How Giant Food Corporations Are Giving Kickbacks to Schools to Get Their Products on Kids' Trays
D.C. Public Schools in the last two years have taken in more than $1 million in corporate rebates -- referred to by some as "kickbacks" -- paid by giant food manufacturers as an inducement to place their brands on kids' cafeteria trays at school.
Documents I obtained through the Freedom of Information Act show that Chartwells, the company hired by D.C. Schools to provide food services at 122 schools across the city, through February of this year had declared $1,076,738 in rebates it received since its contract began in the fall of 2008. That represents 5 percent of the $18.7 million in purchases Chartwells billed the school system during that period. Under federal law, Chartwells is required to credit D.C. schools for any rebates it receives.
Food manufacturers use the rebates as an incentive to entice purchasing agents to buy certain products over others for school meals. Rebates sometimes are referred to as "kickbacks" because powerful food service companies such as Chartwells expect to receive them, much the way grocers expect manufacturers to pay to have their goods displayed prominently on supermarket shelves.
Critics charge that the rebates -- also referred to as "volume discounts" or "buy backs" -- act as a tool in the campaign to imprint processed and often sugary food brands in the minds of young children. Rebates help explain why kids in D.C. schools routinely are served sugary cereals such as Kellogg's Apple Jacks and snacks like Kellogg's Pop-Tarts, Otis Spunkmeyer muffins, Pepperidge Farm Giant Goldfish Grahams, and flavored milk from Cloverland Dairy that has nearly as much sugar as Coke or Mountain Dew.
It could not be immediately determined from the documents which manufacturers paid the rebates to D.C. Schools or in what amounts. Under U.S. Department of Agriculture rules governing the federally-subsidized school meals program, food service providers such as Chartwells are required to itemize the rebates they receive only when schools ask them to do so. Otherwise, the rebates appear simply as a lump-sum line item on the monthly invoices Chartwells submits to D.C. Public Schools for reimbursement.
Although the school system's newly hired food services director, Jeffrey Mills, was said to be disturbed by the potentially corrosive effect rebates might have on D.C. school food purchases, apparently no one in the DCPS hierarchy had ever asked Chartwells for a breakdown of where the rebates come from. On May 28, I filed a second Freedom of Information Act request for an itemization of rebates received by Chartwells. Schools spokeswoman Jennifer Calloway last Thursday said DCPS has since asked Chartwells for a breakdown, but has not yet received one.
Navigating by compass
Much like rebates in the consumer world, rebates in the multi-billion-dollar universe of corporate food service are awarded by manufacturers after products are purchased. For instance, after a truckload of cereal is delivered, the purchasing company -- Chartwells, in this case -- would apply for the rebate and later receive a check. Chartwells, Sodexo, and Aramark -- the two other companies most prominent in the field -- deal in rebates worth millions.
Chartwells is part of a huge, publicly traded international food services conglomerate based in the United Kingdom, the Compass Group, that reports annual sales of $9.3 billion. Chartwells provides the food each day for 2.5 million kids in more than 500 school districts across the U.S. Other affiliated companies in the group -- Bon Appetit, Restaurant Associates, Thompson Hospitality, Morrison Management, Wolfgang Puck Catering, to name a few -- handle the food served in universities, corporate campuses, museums, and all sorts of public and private venues, even oil drilling platforms nationwide.
All these Compass Group subsidiaries share a procurement operation that negotiates food purchases -- and rebates -- for the entire group. Called Foodbuy, and based along with Compass Group's North American headquarters in Charlotte, N.C., Foodbuy bills itself as "the nation's largest group purchasing organization," dealing in more than $5 billion worth of goods annually.
Between 35 and 40 Foodbuy employees are engaged full-time in negotiating contracts and rebates with manufacturers. Rebates become a major driver of purchasing decisions, said Ken Jaycox, vice-president for category development at Foodbuy. "We're focused on net cost," Jaycox said. "Our job is to try and get the best net cost for our customers."
Jaycox suggested that the choice of foods served in school cafeterias is determined less by the rebates manufacturers offer than by negotiations between schools and Chartwells representatives over which foods are the best choices, and how they balance against the local food budget. But Rick Hughes, who spent eight years as a manager for Sodexo in Colorado, said performance evaluations were based in part on how well Sodexo employees adhered to the company's choice of products, determined in large part by manufacturer rebates.
"We were rewarded for purchasing specific products," said Hughes, who now works the other side of the fence, as food services director of Colorado Spring School District 11. "Especially if the company is mandating that you buy their foods, absolutely that's what food service directors are buying," Hughes said. "There's big money tied up in big company food and agribusiness. There's not a whole lot of money tied up in fresh vegetables and fruits. So just follow the money. That's what's being given to kids."
As prevalent and influential as they may be, rebates are treated as a kind of third rail in school food services. Food manufacturers are loathe to talk about them.