Food Services accumulates tremendous deficit
Since 2000, the Food Services ancillary operations of Wilfrid Laurier University have accumulated a running deficit of $3,651,851.
While the causes of this negative number on the university’s books are varied, the ultimate conclusion is that the deficit needs to be repaid — how and when that will happen remains unanswered.
Laurier, as a publicly funded university, cannot include ancillary operations including food services, residence, parking or the bookstore in its operating budget as these areas cannot use government funds. “At the end of April 30, 2010,” assistant VP of financial resources and comptroller Gary Lambert said, “we had an accumulated deficit on ancillaries of approximately $4.7 million. Food Services is a big part of that.”
“We don’t charge the ancillaries any interest or anything on that deficit, we’ve never charged food services for that deficit,” he continued. “But it is a deficit that’s sitting there and it is in essence money that the university has spent that we haven’t recovered.”
Lambert said that the deficit has been accumulated since April 1999, at which point Food Services operations were “essentially at zero.” In July 2000, a major contract was signed with food service provider Aramark to manage part of the business.
Rather than have Aramark wholly operate Food Services as is common practice, Laurier entered into an agreement that sees Aramark make the food purchases and have a small number of Aramark employees manage the business. This is opposed to the university simply contracting out Food Services entirely to a company that would pay a fee back in exchange for the right to operate on campus.
Aramark is entitled to an annual management fee, initially $250,000 in 2002, providing that the operation breaks even or profits — which has not been the case all but one of the past ten years. If not profitable, the company forfeited half the value of the fee.
“Laurier didn’t enter into that kind of contract for a couple of reasons, one was the complex relationship we have with WLUSU and with WLUSU being a significant partner, that was not an attractive business scenario for Aramark to enter into at that level,” director of student services Dan Dawson explained.
“The second factor was a desire of senior administration at that time that they did not want all the Laurier food service employees to become Aramark employees.” These employees are unionized and represented by United Food and Commercial Workers Canada (UFCW) Local 175.
How did we get here?
Dawson assigns blame for the accumulated deficit to a few areas. “One, the design of the meal plan was very much in favour of the student customer,” he said, “and very much in favour of WLUSU from a competitive advantage standpoint.”
“The second thing, and probably the most significant thing, was labour cost,” he added. “We weren’t very efficient with the way we were managing people. The collective agreement in place with UFCW was definitely not in the university’s best interests.”
Ryan Lloyd-Craig, the director of Food Services employed by Aramark, has managed the operations since 2009. He was well aware of the accumulated food services deficit when he entered the position and also cited labour costs as a major contributing factor to financial woes.
The percentage cost of wages and benefits has been as high as the 45 per cent range over the last decade and currently sits at 37 per cent — a level more than a tenth over what is normal in the restaurant industry.
“We’re still ten per cent higher than a regular restaurant,” he said. “But that’s directly attributed to the unionized environment.”
He explained that the benefits guaranteed in the latest collective agreement effective 2009-12 are above average. These benefits include a full Laurier pension, health and dental insurance, meal allowance and free tuition for family members up to six half-credit courses annually.
Employees at regular restaurants or other types of food outlets would not receive anything approaching similar benefits, Lloyd-Craig explained. “You wouldn’t necessarily have benefits at all, whereas here they get vacation time, sick benefits that you wouldn’t believe, everything. Full dental, full medical, all that stuff.”
During negotiations for the current agreement, the language was clarified to ensure that workers covered under the agreement were not the only ones entitled to overtime pay, but rather non-union student employees.
Overtime hours on weekends for unionized workers, including double-time on Sundays was a major cost.
By increasing the shifts given to students to closer to the 20 per cent amount permissible in the UFCW contract, the operation saved over $80,000 last year in overtime pay according to Lloyd-Craig. He also attributed the drastic decrease in money being lost annually to the hiring of additional managers to better oversee Food Services.
As reported to the university’s board of governors last week, Food Services nearly broke even last year, despite losing up to $788,000 in previous years and $225,723 the year before. Dawson also pointed out that there is a $100,000 surplus forecasted for this fiscal year.
Recovering the deficit
Dawson explained that the $3.65 million deficit will not be easily recovered.
“There’s no magic fruit tree out there we can pull money out of, we’re going to have to earn it, one operation at a time,” he said.
“To balance that, I don’t want to give the impression that we’re going to try and take advantage of students in the future to do that. ”
Catering offered under Food Services has been successful, Dawson noted, and employs a high proportion of students. As well, the commission rates charged for use of the OneCard system that students access their meal plans with will be raised for off-campus vendors, Dawson said, as well as possibly for the students’ union — although nothing has been settled and negotiations are ongoing concerning WLUSU’s operating agreement that could see an increase over the current four per cent.
“They need to compensate Food Services for the right of earning that business,” Dawson said of the union’s food offerings.
“They’ve accepted that logic, we’re just finalizing what rate of return that will be.”
He continued, “WLUSU is very concerned that any increased commission rate we get from them is just going to go to pay off this deficit.”
Recovering from the accumulated Food Services deficit will need to come from other areas than a WLUSU commission increase, which would simply, if approved, support day-to-day operations, Dawson said.
“Basically what we need to be able to demonstrate to them is that the extra earnings we make on those other lines of business are more than what we’re going to contribute on an annual basis to the accumulated deficit.”
WLUSU general manager Mike McMahon responded. “I think the university is in a position and has provided evidence of why a higher commission rate is necessary,” he said.
“Whether or not we will end up paying a higher commission rate — we’re still in the middle of the process.”
The WLUSU/WLU operating agreement has not been ratified as of Feb. 1. The Cord will continue to follow this story in the coming weeks.