Making 2 meals out of 1.

As managers we are taught to “be friendly, but not friends”. And, this is very wise advice. At its core, it means to be nice and be kind to your employees. It also means it is okay to consider them holistically as an individual person, to know the goals and challenges in their lives. This information allows you insight into them that will enable you to get the most out of her or him and help them get the most out of themselves. But, that is where the line is clearly drawn. Once things cross into friendship, your objective ability to manage that person is lost and they, on the other hand, lose their sense of boundaries.

Uniquely, in the world of school foodservice, a culture exists where this line was crossed ages ago and to the point at which many purchasers forgot that purchasing is a zero/sum game, with one side winning and one side losing. Far too often, many schools have lost this game before they even knew it started. And, by viewing their purveyor as a “friend” instead of a “frenemy”, many school food programs spend the summer scratching their heads trying to figure out how they lost $200,000 again for the fifth year in a row. (And yes, it is not unusual for a school system to lose between $100,000 and $300,000 on foodservice annually.)

In the school food industry, there is a state of affairs the likes of which do not seem to exist in any other part of the business world. It is a microcosm that fosters a culture in which customers, suppliers, and manufacturers all work as friends for the common goal of “feeding the kids”. Yet, although it is an admirable theory, this state of affairs does not exist in reality. It is simply a case of smoke and mirrors and nowhere does it get smokier for a school than in the world of the USDA Commodities program.

All school-related USDA funding programs are intended to help school systems offset their food services losses, which almost every one of them has. At its core, the USDA Commodities program is essentially an annual economic stimulus package. Via this program, farmers get paid to grow things, manufacturers get paid to make raw products into finished products, distributors get paid to drive the products around, and schools receive the products at a discounted rate. It is a great program in which everyone wins or at least three of the four, and the fourth (wins?).

With commodities, schools use one of two strategies. The Upgrade model uses commodities money to upgrade a menu item, allowing them to move from a standard product to a premium product. The other model, Savings, is used to reduce the cost of standard items. Typically schools use a blend of both models, sometimes applying their $.23 commodities to purchase an upgrade and sometimes to purchase a standard item. Unfortunately, in the Upgrade option, it is hard to tell your “friends” from your “frenemies”…

Here is how it works. Your sales rep presents you with a product, say chicken Patty A, that just hit the market. It is awesome because it is shiny and new with lots of buzzwords like free-range and gluten-free. And best of all, you can spend your commodities funds on it. So, even though it is more expensive than your standard chicken patty, Patty B, as your sales rep points out that, by using your commodity funds on patty A, you will still stay within your $1.00 chicken patty budget. Let’s look at the math:

$1.23 new patty A – $.23 Commodities credit = $.1.00

Yeah, we nailed it. After all, Patty A is a better, upgraded product and we still came in on budget. And, overall, we saved $.23 right? This is the Upgrade model of using commodities in action. Unfortunately, this is also where the smoke and mirrors come into play. It is called the Art of the Upsell.

Has a restaurant server ever talked you into a dessert you hadn’t planned on ordering and eventually a cup of coffee to go with it? Ever been asked if you want to “supersize it”. Or have you ever been talked into the 22-ounce beer on “special”, when a moment before the 12 ounces was fine? Although it exists in many industries, the upsell is most familiar to all of us through the restaurant world. And its sole intent is to separate a customer from more money than they had planned on spending and to make them feel good about it in the process. Let’s take a look at this math as well.

Dinner for a family of four – $80 Dinner for a family of 4 with dessert – $100 Which one cost you less? What else could you have spent that extra $20 on?

Yet, no other industry seems to embrace the opportunity to overspend, without realizing it, more than in the realm of school food. And why? Because everyone involved is a kind and compassionate person. Every purchase in this industry is tied to the well-being of children and that comes with a lot of emotions tied to it. You, your manufacturers, and your sales rep are good people who share the comradery of “doing it for the kids”.

But, it is also this powerful emotion that is at the heart of every school food upsell. After all, if you have $125,000 in Commodities funds shouldn’t you use it “for the kids” to give them a premium meal experience? The short answer is no.

Manufacturers and purveyors go to great lengths to promote new items. New products are given featured spots at food shows and samples are given out like candy. And the intent of all of this excitement? To get your commitment to purchase the new premium product and forget the Savings model. But, let’s look at this math for the Saving model too:

$1.00 standard patty B – $.23 Commodities credit = $.77

So, in buying a non-premium product, you used your Commodities credit to come in $.23 under budget. And, why is that important? It’s only $.23 after all. Aren’t I better off with a premium product since the savings are so piddly? Well, that is what the manufacturers and purveyors want you to believe. Yet, is it your best course of action? Almost never.

Commodities funds are represented in two different ways, Per Lunch ($.23) and Total Entitlement. Your Total Entitlement is determined by multiplying the total number of lunches you serve in a year by the $.23 Per Lunch allocation. So, although $.23 might not sound like much, over the course of the school year all of those lunches add up significantly. For a suburban school, it typically hits upwards of $100,000 annually. For large suburban and urban school systems, these numbers go well into the millions. So, if you could save say $125,000, reducing your annual loss to only $75,000 why would you ever, ever purchase a premium product? Because you are human and the manufacturers (and your sales rep “friend”) are highly trained to take advantage of it.

$1.23 new patty A – $.23 Commodities credit = $.1.00

$1.00 standard patty B – $.23 Commodities credit = $.77

Looking at this side-by-side, it is easy to see where the $.23 ends up. In the first equation, it is in the price of patty A, meaning one-hundred percent of your commodity spend ended up with the purveyor and manufacturer.

And, in the second equation, its value is in what the $.77 is missing. And where did it go? Think of it as $.23 you took away from the manufacturer and purveyor, putting it in your pocket instead of theirs. And if you think about it, everybody still wins. If you remember, manufacturers get paid to make the raw products into finished products. So, they already got paid once. Do you really have to give them your cut of the USDA Commodity funds too so that they can get paid twice?

At the end of the day everyone is “doing it for the kids”, but manufacturers and sales reps temper that mission with a sense of responsibility to their companies. And so should you. Because at the end of the day, feeding a child is not only about the food. The $125,000 you retain as a result of using the Savings model is $125,000 of loss that does not have to come out of your school district’s General Fund to cover the shortfall. And without that shortfall, what else can those funds be used for? How many Chromebooks or tablets can you buy with $125,000? How many textbooks actually written in this decade can you buy? Now, by spending your Commodities funds in the way they were intended, you get to feed your kids twice, once for their bodies and once for their minds.

About the author

Thomas Lane

Thomas Lane is an entrepreneur leading the charge in innovation for how we feed children and seniors in need, who has supported the USDA meal program for over 15 years. To reach Thomas for interviews, please email [email protected].