Why The Corporate Cafeteria Subsidy Is Eating Your Company’s Lunch — And What You Can Do About It

Corporate cafeteria subsidies are on the rise. If you’re here, you probably already know that. So, what can you do about it? We spoke with Steve O’Brien, a VP of Enterprise Sales at Fooda and 20+ year veteran of the corporate cafeteria world, about institutional cafeteria subsidies and what you can do about them.

Why are cafeteria subsidies going up?

Subsidies are increasing every year. They’re being driven up due to the rising costs of three main factors:

1. Commodity prices are going up on the products required to make the food.
2. Labor costs are on the rise as minimum wages go up across the country.
3. Direct costs are going up because more folks are using credit and debit cards (which bring processing fees) and companies are using sustainable products, which increase the direct costs by 6-8% over what they were 20 years ago.

Because of all this, corporate cafeterias are no longer self-sustaining under the traditional legacy provider model. This has led to the requirement of having very costly subsidies to keep their operations afloat.

How can cafeteria subsidies be reduced?

The best way is to switch to a self-sustaining cafeteria model. Fooda’s model, for example, isn’t centered on driving down costs on all these different commodities. Our pricing is dictated by the market, since we have trusted brands (local restaurants) going into cafeterias to serve lunch. People see restaurants they recognize from around town. They see the value in the products they’re used to seeing when they go out to eat. Compare this to cafeteria food, which is difficult to sell at a profit because customers don’t see value in low-quality, mass-produced food.

How does participation growth impact cafeteria subsidies?

In the legacy model, increased participation leads to a higher corporate cafeteria subsidy. Traditional cafeteria providers have no reason to get better. Higher participation means more food is being sold that loses money.

With the Fooda model, when we raise participation, we reduce the subsidy as a whole, and sometimes it even leads to a profitable solution. That’s why all our energies are focused on participation and revenue growth, not cost cutting and saving.

What are my corporate cafeteria subsidy options?

The two most common type of subsidies are limited or capped subsidies and full subsidies:

Limited / Capped

The host company commits to a corporate cafeteria subsidy with a specific vendor, and if you go above and beyond a subsidy, they’re liable for the risk. It’s almost like a profit/loss model, but with the understanding that you are allocating some dollars towards their subsidy. But they’re still responsible for running it like a business.

Full Subsidy

The host company is basically opening up their wallet with no control over what the vendor is going to spend. There’s no value in them growing their sales or improving the labor model because they’re getting their management fee from you no matter what.

How can one control cafeteria subsidies when dealing with a legacy cafeteria provider?

Building key performance indicators (KPIs) into a cafeteria provider contract is the best way to have some control. That way, the vendor is on the hook for the host company’s subsidy if the vendor doesn’t meet the KPIs.

Instead of entering into an expensive and restrictive contract with a single vendor, why not work with someone who can provide alternative options? At Fooda, we’ve created a new model for feeding hungry workers. It’s a complete cafeteria replacement program that dramatically reduces — or even eliminates — the corporate cafeteria subsidy.

Contact us today to learn more about how Fooda turned the institutional cafeteria model upside down.