Like discount book chains, Marriott and ARA make money selling a high-quality product cheaply by counting on high volume. The per-meal federal reimbursement formula gives the contractors an incentive to provide nutritious meals that kids will like, because the more meals they induce kids to buy, the greater their margins beyond fixed costs. So far, the strategy has paid off. The secret to making it all work is the plan's clever payment system. The complicated arrangement provides the private contractor with an incentive to feed more students and allows the school district to keep most of the profits.
School districts pay the contractor an annual fee to run the program.
This fee pays for everything from capital improvements to salaries and food. The school district then keeps all the money the students pay. In addition, the district keeps all of the per-meal subsidies Washington sends it. If these revenues fall short of the district's payment to the private contractor, the contractor assumes the loss. This way, the district can't lose money and the contractor has an incentive to keep costs down while serving more meals.