Decoding The Meal Equivalency Factor

1. Decoding The Meal Equivalency Factor What is it? Why is it important? Sponsored By: Illinois ASBO Presented By: Clare Keating / Jack Bortko / Pat Fournier

2. What is the Equivalency Factor? The meal equivalency factor converts a la carte sales to full meals which are billed by a Food Service Management Company at the contracted lunch meal rate.

3. Why Does It Matter? • Affects your monthly costs. • Affects your bid meal rate. • Affects your ala carte pricing structure.

4. Deciphering Bid Specs SECTION 12-FEES The FSMC and SFA shall determine the a la carte meal equivalents by dividing a la carte revenue by: • The fixed meal rate or: • The a la carte equivalency factor. Equivalency factor for 2010 – 2011 = National Free Reimbursement: $2.68 State Free Reimbursement: $0.1275 PAL Reimbursement: $0.195 Equivalency Factor: $3.0025 Amounts Used For FY’11 Are Previous Year’s (FY’10) Reimbursement Rates Must Use Whichever Yields the Higher $

5. For Example: Method 1: Annual a la Carte Sales = $10,000 Contract Price Per Meal = $ 1.94 A la Carte Equivalent Meals = 5,155 Method 2: Annual a la Carte Sales = $10,000 Defined Meal Equivalency Rate = $ 3.0025 A la Carte Equivalent Meals = 3,331 Defined Meal Equivalency Rate of $3.0025 results in lower cost to LEA by 1,824 Meals

6. It Is Highly Unlikely That An LEA’s Meal Equivalency Rate Will Be A Derivative Of Their Contract Meal Rate.

7. Hypothetically … Calculating Equivalent Meals Method 1 A la Carte Sales / Contract Meal Price = Equivalent Meals Sample Monthly A la Carte Sales: $5,000.00 5,000 / 1.94 = 2577.32 Equivalent Meals Contracted Lunch Meal Rate: $1.94 2577.32 x $1.94 = $5,000.00 FSMC bills SFA $5,000.00 as a line item on the monthly invoice.

8. And the other side of the coin … Calculating Equivalent MealsMethod 2 A la Carte Sales / Defined Equivalency Factor = Equivalent Meals Sample Monthly A la Carte Sales: $5,000.00 5,000 / 3.0025 = 1,665.28 Equivalent Meals Contracted Lunch Meal Rate: $1.94 1,665.28 x $1.94 = $3,230.64 FSMC bills SFA $3,230.64 as a line item on the monthly invoice.

9. Financial Impact Method 1 $5000.00 in a la carte sales $0.00 = SFA/LEA portion of revenue $5,000.00 = FSMC portion of revenue Method 2 $5000.00 in a la carte sales $1,665.28 = SFA/LEA portion of revenue $3,334.72 = FSMC portion of revenue

10. Why This Matters … • Reimbursable Meals and A La Carte Equivalents Must Be Bid At The Same Price • A La Carte Equivalent Meals Have Higher Food Costs Than Regular Meals. • The Greater % Of A La Carte Equivalent Meals, The Higher The Bid Meal Rate Will Be.

11. FSMC Food Cost/Profit Example Bottled Beverage Selling Price: $1.25 Cost of Product: $.62 1.25 / 3.0025 = .416 .416 x 1.94 = .817 FSMC receives $.82, pays $.62, profits $.20 Per unit sold

12. FSMC Food Cost/Profit Example Milk Selling Price: $.30 Cost of Product: $.21 .21 / 3.0025 = .0699 .0699 x 1.94 = .135 FSMC receives $.14, pays $.21, loses $.07 per milk 7500 students in this district Approximately 2000 milks sold daily for 168 days FSMC Annual loss of $23,520

13. Contract Renewal Options • If method 2 is used, the a la carte equivalency factor will change annually to reflect increases / decreases to reimbursement and PAL rates. Rates used are from previous year (i.e. 2011 MEF is derived from 2010 reimbursement rates). • If method 2 is used, the a la carte MEF remains constant for two renewals. In year three, MEF changes and remains constant for years three and four.

14. Final Thoughts • Reimbursable Meal Prices Should Be = Or > Than The Free Reimbursement Rate Less The Paid Reimbursement Rate. For 2009 – 2010 School Year: Free Reimbursement: $ 2.68 Less: Paid Reimbursement: $ 0.25 Minimum Meal Price: $ 2.43 • To Encourage / Increase The Number Of Reimbursable Meals Served, Set The Price Students Would Pay For An Entrée + Milk The Same As The Cost Of A Full Lunch.

15. Questions? Thanks For Spending The Last Hour With Us. Enjoy The Conference!