The Food Service Industry Faces The HIGH Cost of Doing Nothing!
Unfortunately, the FACT is that electricity costs are NOT going down – EVER.
Why are electricity rates rising?
- Inflation of all costs and devaluation of the dollar
- Rising oil, gas, and coal costs
- Rising utility operating costs (union wages and benefits, insurance)
- Rising distribution costs (power line easements, copper cable costs)
- Rising regulatory costs which have caused HUNDREDS of power plants to close while electricity demand continues to grow!
In addition, your electric bill has become a source of funding for politicians and government agencies. Like taxes on gas and your telephone, numerous surcharges and taxes have been added to your electric bill to fund:
- “Green” alternative energy development subsidies
- The unpaid bills of businesses and households
- The repayment of expenses for storm damage repairs across the U.S.
- Incentives for energy-efficiency
The last item above – incentives for energy-efficiency – is HUGE! Here in Arkansas, Entergy Arkansas has accumulated a fund of over $9 MILLION earmarked for energy-efficient projects 2013. This is money collected from customers – not Entergy’s profits!
On top of these factors must be added a future “Cap and Trade” system that will tax power generation and all levels of consumption of fossil fuels. Note: the intention of “Cap and Trade” is NOT to increase the supply of electricity but to increase the COST – and to generate revenue for completely unrelated government spending.
President Obama stated, “Under my plan of a cap and trade system, electricity rates would necessarily skyrocket.” “Skyrocket” has been defined as electricity and other energy prices at least doubling, and likely tripling!
The food service industry is particularly impacted by high energy costs. (Food service includes not only food processing, but grocery and convenience stores.)
Consider these statistics:
- Refrigeration and lighting account for 50 to 65 percent of total energy use in the average super market? (Source: EnergyStar)
- Food service is the most energy-intensive commercial market sector, with restaurants using up to three times more energy per square foot than most other types of commercial buildings? Typically at least 50 percent of this electricity consumption can be attributed to lighting and refrigeration. (Source: US Dept of Energy)
- Refrigeration consumes large amounts of energy in cold storage warehouses – normally over 50 percent of the total utility bill. (Source: MG&E)
This dependency on refrigeration and susceptibility to energy costs also applies to other businesses and organizations including schools, florists, funeral homes, liquor stores, etc.
What can be done to combat rising electricity costs?
There really are only TWO choices:
- Businesses and facilities can identify ways to drastically reduce energy demands. Unfortunately, a viable business has limited options when it comes to turning off equipment and lights – especially busineses that are open 24-hours per day! The only possible alternative is to install more energy-efficient technologies.
- Or – the business can attempt to increase gross revenue at a rate faster than rising electricity costs. This would require increasing sales and/or raising prices.
Many businesses and organizations operate by wishful thinking. They have refused to confront these choices. They have preferred to operate in “blissful ignorance” that rising costs will not, in fact, put them out of business!
For businesses that think they can increase sales or revenue to stay ahead of electricity rate increases, look at this example:
Year 1 electricity costs: $10,000 per year, for example.
Year 2: after a nominal 5% rate increase on the SAME consumption – that is, assuming there is no increase in electric demand in any way – electricity costs will now be $10,500 per year.
Year 3: $11,025.00 after another 5% annual increase.
Year 4: $11,576.30.
Year 5: $12,155.10.
As you can see, electricity costs do not increase “linearly” or by a straight $500.00 per year. The 5% annual rate increases result in COMPOUNDED price increases of 122% over just five years. The 5% annual rate increases will also result in a COMPOUNDED price increase of 155% over ten years.
These increases do NOT include added surcharges, taxes, fees or the looming “Cap and Trade” penalties.
Now consider how much sales need to increase to offset a 5% increase in electricity costs: (For this example we will assume a “generous” profit margin of 20%.)
Year 1: the business will need to sell $50,000 of products or services just to pay for $10,000 in electricity costs if it has a 20% profit margin. This ratio also applies to budgetary revenue in the case of a non-profit organization or institution.
Year 2: to pay $10,500 the business will now need to sell $52,500 of products or services.
Year 3: to pay $11,025 the business will now need to sell $55,125.00.
Year 4: to pay $11,576.30 the business will now need to sell $57,881.50.
Year 5: to pay $12,155.10 the business will now need to sell $60,775.50.
The bottom line – that MOST businesses ignore – is that to be able to pay for a LOW 5% increase in electricity expenses over FIVE years, sales will need to increase by 152% just to break even! Anything less will result in lower net profits.
Likewise, a non-profit organization, government agency, school, etc. will need a 52% increase in their budget to offset these higher expenses!
The reality is that few – if any – businesses or institutions can plan on increasing sales or their budget by 50% in the next five years.
And that brings us back to the only other alternative: reducing energy demands.
Fortunately, there are MANY options. As mentioned previously, here in Arkansas, Entergy Electric has massive funding available to subsidize the cost of energy-efficiency projects. The scope of projects includes lighting, refrigeration, and HVAC upgrades.
For example, technologies now exist that reduce energy consumption by commercial refrigeration systems (walk-in coolers, freezers, and retail refrigeration) by as much as 80% without any changes to business operations!
Companies including FridgeWize have developed and install retrofits on commercial refrigeration systems that save businesses hundreds (and in many cases, THOUSANDS) of dollars per month in electricity expenses.
These huge energy savings produce cost savings that are actually are GREATER than the retrofit project costs!
Businesses recognize that every dollar in expense reductions AUTOMATICALLY increases NET profits by the same dollar. This ratio is NOT dependent on profit margin. Net Profit always equals Sales minus Expenses!
The FASTEST way to increase profits (or a budgetary surplus) is to reduce expenses! It is a 1 for 1 ratio, EVERY time.
So every $1,000 reduction in electricity costs by making upgrades to refrigeration systems with advanced, energy-efficient technologies automatically adds $1,000 in NET profits. This is ALWAYS true without any increase in gross sales volume.
On the other hand, as shown above, to add $1,000 in net profits would require a $5,000 increase in gross sales for any business with a 20% profit margin.
So what does it cost to retrofit commercial refrigeration systems with these energy-efficient solutions?
The REAL cost is NOTHING! No really: ZERO!
Remember, the energy savings are continual month after month, year after year. These expenses savings are cumulative and are GREATER than the cost of installations! In addition, many businesses finance the costs with low monthly payments that are LESS than the savings on their electric bills.
In either case, these businesses literally MAKE MONEY by reducing expenses by upgrading their refrigeration systems!
Now if a business or organization could make refrigeration upgrades and their electricity cost savings ONLY EQUALLED the price of the installations, their net cost would be ZERO. But when these facilities actually save MORE than the costs, they are literally being PAID to make energy-efficient upgrades!
If this wasn’t enough, utilities such as Entergy Electric here in Arkansas provide rebates for these installations. In the case of Entergy Arkansas, energy efficiency programs qualify for rebates of up to 75% of the project costs!
This is worth repeating: over and above the ongoing electricity costs savings provided by refrigeration upgrades – that we have already established provide 100% net profits – utilities such as Entergy Arkansas pay cash rebates.
How much can upgrades to refrigeration systems (such as those installed by FridgeWize) save YOUR facility?
How much will your local utility pay your business OVER AND ABOVE these costs savings?
The answers to these questions can only be answered by an evaluation of your refrigeration systems by an energy-efficiency consultant. Such audits may require a paid contract, however Entergy Arkansas and FridgeWize offer free on-site evaluations. These evaluations will provide the savings projections required to make an informed business decision.
Whatever the details of your refrigeration system, there are upgrades available that can provide costs savings – and profit increases – in as little as 30 days. And businesses need to remember that these energy-saving upgrades have a low, one-time cost and then provide compounded expense reductions month after month, year after year!
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