Decoding The Meal Equivalency Factor What is it

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

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.

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

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: 1) The fixed meal rate or: 2) 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 Must Use Whichever Yields the Higher $

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

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

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.

And the other side of the coin … Calculating Equivalent Meals Method 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.

Financial Impact Method 1 Method 2 $5000. 00 in a la carte sales $0. 00 = SFA/LEA portion of revenue $1, 665. 28 = SFA/LEA portion of revenue $5, 000. 00 = FSMC $3, 334. 72 = FSMC portion of revenue

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.

FSMC Food Cost/Profit Example Bottled Beverage Selling Price: $1. 25 Cost of Product: $. 62 1. 25 / 3. 0025 =. 416 x 1. 94 =. 817 FSMC receives $. 82, pays $. 62, profits $. 20 Per unit sold

FSMC Food Cost/Profit Example Milk Selling Price: $. 30 Cost of Product: $. 21 / 3. 0025 =. 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

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.

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

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