Uncontrolled energy consumption can silently eat away at your profits, impacting your bottom line more than you realize. However, CFOs would be glad to know that there are solutions that can help address these hidden costs accordingly.
We’ve compiled a list of action items your business can immediately implement to reduce the overall impact of these hidden costs. However, to apply these action items to their best effect for your business, we must first narrow down the possible areas of concern you zero in on.
What are the areas of concern that require my attention?
True to their name, hidden energy costs are buried underneath the surface of general operations. What may initially be an obvious source of hidden costs may not be the root of the problem.
So, to help you zero in on the issues leeching on your business’s profits, here’s a quick list of areas you can immediately address:
Inefficient appliances and equipment
One often-overlooked culprit eroding your bottom line is inefficient appliances and equipment. While the initial purchase price might seem reasonable, these outdated or poorly maintained machines can silently drain your profits through hidden energy costs.
In fact, these outdated appliances and equipment can waste up to 80% of a restaurant’s energy—causing your energy bills to soar.
Here’s a quick breakdown of how these machines negatively impact your business’s bottom line:
- Increased energy consumption: Inefficient appliances require more energy to perform the same tasks than their modern counterparts. This translates to higher energy bills, directly impacting your operating expenses.
- Unnecessary wear and tear: Outdated equipment is more prone to breakdowns and malfunctions. These issues can lead to increased maintenance costs and reduced equipment lifespan, requiring more frequent replacements—which are significant capital expenditures.
- Uneven performance and food waste: Inefficient equipment might not maintain consistent temperatures or operate at optimal settings. This can lead to uneven cooking, spoilage, and the need to re-cook food, resulting in increased food waste. Food waste not only represents wasted product costs but also requires additional energy for disposal, further adding to hidden costs.
- Inconsistent food quality: Fluctuating temperatures or inefficient equipment can lead to inconsistent product quality. This can negatively impact customer satisfaction—potentially leading to lost sales and a damaged brand reputation, ultimately affecting your bottom line.
Preventable maintenance and repairs
While breakdowns and repairs seem inevitable, a surprising number can be prevented proactively. This same number of preventable repairs usually reaches costs of about $28 billion per year for average restaurants.
Here’s how they contribute to such costs:
- Unnecessary repair costs: Equipment breakdowns lead to unplanned repairs, which are often more expensive than routine maintenance. These unexpected expenses disrupt operations and strain your budget.
- Increased downtime: Equipment failures cause downtime, which means lost productivity and sales opportunities. This translates directly to a reduction in revenue.
- Higher replacement costs: Frequent repairs due to neglect can shorten the lifespan of your business’s equipment, leading to the need for premature replacements. These capital expenditures significantly impact your budget.
- Inventory spoilage: Equipment breakdowns, particularly in refrigeration or cooking units, can lead to spoilage of valuable food inventory. This represents wasted product costs and lost potential revenue.
Lack of a restaurant energy management system
One area often overlooked is the impact of a lack of energy management systems (EMS) in your business. While the upfront investment might seem like an additional expense, the hidden costs of not having an EMS can significantly erode your bottom line.
An EMS is critical to safeguarding your business’s operations, as its absence can lead to the following issues:
- Blind spots in energy consumption: Without an EMS, you lack real-time data on energy usage across various aspects of your restaurant, like refrigeration, lighting, and HVAC. This lack of visibility makes it difficult to identify areas of high energy consumption and implement targeted solutions to reduce waste.
- Missed savings opportunities: Inefficient equipment or unnecessary usage during off-peak hours goes unnoticed, leading to higher energy bills and missed opportunities for significant cost savings.
- Inefficient operations and unnecessary waste: Without real-time monitoring, you might not be aware of inefficiencies like improper temperature settings or equipment left running idle. One example is inefficient HVAC systems overworking to maintain desired temperatures, leading to higher energy bills.
- Reactive maintenance and increased costs: An EMS can monitor equipment performance and identify potential problems before they escalate into major breakdowns. Without this system, repairs become reactive, leading to unexpected downtime that disrupts operations—leading to lost productivity and potential revenue loss.
- Higher repair costs: Emergency repairs are often more expensive than routine maintenance. These last-minute repairs also entail neglected potential issues that can shorten equipment life, requiring more frequent and costly replacements.
How do these invisible costs affect your business’s bottom line?
To aid the responsibility of CFOs, we’ve summarized the issues above related to hidden costs of energy consumption down to these points:
Increased operating expenses
Neglected appliances and equipment, unnecessary and frequent machine repairs and replacements, and a lack of a solid energy management system can all add up to increased operating expenses.
Because of these runaway expenses, your business’s profitability will be negatively impacted—introducing cash flow issues and reducing the business’ financial flexibility.
Eroded profit margins
Eroded profit margins can be a small leak on the ship’s hull. While it can go unnoticed, it can slowly but surely sink a whole business when left unchecked. Aside from reduced profitability and cash flow issues, eroded profit margins can decrease a business’s competitiveness and hamper growth.
The worst-case scenario could even involve the potential for insolvency, where severe profit erosion can lead to a business’s bankruptcy or forced restructuring.
Compliance issues
Lack of energy-efficient systems will lead to future compliance issues. These issues can involve the following:
- Direct Costs: Non-compliance can lead to hefty fines, penalties, and legal fees. These unplanned expenses directly affect your profits and can significantly impact short-term financial performance.
- Operational Inefficiencies: Investigating and resolving compliance issues divert resources from core business activities. This can lead to lost productivity, project delays, and increased operational costs.
- Reputational Damage: Once your compliance violations go public, they can severely damage your brand image. Lost customer trust and negative media coverage can translate into lost sales and decreased market share, impacting long-term profitability.
- Increased Regulatory Scrutiny: A history of non-compliance can attract unwanted attention from regulators. This could lead to stricter audits, higher compliance burdens, and limitations on future business opportunities.
- Difficulty Attracting Investors: Businesses with a non-compliance reputation are considered riskier investments. This can make it harder to secure funding for growth initiatives and expansion plans.
How can I address these hidden energy costs?
Fortunately, solutions are available to you that can help you address these problems, control these hidden costs, and ultimately reduce them. Here are a couple of action items you can implement:
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Invest in energy-efficient appliances and equipment
Our recommendation? Look for Energy Star-certified equipment. These appliances and equipment are designed to use less energy without compromising performance, ensuring both energy cost efficiency and product quality.
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Implement proper maintenance practices
Regular maintenance ensures equipment runs efficiently and minimizes energy waste. These maintenance routines should also minimize the risk of costly equipment breakdown and prevent the need for expensive replacements.
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Monitor energy consumption
Utilize smart meters or energy monitoring tools to track energy use and identify areas for improvement. Only once you can measure your energy use can you optimize your business’s energy consumption.
Remote temperature and humidity monitoring tools are convenient for monitoring your business’s appliances, especially cold storage units. Pro Tip: Go for monitoring tools that use Long Range Wide Area Network (LoRaWAN) connection for reliable 24/7 monitoring and data collection.
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Seek professional expertise
The action items are more of first-aid solutions to help you start addressing your business’s hidden energy costs. However, fully optimizing your business’s energy consumption would require a dedicated team that understands the ins and outs of energy optimization.
Consult with energy auditors or efficiency experts to identify and implement cost-effective energy-saving solutions. GlacierGrid, for instance, offers user-friendly and reliable tech solutions that your business can install for energy monitoring and optimization.
Reliable monitoring solutions can expose your business’s hidden energy costs
At GlacierGrid, we strive to help businesses improve their bottom line by providing energy efficiency solutions to reduce their overall energy costs. Even something as simple as installing a remote temperature and humidity monitoring system can protect your business’s assets—specifically its equipment and perishable inventory.
Feel free to book a demo with our team if you're interested.
