Decoding Decoding The Meal Equivalency The Meal Equivalency FactorFactor

What is it?Why is it important?

Sponsored By: Illinois ASBOPresented By: Clare Keating / Jack Bortko / Pat Fournier

What is the Equivalency What is the Equivalency Factor?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?Why Does It Matter?

• Affects your monthly Affects your monthly costs.costs.

• Affects your bid meal Affects your bid meal rate.rate.

• Affects your ala carte Affects your ala carte pricing structure.pricing structure.

Deciphering Bid SpecsDeciphering Bid SpecsSECTION 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: $2.68State Free Reimbursement: $0.1275PAL Reimbursement: $0.195Equivalency Factor: $3.0025

Amounts Used For FY’11 Are Previous Year’s(FY’10) Reimbursement Rates

Must Use Whichever Yields the Higher $Must Use Whichever Yields the Higher $

For Example:For Example:Method 1:Method 1:Annual a la Carte Sales =Annual a la Carte Sales = $10,000$10,000Contract Price Per Meal = Contract Price Per Meal = $ 1.94$ 1.94A la Carte Equivalent Meals = 5,155A la Carte Equivalent Meals = 5,155

Method 2:Method 2:Annual a la Carte Sales = Annual a la Carte Sales = $10,000$10,000Defined Meal Equivalency Rate = $ Defined Meal Equivalency Rate = $ 3.00253.0025A la Carte Equivalent Meals = 3,331A la Carte Equivalent Meals = 3,331Defined Meal Equivalency Rate of Defined Meal Equivalency Rate of

$3.0025 $3.0025 results in lower cost to LEA by 1,824 results in lower cost to LEA by 1,824

MealsMeals

It Is Highly UnlikelyIt Is Highly Unlikely

That An LEA’sThat An LEA’s

Meal Equivalency RateMeal Equivalency Rate

Will Be A Derivative OfWill Be A Derivative Of

Their Contract Meal Rate.Their Contract Meal Rate.

Calculating Equivalent MealsCalculating Equivalent MealsMethod 1Method 1

A la Carte Sales / Contract Meal Price = Equivalent Meals

SampleMonthly 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.

Hypothetically …Hypothetically …

Calculating Equivalent MealsCalculating Equivalent MealsMethod 2Method 2

A la Carte Sales / Defined Equivalency Factor = Equivalent Meals

SampleMonthly 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.

And the other side of the coin And the other side of the coin ……

Financial ImpactFinancial ImpactMethod 2Method 2

$5000.00 in a la carte sales

$1,665.28 = SFA/LEA portion of

revenue

$3,334.72 = FSMC

portion of revenue

Method 1Method 1

$5000.00 in a la carte sales

$0.00 = SFA/LEA portion of revenue

$5,000.00 = FSMC portion of

revenue

Why This Matters …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 FSMC Food Cost/Profit ExampleExample

Bottled Beverage

Selling Price: $1.25Cost of Product: $.62

1.25 / 3.0025 = .416.416 x 1.94 = .817

FSMC receives $.82, pays $.62, profits $.20

Per unit sold

FSMC Food Cost/Profit FSMC Food Cost/Profit ExampleExample

Milk

Selling Price: $.30Cost 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 districtApproximately 2000 milks sold daily for 168 days

FSMC Annual loss of $23,520

Contract Renewal OptionsContract Renewal Options

• If method 2 is used, the a la carte If method 2 is used, the a la carte equivalency factor will change annually equivalency factor will change annually to reflect increases / decreases to to reflect increases / decreases to reimbursement and PAL rates. Rates reimbursement and PAL rates. Rates used are from previous year (i.e. 2011 used are from previous year (i.e. 2011 MEF is derived from 2010 MEF is derived from 2010 reimbursement rates).reimbursement rates).

• If method 2 is used, the a la carte MEF If method 2 is used, the a la carte MEF remains constant for two renewals. In remains constant for two renewals. In year three, MEF changes and remains year three, MEF changes and remains constant for years three and four.constant for years three and four.

Final ThoughtsFinal ThoughtsReimbursable Meal Prices Should Be = Or >

Than The Free Reimbursement Rate Less The Paid Reimbursement Rate.

For 2009 – 2010 School Year:For 2009 – 2010 School Year:Free Reimbursement:Free Reimbursement: $ 2.68$ 2.68Less: Paid Reimbursement:Less: Paid Reimbursement: $ 0.25$ 0.25Minimum Meal Price:Minimum Meal Price: $ 2.43$ 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.

Questions?Questions?

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Enjoy The Conference!Enjoy The Conference!