June 11, 2005

Public Debate

There will be a Public Debate entitled

"Union Commercial Services: Save them or Scrap them?"

on Tuesday 14th June at 4pm in H0.58.

The future of the Union's Commercial Services is a hot topic at the moment, as the Union is currently taking part in the so-called "Leadership Foundation Project" with the University. (This was formerly known as "Devolved Department Negotiations".

The Union's Commercial Services have a turnover of about £5 million and contribute about £300,000 towards the non-commercial services which the Union provides.

Here are two sample arguments to give you a taste of the sorts of things that will be discussed:

Argument for saving the Union's Commercial Services

Historically, the Students' Union fought hard for its independence from the University, and won the right to the Use of Union South in 1974. The £300,000 earned from the Union's Commercial Operations go straight back into services for students. The fact that the Union has this revenue stream means that it is not wholly reliant on the University, and makes the Union less vulnerable to threats to withdraw the block grant. The Union forces the University to keep its prices down by competing in the food and drink market. Because Union South is run by students, for students, the facilities can be used for what students' want. Students can have a real say on how the Union's Commercial Services are run through the democratic processes, as was demonstrated by the decisions taken about fair trade hot drinks. Therefore we should save the Union's Commercial Services.

Argument for scrapping the Union's Commercial Services

Running commercial services is by definition a risky undertaking, and as the Union's surplus tends to only be around £20,000 even a small deterioration of profits from the commercial side could leave the Union in financial ruin. The University would probably be happy to compensate the Union for the £300,000 lost if the Union let it take over the Commercial Services. The Union currently has a large incentive to tacitly collude with the University in the food and drink markets, which prevents the Union campaigning against the University's high prices. There is no reason why the Union's Commercial services could not be run by the University or the private sector, and they may thrive from being freed from democratic pressures. Students can make little difference about how commercial services are run as they are forever being warned that proposed policy is financially unviable. The staff-student protocol prevents discussion in Union meetings about how the Commercial Services are being run, and this is an unacceptable infringement on freedom of speech. Therefore, we should scrap the Union's Commercial Services.

As the Union is so fond of saying, come and have your say!

4pm, Tuesday, H0.58.

Be there.


- 14 comments by 1 or more people Not publicly viewable

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  1. Presidents Past (excluding caitlin mckenzie)

    Can we talk about staff student protocol there?

    Surely you should be up for a disciplinary for something for doing this?

    12 Jun 2005, 12:55

  2. Yes, we can talk about the staff student protocol and whether or not it prevents proper debate of the Union's Commercial operations.

    The good news is that this meeting is protected by the Education (No. 2) Act 1986 which provides for there to be free speach within the law on campus.

    As this meeting is being held in a University room it is well beyond the juristiction of a Union disciplinary.

    12 Jun 2005, 20:55

  3. Hero

    This is part of a wider action by the uni to try to 'increase profitability' of its food and drink outlets. Not to plow back into reducing the cost of living to students, you understand, but in order to use your personal borrowing to stuff the 'freedom sluch fund' the VC talks about in 'ask the VC' ( he wants a huge freedom fund in available cash to be available ASAP)

    It can do this more easily if it has control over the student's union. It can raise prices, and create a campus monoply which will allow it to exploit students. £3 for a coffee anyone? At the moment, if students percieve Hospitality outlets to be ripping them off, they can choose not to use them, and give their profits to the SU. If the possibility of choice is eroded, then you are giving the University a closed and captive market.

    Take for example the (false)monopoly that Hospitality Services has over supply of sandwiches etc. Quality and service has fallen, and prices have risen. This happens roughly once a year, as they try to make themselves 'more profitable', but are letting standards slip instead of improving them.

    The University will take advantage of the four-yearly turnover of students to hike up prices – they will rely on the naivity of new students (who will think that prices are 'normal') to make money. This will be on the back of your own personal debts, which you will still be paying after this place is a memory.

    Bear in mind that some universities have food outlets that charge less than average in order to minimise student debt. Do you think the Uni here wants to do that?

    At the moment, SU independence is a strong negotiating tool and gives the University a lack of monopoly. Do you really want to give that away?

    13 Jun 2005, 10:04

  4. Hero is right about using turnover to rise prices. Look at the price rise in cafe library this year. Sausage batches went up from 90p last year to £1.20 at the start of this year. Probably to pay for the "rebranding" as cafe library.

    I certainly wouldn't want to give away independence. If there were short term financial benefits to doing so they would undoubtedly be outweighed by longer term problems.

    13 Jun 2005, 11:06

  5. Trace Brazen

    "As this meeting is being held in a University room it is well beyond the juristiction of a Union disciplinary."

    Isn't the reach of the party (sorry, I mean Union) all encompassing though? Surely big brother will be watching. For those warwick students out there who are completely stupid and ingnorant (and that's most of you!), that's a reference to 1984 by George Orwell, not the TV show.

    13 Jun 2005, 11:12

  6. As you will have gathered, I'm trying to create a bit of debate about this subject rather than advocating any particular view.

    Hero – I think you have some good points about the creation of a monopoly on campus. Just to put the other point of view however, it could be argued that even with the Union we still end up with high prices due to tacit collusion.

    Tacit collusion is where there is no actual collusion or price fixing, but where prices end up at an uncompetitive level anyway. The argument works as follows. Suppose prices are at a high level, then competitive forces would normally lead to one party (say the Union) to cut its prices slightly to gain more of the market, the other party (say the University) would then have an incentive to respond, and this process would continue until prices were at a competitive level.

    However if the Union expects that if it cuts its prices the University will retaliate, and a "price war" will ensue, the Union may well come to the conclusion that it will suffer substantial longer term losses from the reduced prices that offset the short time gain of more sales. Thus without any actual collusion prices can remain at an uncompetitive level.

    Also, the Union may not campaign vigorously against the ludicrously high prices in the Café Library and Rootes Restaurant, as if the University cut its prices it would have to follow suit, leading to lower profits, so it may actually be in the Union's interest for University prices to remain high.

    Of course to tell how true this argument is you would have to analyse the Union and the University's cost data – like most organisations neither are prepared to relase this due to its Commercial Sensitivity.

    And as Damian says, its important not to just look at the position on prices in the short term, but also potential longer term problems if the Union lost its independence.

    13 Jun 2005, 12:28

  7. Trace – Everyone is welcome at this meeting – whether they are watching or participating.

    Actually, on second thoughts, the Channel 4 Big Brother need not attend.

    13 Jun 2005, 12:34

  8. Rather humourous that you think that commercial services only contribute 300k to membership services Benny what about (amongst other things) wages, overheads and the rent for Union North? Also bear in mind that there are plenty of other factors that feed into how you price a product or service other than what your competitors are doing. Our surplus tends to be between 30 and 60k, because we budget it to be as such, being a non-profit organisation and all, not because we couldn't make any more money than this.
    Also you could argue quite strongly that our Entertainments and bars are, for the majority, a membership service…

    If anyone would like to learn more about the way the Union actually spends its money feel free to come and have a chat in my office in Union North


    13 Jun 2005, 14:01

  9. Gareth –

    Far be it from me to be humorous – I was taking my figures from the Union's own budget back, dated 23rd June 2004.

    If you check out Section 4, it states:

    In spite of a difficult trading year, continuing pressure on student disposable income, and a noticeable downward trend in the beverage market, our commercial operations are forecast to result in a net surplus of £334k (7% of sales), which is only £10k down on the annual budget, and £95k ahead of last year.

    It goes on to state that the main details of the 2003–04 forecast include

    Net Commercial income of £334k after contingencies and allocated costs (a return of 7% of sales).

    Note that allocated costs are deducted from this figure. When Ross Davidson (last year's Finance and Internal Affairs Officer) introduced the budgets last year I was lead to believe that things such as staffing, rent etc. were split between Non-Commercial and Commercial Operations in appropriate proportions, and so this figure would represent a fair representation of the contributions of the Commercial Operations to the Non-Commercial side.

    My belief that this is the case is further encouraged by Section 6 of the Union's Budget Pack, which states:

    In order to get an accurate picture of how much each area of activity costs us, it is necessary to reallocate the cost of Departmental Services between Commercial and Membership Services. In the past, this has been done based on a rule of thumb. This year, a Cost Driver Reallocation basis has been used, where the costs are allocated based on an analysis of what generates the costs. E.g. IT costs are reallocated based on the number of computers in each department.

    This exercise allows us to build up a more accurate picture of the true cost of our operation. Currently this technique is only applied across the organisation as a whole i.e. between Commercial and Membership Services in totality. It is not applied to individual departments.

    This technique allows us to make it abundantly clear that the Union’s Commercial Services produce a substantial surplus to the organisation. This is added to the Annual Allocation from the University, and is used to fund the cost of Membership Services.

    So my understanding is that things like staffing and the rent for Union North are already split between Commercial and Non-Commercial, so that the money that the Commercial Services contributes to these things is already taken into account in the calculation of the £334,000 figure.

    Now I'm quite prepared to accept that I may have mis-read or mis-understood the budget pack, or mis-understood what Ross Davidson was saying, and if I've got this figure wrong I'd be quite happy to make a correction if you give me the correct figure.

    On your other two points, yes of course the Union breaks even because it wants to, I suppose the point for debate is whether its worth the risk of running a large commercial operation whilst being a not for profit organisation. This is something that people will want to discuss tomorrow.

    Indeed you could argue quite strongly that entertainments and bars are a membership service, this is something else that will be up for debate tomorrow.


    13 Jun 2005, 15:05

  10. Greg Jones

    I always said you were a pain in the arse Benny

    13 Jun 2005, 15:18

  11. Cheers Benny, I can see why you may have been slightly misled by what Ross said last year. But what he was trying to explain was the Commercial contribution to the surplus which can most clearly seen to be spent on sports/socs/democracy etc. What you miss is that our operating income is around 4 million, and our operating costs stand at 1.3 million (approx). The commercial side quite clearly also funds, practically in its entirety a staff payroll cost of around 2.4 million (not all of which is F&B staff by any means). This means that if we were to scrap our commercial side then we could not afford to retain the calibre of staff we currently do. The reason why the cost centres are split across membership and commercial as such is to enable us to see how efficiently each aspect of all of our operations run, and whether they are operating in as effective a manner as possible. Thus, for example, IT costs are reallocated according to how much of their time is taken up dealing with work from other departments. This matrix is developed across all departments, both commercial and non-commercial so we have a true picture of how the internal dependencies work in our organisation and can make changes where necessary. This does not mean that the membership operations magically fund themselves, practically all this money (minus the annual allocation) is taken from the commercial side. If you want a rough figure of the commercial contribution (and it is rough) then you are looking at something closer to £3 million, not 300k mate. Infact, 300k is what is reserved for our capital expenditure to make building improvements and purchase new equipment for departments each year. As you should already know.

    Also, the Union doesn't break even because it wants to, but because it has to, legally. And note our contingencies, this means surplus we put to one side. If you include them in final surplus calculations then we command a more comfortable financial position than may seem.

    So scrap the commercial side and you find us downsized to something comparable to a local sixth form college. There simply is no debate here.

    13 Jun 2005, 15:50

  12. See the trackback for an answer to these points.


    14 Jun 2005, 14:52

  13. I don't think you're a pain in the arse by the way…

    14 Jun 2005, 23:25

  14. Thank you Greg!

    I'm always weary of these annonymous posters anyway!

    16 Jun 2005, 15:37

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