University catering and who pays: Some food for thought

With universities and colleges bracing themselves for the budget and the Comprehensive Spending review (CSR), they will also be looking to find more sources of revenue. Catering for students as a ‘captive audience’ on campus is one such source with one campus catering organisation telling their members “Students are willing to pay for good quality food …..  and universities can cash in on this trend”.  This business and profit mindset is well embedded in universities already, but more opportunities will be hard to find. The exodus of students from campuses in the pandemic has hit them hard and may never return to the same level. Pricing the catering aimed at those students who can afford meals on campus means others are excluded and miss out on critical social interactions. Not all have solid support from their families and many need to work to survive. The debate about subsidising meals and who pays will emerge as a key to the experience on campus for many more students in the future as family incomes are squeezed. Maybe universities should refocus their sights away from ‘profit’ and look again at the basics of what they provide. Finding yourself hungry is not a good start to the learning week.

A twitter thread this week prompted TEFS to look at its ongoing research on the diversification of university income streams. The context of the Twitter debate was ‘catering provision’ on university campuses and who pays for it. By coincidence TEFS was already looking at university income and pressures on student finances in the lead up to the budget and comprehensive spending review on the 27th of October. All universities are bracing themselves for a reduction in funding, or at best things remaining the same despite rising inflation. The pressure on university campus revenue during the pandemic was significant and has yet to follow through. The CSR will be a major turning point.

The Twitter stream related to provision of meals for students and had two diametrically opposed sides. Some wanted to see either ‘free’ or subsidised meals for students on campus. The opposition simply asked, ‘who pays?’ But this raised many profound and complex issues about ‘who should pay’ for student support. Should it be free for all or should those better off pay more to subsidise those of slender means? The point of progressive taxation in general is to insist the well-off bear more of the burden for services made equally available for all. It lies at the core of an open democracy. This makes social security, welfare, and the NHS available to all based on need.  The question arises about extending this idea to student fees and provision of services such a food on campus. Indeed, many advocate no fees and a free education for all. This ideal is however stretching far out of reach as loans for fees and means-tested loans for maintenance have become entrenched in the funding model.

The dash for profit.

You don’t have to look far to see clear evidence of a rapid trend towards profiting from student services. There is even an association called College and Universities Business Officers (CUBO) whose www site has boasted of its 106 members that, “In 2011, CUBO members were responsible for revenues in excess of £1.4 billion”. It is there to promote all inhouse and outsourcing activities with a view to “deliver income that is reinvested in the university through commercial activities”.

University Business (The Business of Higher Education) reported on ‘How university catering services are changing’ in March 2019 and showed the complexities of the various commercial arrangements and how far the business side of campus food outlets had travelled.

Perceptions of university provision for students on campus.

The simple conclusion is that most people who form the government seem to have an idealised view of university. Most graduated in a loan free era a long time ago. Many from Oxford or Cambridge, where food and facilities were available inhouse in  large dining halls or ‘buttery bars’, now hired out during vacations.  There is an assumption that students can afford the services and spend most of their time studying and socialising. This is very far from reality for most students attending universities.  The centralised university dining hall serving meals at a subsidised cost is becoming a thing of the past in the UK. Business and profit have taken over. This assumption was reported in ‘University Business’ in 2017 in ‘Universities successfully finding new revenue streams’ and appears as an odd oxymoron.

Whilst wanting to keep costs subsidised for students, there is profit to be found in food offering. Students are willing to pay for good quality food and with the rise of healthy eating, gym going and veganism, healthy food trends are on the rise, and universities can cash in on this trend.”

This trend has not advanced so far in other countries, but no doubt it will eventually. My experience in three German Universities has been of excellent meals at very low prices in very busy centralised ‘Mensas’.

By contrast, the UK model is a very mixed one seeking to cash in on students ‘willing to pay’. This means more ‘flexible’ big brand franchised outlets, outsourced management of inhouse facilities and, in some cases, independent student unions. In every case, there is a need to at least cover all costs from income or generate profit.  The result is coffee kiosks and shops popping up in any available space.

The social deficit.

The perception of universities is often portrayed as one where students can meet freely and exchange ideas, and where the:

“University canteens act as a place to grab a coffee on the go, a casual study space and somewhere to eat lunch with friends or colleagues”.  (‘How university catering services are changing’ University Business March 19th, 2019).

But the reality for many students is far from this ideal.  In my many years teaching, I would often chat to students congregating in a smaller communal area at breaks, simply because they could not afford to go into the larger outsourced canteen to eat with their peers.  It was more like an airport departure lounge taking more and more space to sell to travellers passing through. The ‘free’ seating space is limited and sometimes the only choice is to pay for a coffee to find a seat in a less crowded restaurant. When teaching smaller Masters and Honours classes, I would sometimes buy them all a coffee to foster some interaction and discussion in a break. But the social exclusion attached to facilities on campus can be severe for many students. You simply have to ask. Some are even working in these facilities serving their peers.  It looks bad on many levels.

Market research is behind finding new revenue and outsourcing opportunities.

There is an assumption that university administrations have a sound knowledge of the spending power of their students when developing a business plan. Certainly, those outside companies taking up a space on campus must have this information to work out the profit margins that are likely to be possible. However, this is often uncertain. It is not evenly spread across the student body.

In 2019, the UK member-based organisation, TUCO (The Universities Catering Organisation) assumed that each student spends on average £238.60 per year. But the distribution might be more illuminating and determine how many have much less than that to spend. More recently the Save the student ‘Student Money Survey 2021’  (1st September 2021) showed the average take away and eating out spend was as low as an average £41 per month overall. This is unsurprising as it is almost 10% of the mean maintenance loan income of £470 per month. The result is a catering provision that necessarily targets the better off students.

Outsourcing.

The simplest thing for a ‘lazy’ university management to do is to sell space to a branded franchise or an external profit-making company. They simply take the rent money at no risk. The deal might include a share of the profits above a certain level. However, this and other ‘outsourcing’ models have not taken hold across the whole sector and account for only 23% of providers. Hence, there are many other models that can be adopted.  The UK member based  organisation, TUCO (The Universities Catering Organisation) produced a very informative review of the ‘Business Models in HE Catering’ in 2019. It shed light on what is happening across the sector and students should read it to learn how they are being seen as customers. They might be surprised to note that TUCO members see ‘profitability’ as the key performance indicator on a par with ‘customer feedback’.

It should come as no surprise that TUCO also observed that inhouse catering yields more profit than outsourcing and franchise relationships with, “Sixty-four percent of members with in-house-only teams say they achieved a surplus in the previous financial year, while only 44 percent of those with a mix of in-house and outsourced provision made a surplus”.  This is of course a simple business conclusion. Outsourcing and franchises might lower the operational costs through external staff on lower pay, but it must be expected that external operations will siphon off as much profit as possible. Inhouse operations retrieve this.

Although more burdensome it seems that 73% stay inhouse but may also use an external provider to manage the catering facilities. Some use a trading subsidiary or ‘Special Purpose Vehicle (SPV) to do this and manage the profit side of things for them. Many student unions also prefer to run their own operation where possible and recycle profits into student services. Some are lucky to have a minimal rent charge from their university. Others are more tied to university space and must also generate income to pay for refurbishments and developments as part of their business plan.

Subsidies – but who pays for these?

The various complex contracts and arrangements used can often hide a subsidised pricing structure whereby students opting for more expensive meals subsidise less expensive options. Profits could also be recycled to student hardship funds or more general support. However, there is little formal evidence of this happening. Alternatively, the pricing structure could be geared to offering a ‘basic ‘loss leader’, such as soup, bread rolls and filter coffee, so more students are attracted into the facility. However, assuming all students will avail themselves of the catering on offer would be a big mistake. Pricing will always exclude some less well-off students. Too low and other local businesses complain of unfair competition. Too high and the students go elsewhere.

The question arises about where the student income comes from to fuel profit. After all, it is what is paying for the meals.   For many years, the clear evidence has pointed to students securing their maintenance income (excluding fees) from a combination of means tested loans, family, and part-time jobs. Looking at surveys and reports would tell any commercial concern that there was a captive market with family support waiting to be exploited. The government’s own research from 2014/15 took until 2018 to emerge (‘Student income and expenditure survey 2014 to 2015’).

The report looks at the financial position of HE students in England. It is extensive at 487 pages but is now very dated. Its shorter submission to the Augar Review in 2019 is more accessible. Living costs were the second largest expenditure for full-time students at 35%, with an average spend of £6,956 per year across all full-time students.  Averaging over all students, it seems 9% of the income came from family and 10% from paid employment. But this observation hides a very wide distribution seeing as around 64% of students do not have paid employment (see TEFS 27th July 2018 ‘The vast majority – one million – of students have no employment when in full-time studies’). Targeting students with family support will still be a major commercial driver.

Commercialisation and finding new revenue streams.

When considering how universities have developed their on-campus facilities, it should be put into the context of a general move towards commercialisation and less reliance on the public finances.  Indeed, they have little choice with fees capped and inadequate income coming from fees and student loans. The critical role of cross subsidy from international student fees emerged from the pandemic crisis and it led to some embarrassment.

Overall, the enterprise culture is now dominating thinking. With universities retaining IPR, entering licensing agreements, and setting up for-profit spin-out companies, there is a sense that things have come a long way in around twenty-five years and there is more commercialisation to come.  I have some direct experience of these developments See footnote. The National Centre for Business and Universities (NCBU) promotes business developments arising from research.  Its summary in 2015 in its ‘Second State of the Relationship’ report gives a good overview. Needless to say, ‘NCUB’s submission to the Comprehensive Spending Review 2021’ last week called for more investment from government to accelerate developments.

Effect of the pandemic.

With students mostly off campus, the chance to sell to them was badly disrupted. Getting students back on campus in 2020 became very important. But it turned out to be disastrous as another lockdown quickly followed. Of course, universities lost no time in selling food packages. These varied greatly in quality and cost. Many universities genuinely tried to keep the costs down. Others were astoundingly brazen and widely reported. Even the Telegraph was critical with ‘Asking us students to spend over £100 a week for food parcels just doesn’t seem right’.

An analysis in the Guardian back in January, ‘The free-market gamble: has Covid broken UK universities?’, hit the nail on the head by quoting a first year student at Manchester University who said,

“The crisis is to do with the commodification of education”. If it had been free” we wouldn’t have been asked to go back to university…..A lot of students have realised that we really are being exploited for profit’.”

Who then pays?

The answer to the question at the start, ‘who pays’ is simply the student at this time. However, government backed loans and parents bear a lot of the costs along with income from jobs. The days of grants and the taxpayer subsidising provision were finally put down after the election in 2010.  But it is not such a simple model under the surface. Cross-subsidy is still going on and often driven by how prices are fixed.  Better off students can easily boost the profits of the outsourced and inhouse operations. This is a fine balance since outlets off campus are also muscling in on the trade and try to undercut the campus offering. Income from on-campus leases and profit may help with the student hardship support but it is not clear if some is recycled along the way. If the public finances and taxation will not offer subsidies on meals, it could be possible to adjust the business and pricing plan to subsidise the least well of through higher pricing and more choice for the better off. A solution would be to accept that everyone pays the same at the till, but some students get means tested support to join in. 

Footnote. The author, Mike Larkin, coordinated environmental technology research across the university and multiple industry partners for 25 years before retiring. The QUESTOR Centre at Queen’s University Belfast was a multimillion-pound operation spanning collaborators and multinational companies in the UK, North America, and the EU. As a director of the SMART award-winning spinout company QUESTOR Technology Ltd (now dissolved) there was a route to exploit inventions from the university research. He was also on the governing body of the university and planning and finance committee before retiring at the end of 2016.

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