Are kickbacks from Kellogg and others driving school-food purchasing?
Why all the secrecy? The big food service companies — Chartwells, Sodexo, Aramark — were taking in hundreds of millions of dollars in rebates annually in ways that ended up costing customers money by focusing food purchases on large, national brands that can afford to give hefty discounts, rather than smaller, local companies that sell their goods more cheaply.
Kellogg, with $13 billion in annual sales, is prominently represented in D.C. school cafeterias by its Apple Jacks, Raisin Bran, Frosted Mini-Wheats, and other cereals, as well as treats such as Pop-Tarts, all highly processed and laced with sugar. I first contacted the company via its “media hotline” on May 28 and posed questions about its rebate practices. When there was no response, I called again on June 15 and a third time on June 28, at which point I was asked to submit my questions in an email.
On June 29, I received this reply from a Susanne Norwitz at Kellogg:
With 14,000-plus school districts, there may be some exceptions — but overall, this is how the process works. The USDA sets the nutritional guidelines that schools follow to receive reimbursement from the government. The individual school boards may set additional specifications above and beyond the USDA requirements. Determinations about what cereals are offered in schools are based on these specifications — and rebates to the schools are intended to assist them in meeting their menu-cost requirements.
Otis Spunkmeyer muffins, usually wrapped in plastic and warmed in a school kitchen steamer, also appear with some regularity as a D.C. school breakfast option. When I called the company headquarters in San Leandro, Calif., I was referred to a public relations firm in Missouri, the DEEP Group. Stephanie Heart, the DEEP representative I spoke with, was quite chatty at first, saying she was absolutely familiar with rebate practices from her years working in the food industry. “You’d be surprised how much like consumer rebates they are,” she said.
But Heart clammed up fast after she called her client, Otis Spunkmeyer, to pursue my questions. “Everything is confidential. There’s not any information we can give you at this time,” she said. “I don’t think it’s a secret, but it’s just not something they [Otis Spunkmeyer] can share because of client confidentiality.”
Pepperidge Farm, the maker of Giant Goldfish Grahams, a breakfast staple in D.C. food lines, referred me to a representative, Frances Sirico, in Norwalk, Conn. Some weeks after talking to Sirico by telephone, I received a curt email stating: “Your request has been forwarded to our legal department. When I receive further information, I will contact you.”
I left several messages for James Cella, general manager at Cloverland Dairy in Baltimore, the main milk supplier for D.C. Schools. On June 28, I received an email from Cella, saying, “In response to your question — Cloverland serves some of the D.C. schools thru a contract cafeteria management company. We currently do not deal directly w/the schools, and do not invoice the schools. The best group to answer your question would be Compass Food group, and the other café mgt. companies D.C. has contracted with.”
Pay-to-play hurts smaller players
So why all the secrecy? A March 2009 article in In These Times magazine calculated that the big food service companies — Chartwells, Sodexo, Aramark — were taking in hundreds of millions of dollars in rebates annually in ways that ended up costing customers money by focusing food purchases on large, national brands that can afford to give hefty discounts, rather than smaller, local companies that sell their goods more cheaply.
“The money involved is massive,” In These Times reported. “Charles C. Kirby, former USDA regional director for child nutrition in Atlanta, says he ran a Mississippi Education Department cooperative buying program from 1992 to 2001. He dealt directly with companies such as Heinz and Kellogg’s and received rebates ranging from 10 percent to 50 percent. In the last year, his rebates were $15 million out of $90 million in purchasing.”
A 2002 audit by the U.S. Department of Agriculture found that in a sample of Midwestern school districts, food service companies routinely ignored the rule that requires them to pass on to the schools any rebates they receive. They were just pocketing the money. In 2008, the USDA beefed up its rule on rebates, requiring that school contracts with food service companies clearly state that any rebates received by the companies will be credited to the schools.
Despite the new rules, it’s widely assumed in food service circles that the big players — Chartwells, Sodexo, Aramark — are not declaring all of the rebates to which school districts are entitled, hence the shroud of secrecy.
When I put that to Foodbuy’s Ken Jaycox, he replied without a trace of irony, “I’m shocked and surprised by that allegation.”
But Robert Pritsker, a New York City restaurateur who unsuccessfully sued Chartwells, Sodexo, and Aramark in federal court, claiming the food service giants had since the 1990s improperly withheld at least $1 billion in rebates from schools, said the 5 percent rebate figure Chartwells has declared in D.C. sounds too small. In his own school district of Weston, Conn., Pritsker said Chartwells claims at least 15 percent in rebates.
Jaycox responded that there are many factors that could explain the wide difference in rebate percentages reported by Chartwells in two different school districts.
There’s enough intrigue and money surrounding the rebate question — and the role of corporate discounting in feeding popular but nutritionally dubious foods to millions of children in the federal meals program — that attorneys general in some states have taken notice. It may be less of an issue in D.C. schools in the coming year. Officials have decided to discontinue serving flavored milks and sugary cereals. But they have yet to answer questions about the future of Pop-Tarts, Otis Spunkmeyer muffins, and Giant Goldfish Grahams.