How Aramark is silently taking over student dining.
Pepper’s pizza, an institution at the University of North Carolina at Chapel Hill, stayed open for 25 years before shutting its doors last March. Owner David “Pepper” Harvey says he felt the heat in part from private-equity-owned food industry behemoth Aramark. He started to lose money on his lunch business — as much as $60,000 a year, he estimates — around 2007, after then-CEO Joseph Neubauer took over at Aramark and, bolstered by funds from J.P. Morgan and Goldman Sachs, expanded in higher-education food services. Neubauer had good reason: College students spent an estimated $42 billion on food in the 2013 school year outside the cafeteria, according to re:fuel’s College Explorer survey.
It may not have the name recognition of some of its rivals, but Aramark is one of the largest food companies in the world, with a reach on par with public companies such as Yum Brands. The company operates on more than 600 college campuses. Aramark also services hospitals, prisons, and sports arenas. “On many campuses Aramark has exclusivity, so there is no other food service allowed,” says David Schwartz, campaign director at Real Food Challenge, a nonprofit group that helps raise student awareness about college dining. “On some campuses students are mandated to buy a meal plan.” The only other place like it, Schwartz says, is prison. Not all students are so thrilled with the lack of choice. Chelsea Enwall, a student at Western Washington University, asked to see the university’s contract with Aramark through a public records request. Aramark sent her a restraining order. (The company later apologized, saying it thought she was a competitor.)
Aramark can do things that Pepper’s and the like cannot: The company says it interviews more than 150,000 students each year to create very specific menus. At UNC, for example, Aramark helped conduct a survey breaking the campus up into “neighborhoods” based on five-minute walking distances, according to director of auxiliary services Mike Freeman. If students were hungry, UNC might know when, where, and what for.
Still, the ultimate customer isn’t the university but its students. What happens if they don’t like that one company controls campus food?
This story is from the September 2, 2013 issue of Fortune.