Can Campus Food Beat the Restaurant Curse?

The restaurant industry is fiercely competitive and difficult to succeed in. But do university campuses present restaurants with an opportunity to flourish amidst diminutive profit margins? We interviewed local U of T restaurant Acacia Cafe to learn more about the pros and cons of operating a restaurant on campus.

By: Martin Shanahan 

Source: University of Toronto

It’s no secret that the restaurant industry is a tough business.

The numbers speak for themselves. According to Restaurant Business, every year in the U.S., 60,000 new restaurants open whilst 50,000 close, and Lightspeed reports that profit margins are declining. In the city of Philadelphia, for instance, profit margins stand at about 4-7%, which is less than half of the 15-20% margins seen 20 years ago. These are clear signs of an oversaturated, cutthroat industry. But why is the restaurant industry so unprofitable?

In my Strategic Management class at U of T, we analyzed industries with a concept known as Porter’s Five Forces. Coined by Michael Porter, this test determines whether a specific industry is profitable or unprofitable based on various industry forces. The higher these five forces are, the less profitable an industry is. So how does the North American restaurant industry fare according to Porter’s test?

i) Bargaining power of buyers (High)

Bargaining power refers to the ability of a party to negotiate better deals for themselves. Restaurant patrons, who are the buyers in the restaurant industry, tend to be price sensitive, especially in the current inflationary environment. They also have low switching costs, as they can very easily walk across the street and go to another restaurant if they are unsatisfied.

ii) Bargaining power of suppliers (Medium-High)

According to Lightspeed, restaurant’s low profit margins are primarily due to the “Big Three” expenses that restaurants incur: cost of goods sold (COGS), labor, and overhead. Each of these expenses make up about a third of a restaurant’s total revenue, leaving them with just a 2-6% margin after expenses. As reported by Gourmet Marketing, while large restaurants such as Chipotle, Subway, and Panera Bread have curbed their COGS by making ingredients in-house and leveraging their numerous locations to get advantageous prices from food suppliers, smaller restaurants don’t have this negotiating power. Landlords can also easily increase a restaurant’s rent and drive up their overhead costs.

iii) Threat of Substitutes (High)

Restaurants are always at risk of customers substituting away from their services because of one very intuitive, simple substitute to the restaurant experience: eating at home. When restaurant prices are particularly high, families and individuals can fairly easily buy food from the grocery store and cook at home so long as they are willing to sacrifice some time and convenience.

iv) Industry Rivalry (High)

As previously mentioned, restaurants are incredibly competitive. More worrisome for the restaurant industry, this competition can easily devolve into a price-based rivalry. Perishable and undifferentiated products like food are particularly susceptible to price-based competition, which drives profits down for all restaurants involved.

v) Threat of New Entry (Medium)

There are certainly some barriers to entry that limit new restaurants, many of which were highlighted by the Abeco Moving Group: permits must be acquired, staff must be hired, menus must be designed, and a location must be discovered and rented. Despite these barriers, however, the restaurant industry is clearly still ripe with new entrants every year. Nowadays, vendors are also coming up with clever ways to get around high capital investments or restrictive distribution channels, such as through pop-up shops and ghost kitchens.

Despite the restaurant industry being generally unprofitable, there are differences in profit margins across restaurant types. Food trucks, for instance, have average profit margins of 6-9%, and cafes have an incredibly wide profit margin range of 2.5-15%. In this article, I set out to analyze a specific type of restaurant: campus restaurants.

As a third-year U of T student, I have enjoyed a wide range of restaurants at the St. George campus and its surrounding area, including cafes, dining halls, an eclectic mix of food trucks, and, of course, Mama’s Best Hot Dogs. University campuses are a unique beast; they contain mostly homogenous populations of students who are generally living on their own for the first time, often coming from more affluent backgrounds than the general population, and with a notable need for quick, convenient food between their classes or during study breaks. This begs the question: do campus restaurants outperform the general North American restaurant industry? Does having a large, reliable customer base of hungry, young adults who value convenience boost profits? Or are students more price sensitive than we think, and do harsh competition and promotional activities designed to capture their fickle demand cannibalize profits? In this article, I set out to quantify the impact of university campuses on nearby restaurants.


At first glance, the U of T campus does seem to have an impact on Toronto’s restaurant scene. Based on a map of Toronto restaurants created by Thomas Campbell at Snappy, we can see that the St. George campus lies right in the heart of Toronto’s most restaurant-dense area. However, correlation does not insinuate causation, as there is clearly a confounding variable at play: the St. George campus is located in the heart of downtown Toronto, which logically attracts many restaurants.

Source: Snappy

Source: University of Toronto

However, my research did reveal a large gap between students’ expectations for campus food, and its reality. Many students are unsatisfied by the food options at their universities on account of its poor quality and lack of nutrition. According to CBC in their assessment of Ontario universities, “fewer than one in 10 students would recommend food on their campus to a friend,” and “[j]ust a quarter of students felt food on campus helped them maintain a healthy diet.” Furthermore, only 61% of students who responded to a survey from the charity Meal Exchange said that the food at their school was “tasty.” Prices of food on campus are also a concern, especially for food directly from campus dining halls. Many of my fellow journalists, including Sanghmitra Khanna from Her Campus, have called on U of T to subsidize food costs on campus, especially for international students who already pay egregious tuition bills. Eleanor Yuneun Park from The Varsity has also criticized U of T’s meal plan system for its exploitative practices, such as not fully refunding unused meal plan dollars at year-end.

These dissatisfied students create a huge opportunity for privately run restaurants to capitalize upon. Ori Grad from CHI Real Estate seems to agree, as they made a call to action back in 2018 for restaurants in university districts and towns to “[leverage] increasing student populations to grow [their] restaurant[s].” Grad encouraged restaurants to go “above and beyond to take advantage of international college students’ growth” through free samples, student discounts, forming relationships with schools and student groups, loyalty programs, and other marketing techniques that tailor the restaurant experience to students.

One restaurant that I believe has capitalized on students’ desire for quality food here at U of T is the Acacia Cafe. I will preface this next section by fully recognizing my bias: I love the Acacia Cafe. I have been frequenting them since I first came to U of T two years ago when they were known as the Innis Cafe. My bias aside, though, they truly are commendable, with food that is affordable, tasty, and, more notably, fresh. As reported by The Innis Herald, the cafe is a U of T staple, which was opened by the Shahidi family in 2000, and is currently run by Ali, Gunash, and their son Damon. Both Ali and Gunash hold PhDs in food science, and have years of experience in the food industry. Recently, the team at Acacia Cafe had to relocate from Innis College to Wycliffe College due to construction at Innis. Earlier this week, I sat down with Acacia Cafe’s Catering Manager Carolina to learn more about the restaurant, and grasp the campus restaurant experience. I have transcribed my interview with Carolina below.

Source: Wycliffe College

What is your role at Acacia Cafe? How long have you worked here?

Right now I am the catering manager. I’ve been working here for two years—more than two years. Two years and three months. I started working in the kitchen on the back side, cutting things, then I started to cook, uh, at Innis College [laughter]. Then we moved to Wycliffe, and at the beginning we only had caterings because we were trying to manage all the things—like we had to change the name, we had to do the menu, all the labels, all the marketing things. Back home—I’m from Colombia—back home I was studying anthropology with social media, so I know a little bit of marketing. That’s why I helped them with that. They are like my family here. They’re so nice. They just gave me the opportunity, and now I’m the catering manager. And next year we’re going to open a new store and I’m going to be the manager so I’m so excited.


What has your experience in the restaurant industry prior to working at Acacia been like?

I worked in a catering company in Vaughan, it's called Universal. I was working as a server, but then Damon taught me everything—also Ali, Gunash, all the cooks downstairs. And I learned here.

In my article, I’m trying to get a grasp on how restaurants on university campuses differ compared to the average restaurant. To that extent, how has your experience at Acacia differed from your experience at other restaurants?

So, first of all, I think that work on campus is really good. Because you can get, like, more close with the customers. Like, everyday we have almost the same customers. You know their names, you know what they want, how they want it. That’s really good. Like, in the kitchen sometimes we know like, okay, we have Ben. That’s bagel without this thing [laughter]. That’s really funny and that’s good. We can be more friendly. Also, we are sure that we are going to have customers. It’s a little bit difficult when you have to change the name because, for example, it takes, like, more than a year to get our customers back, and we’re still trying to get them back because everyone knows us as Innis Cafe and now we’re Acacia [laughter]. Compared with other restaurants, yeah, I think that it is the customers. They are really good with us, they’re friendly. We don’t have complaints, we don’t have to manage hard situations, tough situations. We don’t have to do it. That’s the good part. Also the caterings, because we are not only a restaurant, we also have caterings for the campus. That’s really good.

That’s exciting. What kind of events do you guys cater for?

Everything [laughter]. For example, here at Wycliffe every Tuesday we have a community dinner. So it’s from 6 to almost 8pm. We have, like, chicken kebab, barbeque, lasagna, pasta for around 70, 80 people every Tuesday. Around the day we have caterings, for example in the Robarts Library, Innis, Rotman. They ask for sandwiches, sometimes sushi.


You guys make sushi?

We have sushi now. We have a lot of things [laughter]. We have pizza, things that we don’t have in our regular menu because they are a little bit… that take time. But with the catering, we can do that, so that’s the other good part of the work on campus.

You kind of covered this a bit, but what has your experience with customers been like at Acacia? And to add onto that, approximately how much of your customers are students?

Hmm. I think that maybe more than half, yeah, because we’re open all year, even in summer. We’re open summer but, because the students are not here, we have less customers. So yeah, I think about more than half. In my experience, I love to work here [laughter], like everybody’s so friendly. I like to wear these t-shirts with messages like something like Star Wars [laughter] and everybody’s like “Oh I love your t-shirt,” “Oh I love your face,” “Oh I like your smile.” They’re so friendly! So, it’s so good.

That’s great. And as a campus restaurant, how do you market to students? Do you ever find that you have to use more promotions and discounts to capture demand than you would at a non-University affiliated restaurant?

Yeah, so for Innis Cafe I don’t know very well because I was working in the kitchen. And they’ve been there for 22, 23 years. But in here, we’ve changed up the name and everything. We have the Instagram account. We try to post things, like, frequently. We also make flyers with a coupon. So, in summer and the beginning of fall, we tried to give this coupon in the street [laughter] to every student that we saw. For Wycliffe, we sometimes have coupons for them. It’s like an agreement with their principal. In the caterings we also put the flyers—we put, like, a label with the map that shows that we are Innis Cafe but we changed our name. Yeah, I think that the most thing that we have is that the student that comes starts to bring the people.

I meant to ask, prior to coming to Wycliffe College and being rebranded as Acacia Cafe, you were known as the Innis Cafe and located at Innis College. What prompted that move, and how has the transition from the Innis Cafe to Acacia Cafe been?

I think that we were very lucky to find this venue because it’s beautiful. It looks like Harry Potter [laughter]. It’s huge, it’s bigger than Innis, even though we are so thankful with Innis because we worked there for a long time, and we completely understand that under the construction we cannot be open. In the beginning, we were a little bit scared of course, but I think that people on the campus know us, and they know that our food is really good, so we could find this location. And also we could find the other one that we are going to open next year. Um, at the beginning it was a little bit hard to open because we were so busy with caterings. We started to have more caterings than before. So we tried—we had to manage everything better, we had to be more organized. But then we also had to hire more people. Before we were, like, only four or five in the kitchen, now we are… a lot [laughter]. It’s a bigger space. The kitchen is bigger, in Innis it was a little bit smaller, now we have space for everything.

So really you’ve just been expanding since the move?

Yeah. The thing is that we’re a little bit far from Innis, that’s a little bit complicated. But now we have, like, maybe new customers because we are next to Queen’s Park, we are next to the Law Faculty, Music Faculty, Trinity College. That’s good. It’s different, it’s new, but it’s good.

Do you have any other thoughts that you would like to add?

Work for Innis Cafe and now Acacia Cafe has been a beautiful experience, I have to say. Even more because you get really close with the family. I know Damon’s daughters, I know Ali’s family, I know Gunash’s friends. They are really nice people, and the food is really good. I don’t know if you know, but Ali and Gunash have PhDs in the food industry.

Yes I heard.

They’re really smart, and Damon knows a lot. And they’re always open to teach you everything, and they’re really nice. Like, I think that is the first place that I feel really happy and I feel safe working in because they teach you with love. They’re not like “You have to do this and this and this!” no, no, never [laughter]. They let you grow in the business, that’s the good part.

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I had a lovely time talking to Carolina, and I think that our interview reveals many of the opportunities that campuses present for restaurants. The Shahidis have leveraged their impressive knowledge of food science to carve out a niche within the U of T community. Their restaurant is beloved for its fresh food and warm environment, which contrasts with the sterile, often overpriced dining hall experience. In fact, Acacia Cafe is so beloved that they managed to survive a relocation, and have been thriving ever since, with a new location soon to open. Being on campus has given Acacia many opportunities to profit through catering opportunities with different university partners, such as Robarts Library and Rotman Commerce, which allows them to expand their menu for new audiences. Acacia’s employees have also been able to build up strong relationships with student regulars who make up about half of their total customer base, and Carolina recounts having very positive experiences with all of her customers. Acacia’s marketing methods on campus include social media, flyers, and coupons, but what has turned out to be most helpful for Acacia is simple word-of-mouth between students.

Not every restaurant needs to be like Acacia to succeed, of course. Food trucks sacrifice restaurant space and ambiance to deliver food at the lowest possible prices. Yet, the success of food trucks can also be attributed to the high volume of price-sensitive students who frequent them, which is another unique benefit of campuses. 


The bottom line is that university campuses present significant opportunities for restaurants to succeed and create their own competitive advantage amidst a ruthless industry. While exact profitability measures for campus restaurants are difficult to come by, the high volume of campus restaurants and the runaway success of businesses such as Acacia Cafe indicate to me that, with the right strategy and management, campus restaurants can thrive. Hopefully, the Canadian government’s 10% reduction in new international study permits over the next two years won’t severely hinder the success of campus restaurants, and innovators like the Acacia Cafe will continue to thrive.

Notes

  • Articles is written as of Nov 21, 2024, and all images/info are accurate as of that date

  • This article has been approved by Acacia Cafe

Photo Sources

University of Toronto: https://foodservices.utoronto.ca/meal-plans/

https://map.utoronto.ca/?id=1809#!ct/45469?s/?sbc/ 

Snappy: https://gosnappy.io/blog/how-many-restaurants-in-toronto/ 

Wycliffe College: https://www.wycliffecollege.ca/