The Lone Pine Meal Plan: A Smart Choice Alternative

The Smart Choice meal plan is widely disliked by Dartmouth Students. Consequently, President Kim has asked for alternatives to the Smart Choice plan. The Lone Pine Meal Plan is The Dartmouth Review‘s alternative, which has been personally presented to President Kim by our editor, Sterling Beard. Below is a copy of the full plan.

   The Lone Pine Proposal

A Smart Choice Alternative


Problem

            The Smart Choice initiative is an attempt to increase the profitability of the Dartmouth Dining Service (DDS).  Unfortunately, Smart Choice eliminates the flexibility and convenience adored by students in the Declining Balance Account (DBA). From an admissions perspective, the á la carte dining system is very attractive compared to less flexible meal plans. We understand that the status quo, while preferred by most students, is not ideal for the college. The goal of this proposal is to increase the profitability of the DDS while maintaining the flexibility of the DBA system. Without access to detailed DDS finances it is impossible for us to create a detailed solution. Instead, we will describe a ‘toolbox’ of solutions which can be implemented individually or in concert with each other to achieve our goal.

 Ethos

            The Dartmouth Dining Service acts like a monopoly on campus. The students, whose parents pay into college meal programs or receive aid from the college, have essentially no choice in where to eat—they are unable to ‘vote with their dollars’. This monopoly power over the student meal market creates a market failure situation and produces inefficiencies in the DDS. Our solutions in the toolbox attempt to correct this market failure by re-instating the power of prices and creating a more competitive market. The purpose of the DDS is twofold.

DDS has to provide students with quality and convenient food, and also has to create jobs for students on work/study. Our solutions improve Dartmouth College’s ability to fulfill these goals while also cutting costs.

Increasing Efficiency

            Throughout history, firms with monopoly power have tended to be fabulously profitable. Something is seriously wrong if DDS cannot make a profit with their immense monopoly power. The issue is not the amount of revenue that DDS collects from students, but instead its immense costs. The firm’s inefficiencies from a lack of competition have grown to a point where, without the College’s financial support, the firm would have failed and been replaced. From 1997 until now, DDS costs have, on average, outpaced inflation by about 4%. We doubt that foodservice is 55% better today than it was 1997 to justify those costs. This section of our proposal outlines actions to increase efficiency within the DDS.

A Case Competition

            Dartmouth is lucky to have one of the best business schools in the world. Yet despite this business prowess the DDS is forced to charge exorbitant prices in order to survive. We should leverage the talent in the Tuck Business School by hosting a case competition for Tuck students to evaluate and correct inefficiencies at the DDS. The case competition should have a prize large enough to attract talent (500 to 1000 dollars, or a good grade), and the competing groups should be given full access to DDS finances (after signing a non-disclosure agreement). This competition will produce excellent ideas for vastly improving the DDS at little cost to the college.

Increasing Production Efficiency

            There are many managerial theories of thought which can be implemented to lower costs while improving quality. Lean manufacturing and menu engineering come to mind. These techniques are proven to be effective and could be implemented to reduce costs within the DDS. Another potential inefficiency is that labour costs may be too high. There is nothing wrong with a firm paying workers higher than market-rate wages as long as the firm is getting a benefit. Currently, the lowest paid DDS worker is making 50% more than the equivalent position at a Hanover restaurant, as well as receiving substantially better benefits. We find it hard to believe that an un-skilled worker, such as a sandwich assembler, can be providing the extra skills to justify these payments above market wage. If these out-of-sync salaries are being paid out of “humanitarian reasons” it is important to remember that the College’s first responsibility is to its students and reducing the massive burden of attending this great institution.

“All you can eat” option

            While we question the health-effects and profitability of an “all you can eat” option, we understand that the Class of 1953 Commons has been designed to be pay-to-enter dining hall. However, instead of changing the entire meal plan to accommodate this, it makes more sense to simply charge a flat entrance fee for the all you can eat area which would be subtracted from your DBA. This plan (as well as the SmartChoice plan) will cause students to primarily use the ’53 commons during meal times and ignore it during off-periods. Instead of having the brilliant new dining facility essentially empty during off-peak hours it would make more sense to price discriminate. During off-periods, there should be the option to buy an “all you can eat” ticket while still having the a la carte option available. During rush meal hours, the ’53 commons would be “all you can eat” style only. It makes far more sense to allow students the freedom of choosing to eat at Class of 1953 Commons or elsewhere with their dining dollars rather than creating a new system with meals that are another currency from DBA entirely.   

   Increasing Competition                                                   

            President Hoover said it best when he exclaimed that “competition is not only the basis of protection to the consumer, but it is also the incentive for progress.” Competition keeps a firm’s costs down and quality up by providing monetary incentives for both cost cutting and quality improvements. Without this competition, a firm will grow fat and become overburdened with costs and inefficiencies. This section details stratagems to whip the uncompetitive DDS into shape, burning off the inefficient fat and costs it has gained.

Privatization

            The DDS should not attempt to be a jack-of-all-trades, and instead it should rely on the specialization of others. Parts of the DDS should be sold off to private firms in a competitive bidding process. This will allow the DDS to make more money while having higher quality services provided to students. For example, despite the rather high price, the Novak Café is unable to produce a half decent cup of coffee or even moderately tasty snacks. This is to be expected as the DDS does not have a long and proven history of being a café manager. The rights to operate a café in the Novak space should be sold off to private firms in a competitive bidding process with upfront requirements (I.E. certain open hours, x number of student employees, acceptance of DBA). Firms like Starbucks or Second Cup would place a premium on the brand recognition gained from running a top-notch facility in an Ivy League school. The DDS would make more money than running the Novak Café themselves by charging the private firm a lease, as well as collecting a percentage fee from students for every dollar spent (I.E. a two dollar pastry bought is then charged to DBA as 2.10, assuming a 5% fee). Trading with private firms is a win-win situation because the DDS will be more profitable than running Novak itself and students can take advantage of higher quality and less expensive products. This same principle can be applied to other parts of the DDS such as Topside.

  Town-wide usage

            A student’s DBA should be accepted at all local restaurants that wish to participate in the program. This would improve town-gown relations and be beneficial from an admissions perspective. More importantly, this program will help DDS become more competitive. Allowing local restaurants to accept DBA will create real competition for the DDS and make a functioning market for student meals. In the real world, if your restaurant cannot attract many customers you must enact reforms or risk losing your job. This monetary incentive has been non-existent in the DDS. In the future, DDS managers would have a strong incentive to cut costs, improve quality, and better meet student needs. Conversely, the DDS could use this policy to make a profit if it charges students a certain percentage of the price as a convenience fee on all purchases at local restaurants-thus significantly raising revenue at little cost. This program would also greatly benefit students by providing them with more dining choices and the opportunity to better enjoy Hanover. Additionally, the principle of specialization will once again come into play. International, ethnic, and other interested students would be able to get better quality ethnic food at a lower price from specialised ethnic restaurants than they would from the generalized DDS.  By making the Dartmouth student meal market competitive, all parties will benefit.

Internal Competition

            While having a discussion with a DDS employee at the Hop, he suggested I try the new Bagel Chips. This new product takes old Hop bagels that otherwise would have been discarded, seasons them, bakes them, and serves them as chips. This ingenuity and creativity needs to, and must be, rewarded. Internal competition should be fostered within the DDS (perhaps by providing a monetary incentive) to lower costs and increase quality. Competition is a powerful driver of human ingenuity and should be leveraged internally (and ideally externally) to increase efficiency, quality, and decease cost.

   Adaptive Pricing

            An important part of a competitive business is the ability to use the price mechanism effectively. In a non-competitive monopoly dominated market the price mechanism will not function effectively. By liberalizing the student meal market, DDS should be able to take advantage of the price mechanism. For example, students will place a premium on dining facilities open later at night. This premium should be reflected in the prices of products offered so that DDS can recoup the greater costs of staying open later. Continuing our example, if students are unwilling to pay the real market prices of late-night dinning the DDS should not offer it. If the college places a greater value on those extended hours that is not reflected in the price mechanism it should only subsidise those extended hours. This specific subsidization does not harm free market fundamentals whereas a blanket subsidization of the DDS would harm them severely.

   The Take Away

           At the end of the day, DDS does not need to adopt a whole new dining plan and do away with DBA in order to turn a higher profit. That is just another step down the same path of rising prices and ignoring the central issue: inefficiency. Without competition and innovation, the costs of running DDS will merely increase and force administrators to design a new plan that coerces more revenue out of students. In the end, students will just buy smaller and smaller meal plans due to cost. Revenues may even drop. This path is neither sustainable nor profitable. Instead, we should harness the forces of competition to cut costs and improve quality of service. At the same time, we should unleash innovators and reward them – like the creator of Bagel Chips or Tuck students who could develop strategies and case studies for DDS for next to nothing. We have proposed a few starting points for policy, but more importantly we hope we have laid the groundwork for future discussions. The trend should be towards freedom – not only because students and prospective students want it, but because it is the only real long-term solution to this problem. Economics works. Rebranding inefficiency doesn’t.

  Stuart A. Allan and J.P. Harrington