Day #099: A downside of VCU’s rapid rise

VCU, Aramark, and chains aren’t bad, but Richmond can do better. 

November 13, 2014; 8:30 AM • by Aaron Williams

Inspired by Michael Bierut’s 100 Day Project, 100 Days to a Better RVA strives to introduce and investigate unique ideas to improving the city of Richmond. View the entire project here and the intro here. 

• Idea: A paternalistic system that allows VCU students a wider range of options (including grocery stores) than the current meal plans. 
• Difficulty: 5 — Aramark’s contract with VCU isn’t up for renegotiation until 2023. 

The rise of VCU has benefited Richmond in remarkable ways. While it has undoubtedly ruffled some feathers, the city’s gains from VCU’s expansion have far exceeded the losses. The behavior of VCU and Aramark (VCU’s food contractor) is one area where the university can improve relations with the community while increasing the welfare of students. A total reevaluation of VCU’s food services policy is necessary. 

Why chains aren’t terrible

In towns as loyal to local businesses as Richmond, being a national chain is seen by many as unquestionably negative. But in free markets, national chains are typically successful businesses that have leveraged economies of scale¹ in distribution and advertising en route to expansion. Without demand for predictable products or lower prices, two things that benefit consumers, national chains would not be able to compete with local businesses. 

But the concept of the highly touted “free market” is built on assumptions: no barriers to entry and exit, lack of market power, perfect information, and the absence of externalities. Obviously, some of these assumptions are impossible in reality, but when many of these are violated–and are violated to a serious degree–consumers start to lose as prices rise and the variety of products diminishes.  

Where things fall apart

Gone are the romantic days of starving 19-year-olds cooking baked beans on hot plates in order to save a few dollars for the sake of satisfying their thirst for knowledge. These are the days of required meal plans ranging in price from $1,710 to $2,080 per semester.

Required meal plans for the thousands of freshmen in dorms that lack kitchens is good policy, but the way this policy is used is anti-competitive. The goal is to ensure that students are fed and healthy with a dash of paternalism–aka their parent’s money or student loans shouldn’t be spent on beer or drugs. But this could be accomplished without limiting the 2,968 beds without kitchens, and the associated millions of dollars, to a handful of businesses. 

In order to promote variety, Aramark and VCU Dining Services teamed up to create the Meal Exchange program and Dining Dollars. These programs, which allow the use of blocks (meal swipes) and restricted “dollars” at VCU dining locations, are limited to fast-food locations such Taco Bell, Chick-Fil-A, and Pizza Hut.

Aramark limits the meal exchange program to certain items and places at certain hours to protect paying customers from exceptionally long lines. But these exceptionally long lines are a sign that students forced into meal plans want alternatives and that those alternatives are being systematically excluded. 

Student housing is optional at VCU, unlike some universities, but decisions about housing and dining are unique. The bundling of student housing and restricted student dining is reminiscent of the bundling of Microsoft Windows and Internet Explorer. Despite the creation of both, Microsoft got in trouble because they used the key asset of a ubiquitous platform to hurt internet browser competition.

Barriers to entry and exit are another issue. Access to restaurant space on the VCU campus is limited to national chains who negotiate with and are managed by Aramark. This limits the most profitable real estate in the Monroe Park neighborhood to certain businesses while excluding Richmond entrepreneurs–like those who just spent $4,000 at Aramark managed restaurants while in business school studying to open a restaurant. 

The flaws in the system are evidenced by student behavior. Students regularly double swipe in order to get a foot long sub instead of a six inch sub. That means students are paying close to $14² for something that would cost far less in an unrestricted system. Since swipes don’t roll over between semesters,³ it’s not uncommon to see students passing out pizzas to the homeless or bringing stacks of pizzas to class in May and December. 

The entire system is designed to diffuse and hide the burden of purchase–that bad feeling you get when you spend money. Parents or student loans buy the meal plan months before students use them. At no point do market forces reward good business and punish bad business. 

To be fair, Aramark and VCU Dining Services have a system of incentives and rely on student surveys to pick restaurants (although Aramark has the right of refusal), but in the absence of externalities (there aren’t any in this situation) the market always trumps central planning.⁴

All of this leaves businesses, ranging from those who invested in the neighborhood before the rise of VCU to those who want to invest in the neighborhood now, systematically excluded from millions of dollars of business every semester. 

Reevaluation

Economic theory, the student experience, and a stroll through the VCU campus all suggest these policies are worth reevaluating. A paternalistic system that allows students a wider variety of options–including grocery stores–would further enhance student welfare while also opening up the VCU campus to market forces. This requires easing access to the meal exchange program, dining dollars, and VCU restaurant real estate, but would result in competitive prices, variety in line with demand, and better service. 

In an era when students are taking on more and more debt for less and less return, there needs to be an option that is less extravagant and where variety doesn’t mean unhealthy Taco Bell or Raising Cane’s. Aramark and VCU Dining Services are undoubtedly interested in promoting student welfare, but the system falls short of what would be possible in a “freer market.”

Love this idea? Think it’s terrible? Have one that’s ten times better? Head over to the 100 Days to a Better RVA Facebook page and join in the conversation.   

Photo by: JeepersMedia

November 13, 2014 8:30 AM 2