Sodexo and hidden kickbacks in the food service industry
In 2001 Yale students noticed something odd about their campus food service. The university had just contracted out food service operations in an effort to cut costs. The contractor abandoned the local providers that the University had always used in favor of a giant multi-national distribution company. The resulting decrease in quality was not unexpected. What did come as a surprise was that the price of the food actually went up.
Recently, in an article about "kickbacks" investigative journalist Lucy Komisar shed some light on a cause of rising food prices in some university cafeterias. The entire article is recommended reading but, in brief, the report documents the wide-spread practice of food providers obtaining hidden rebates from food suppliers - ones that are not passed on or even reported to the client (e.g. a school or university). The rebate system is "endemic to the industry,” and for Sodexo, these rebates reportedly total many millions of dollars annually. According to the article:
[$100,000 is] just a taste of the hundreds of millions of dollars of "rebates"--or kickbacks from suppliers-- that Sodexo, a $20 billion-a-year global leader in the food and facility management industry, has taken while operating cafeterias and other facilities for schools, hospitals, universities, government agencies, the military and private companies across the country, according to evidence provided by whistleblowers and internal company documents.
The kickback practice may cause some food suppliers to inflate the prices that they charge the company; if they have to give a $5 rebate on what would be a $30 product under normal circumstances, they instead have to charge $35. In a typical cost-plus contract, the rebates "are not deducted from what the food-service company charges clients", so these inflated prices are then passed onto the customer.
According to Komisar, what appear to be internal emails and documents, seemingly show that Sodexo has asked suppliers for two sets of invoices: one with the rebates listed for itself, and one without, for the clients.
Beyond the inflated prices, the rebate system may impact a university’s ability to make responsible purchasing decisions.
1.) There can be a financial incentive to limit local or organic purchasing. As described in the article: "Food service companies buy products from vendors that pay bigger rebates rather than those that offer cheaper, locally grown or high quality food."
2.) The need to raise prices to compensate for the companies' demand for rebates affects small local suppliers more than large ones. Larger suppliers may have a high enough margin that they can get away with not raising the prices of their products to the same extent. A small New England produce supplier described the system to Komisar as pushing items off the menu and resulting in frozen items being substituted for the small supplier's fresh produce.
Thus, the rebate system seemingly has an inverse relationship with creating the sustainable food systems advocated by great organizations like Real Food Challenge and Slow Food on Campus.
For the reasons described above, your university may not know the full extent of the rebates that your campus food service provider receives. It is worth asking your university administration about rebates, however. There is precedent for students demanding full disclose from food service companies on rebates received. In 1998 the Faculty Student Association at SUNY Stony Brook made it a requirement that the university's next food service contractor document revenues obtained from bulk-purchasing rebates.
Image by AMagill via Flickr
