Increased energy savings boost store profitability

Sponsored by R3 Retail Development

Amazon online sales, their acquisition of Whole Foods and the recent opening of Amazon Go stores leave traditional store owners wondering how to compete against one of the world’s largest retailers. But while the “Amazon effect” is a game changer, some industry observers don’t view it as a present threat. Supermarkets that remain profitable will survive new competition. But in an industry where net margins hover near 1 percent, where do operators look to boost profitability?

The U.S. Department of Energy says savings on energy costs can be a game changer for energy-intensive supermarkets. According to the USDE, every dollar saved in electricity costs yields the same profit impact as boosting sales by $18. Dollars saved through energy conservation go straight to the bottom line, says Suzanne Ferguson, operations chief and co-owner of R3 Retail Development. The Camas, Wash., consultancy assists retailers with store redesigns and energy performance improvements.

“Energy efficiency is highly relevant regardless of the size of your store or what Amazon is doing,” she says. “It’s one of many opportunities to cut costs without spending a lot.”

Audit energy usage, sales trends
In existing locations, decreasing energy consumption begins with an in-depth energy audit says Rick Ferguson, chief engineer and co-owner of R3. At a basic level, utility bills are scrutinized, and the performance of refrigeration, HVAC and lighting is metered to uncover efficiency opportunities. With that data, store operators can see clearly where equipment adjustments and replacements might be made.

The first step when designing a new store or remodel is an in-depth sales and energy analysis.  This determines the best product mix and the amount of energy-consuming equipment needed.

“Knowing how much space you need for, say, produce and meat, depends on the sales volume of each,” he says. “Since refrigeration represents the largest source for energy usage, it is important to match the number of refrigerated displays to your product mix.”

Design and equip stores smartly
Sales audits may reveal the need for changes in store layout or equipment. Given the high cost of supermarket equipment, Ferguson advises operators to conduct a thorough cost-benefit analysis before buying anything new.  The lowest cost option may not be the best choice.  It all depends on your store, your customer’s wants and needs, and your overall marketing strategy.

We suggest taking energy efficiency into consideration before making purchase decisions. Newer equipment tends to use less energy. However, in some instances sticking with existing equipment may be the right choice. So look closely at your equipment's total life cycle, energy cost, potential maintenance costs and the cost of replacement before buying.

Suzanne Ferguson says the needs of each store’s customer base should factor into any layout revisions. Sales show what customers like best and dictate how much space should be devoted to matching those desires. Ever-shifting customer preferences and demographics will always keep grocers on their toes, she adds.

“By researching your revenue streams and target market you can determine which product and service offerings best resonate with your customers. The same research helps identify lower revenue items that you may potentially want to eliminate,” she says.

The bottom line is store equipment and design needs to be based on quantitative data.

Small tweaks matter
While a full facility overhaul is inevitable over the lifetime of any successful supermarket, R3RD advises against knee-jerk reactions born of alarming headlines. In fact, he praised much of the industry for its patience in observing the impacts of outsider influence.

“Everyone sees the effects of online shopping on their sales to some degree. But few are making major changes, yet most are willing to let the big [chains] duke it out first.”

For now, R3 advises clients to take a deep dive into their business performance to determine what is working well or not so well.  Make a commitment to reinvest funds into short-term cost-effective opportunities.  The next step is to implement a sustainable long-term improvement plan. Strong operators typically survive market dis through a combination of mindful cost management and attracting new customers.

“Our job is to guide them through that process and show them what opportunities are out there.”

Not only is change inevitable, he says it tends to make great operators better.

“Changes like what we’re seeing now force companies to improve; you must become better or your operation may not survive.”