds, and renovation of 25% of existing hospitals within the next 20 years,” says Paul Hysen, a healthcare foodservice consultant from Northville, Mich.

Information, Please
On the horizon is a potentially crippling new threat to noncommercial food costs: labeling requirements. The U.S. House of Representatives recently delayed for at least two years legislation that would require meats to carry country-of-origin labeling. But it is clear that congressional support remains for adding broader nutrition information on packaged foods.

Moves to require nutrition labeling on noncommercial foodservice menus continue to be opposed by operators. “It will cost us more to do business,” says Ronald Ehrhardt, director of food services at Prudential Financial in Newark, N.J., and this year’s president of the Society for Foodservice Management, a Louisville, Ky.-based association. “It means paying for research and development, nutritional analysis of recipes, and printing labels and menus. How do you put nutritional information on a serve-yourself item? It would be a tough rule to comply with for most of the industry.” —M.S.