The Hidden Costs of Refrigeration Outages
The total cost of unplanned refrigeration outages can be over five times the direct costs.
“How does avoiding a refrigeration outage actually save me any money? I already pay my service provider to make sure everything is back up and running as soon as possible.”
Oftentimes when we are discussing Axiom Cloud’s Facilities Analyzer or Virtual Technician apps with customers for the first time, their response is something along the lines of the quote above.
While this is a completely logical question, it fails to take into account some of the less obvious ways that refrigeration outages can impact a supermarket. In this blog post, we’ll discuss many of the indirect or “hidden” costs of unplanned refrigeration outages.
As you’ll see, invoices from the maintenance contractor are just the tip of the iceberg!
Store Employee Time
Every hour a store employee or manager spends responding to refrigeration alarms is an hour that they can’t spend on something that increases sales. Helping a customer find their favorite item, restocking shelves, and staffing a checkout counter are all higher value uses of time than dealing with a refrigeration outage.
Considering that most supermarkets operate on razor-thin profit margins (around 1%), the extra hours that store employees spend on activities like moving food out of rapidly warming display cases or coordinating with maintenance contractors can be the difference between a profitable year and an unprofitable one.
Lost Sales
According to FMI, median weekly sales per supermarket is $554,958, about 51% of which comes from perishable food sales. Assuming the average store has 15 case groups in its refrigeration system, every hour that a case group is demerchandised while a store is open leads to $168 in lost sales! To put that in perspective, a four-hour demerchandising event for an entire rack leads can lead to over $1,200 in lost sales.
Refrigerant
Based on an average annual leak rate of 25%, the average supermarket spends around $15,000 on refrigerant each year. Supermarket refrigeration systems that have more common outage events also tend to have higher annual leak rates. High refrigerant leak rates are bad for the environment and a store’s bottom line.
According to the EPA’s GreenChill Program, if every supermarket in the USA reduced their leak rate from 25% to the GreenChill average of 14%, savings of $108 million/year would be realized in refrigerant cost alone. As you can see in the figure below from The Institute of Refrigeration, the indirect costs of a refrigerant leak can be several times higher than the cost of the refrigerant that is lost.
You can read more about why refrigerant management is so important for commercial refrigeration and the benefits that come along with it in one of our past blog posts: 6 Reasons to Improve Your Refrigerant Management.
Compliance
Another indirect cost of refrigeration outages is compliance. The EPA has strict recordkeeping and reporting requirements related to refrigerant gas leaks. According to these requirements, “owners or operators must submit a report to EPA for any appliance containing 50 or more pounds of ozone-depleting refrigerant that leaks 125% or more of the full charge in a calendar year.”
In addition to the time and effort related to complying with these requirements, improper leak repair and reporting also comes with a risk of massive fines under Title VI of the Clean Air Act. The Biden Administration recently proposed legislation that would gradually reduce the production and import of HFC’s in the United States by 85% over the next 15 years, so we should expect that the indirect costs associated with refrigerant leaks and compliance will only continue to increase.
Energy
The average grocery store spends over $200,000 on energy each year, the majority of which is consumed by the store’s refrigeration system. During an unplanned outage, the refrigeration technician’s first goal is to bring the case temperatures back down to their setpoints - by any means necessary. Often, the first thing a technician does is turn off floating suction controls or crank up the system’s head pressure. Both of these actions can make the entire refrigeration system consume significantly more energy for months or even years afterwards if they are not reset before the technician leaves.
With Facilities Analyzer, we often see creative or unexpected reasons for suction pressure not floating at a store. For a medium-sized grocery store, floating suction controls being turned off during an outage can lead to over $5,000/year in additional energy costs!
Food Spoilage
According to the US Department of Agriculture, about 30% of food in American grocery stores is thrown away, and the total value of this wasted food is about twice as much as annual profit. While much of this waste is due to food not being sold quickly enough, large refrigeration outages can also lead to catastrophic food spoilage events. These food spoilage events cost grocers thousands of dollars in lost inventory.
Food spoilage is generally counted in the broader category of “shrink,” which means its cost is not directly associated with the refrigeration outages that often cause food spoilage events. Chains like ALDI, Kroger, and Ahold Delhaize have committed to reducing food waste as part of their company-wide sustainability goals, and proactively, rather than reactively, maintaining their refrigeration systems should be high on their list of measures to reach these goals.
Store Employee Satisfaction
If you were to ask supermarket employees which aspects of their roles they liked the least, responding to alarms from refrigeration monitoring systems and dealing with unplanned refrigeration outages would surely land very high on the list.
When the refrigeration system suddenly struggles to keep the food cold, employees have to take on a variety of unplanned tasks. These can include getting a technician to site, moving food into walk-in fridges and freezers, explaining empty cases to customers and helping them find replacement items, and more. The result of frequent “hair on fire” events like these will be lower employee satisfaction, which leads to higher turnover. Higher turnover increases the store’s training and recruitment costs.
Customer Loyalty
Nothing drives shoppers away from a grocery store like not finding the products on their list. And if the cause is a refrigeration outage, it can be avoided. Besides prices, convenience is often considered the number one factor that drives customer loyalty in supermarkets. While certain factors that drive convenience, such as store location, are fixed, poor product availability is one factor that causes shoppers to spend their money elsewhere.
According to a report by TCC Global, 16% of over 1,500 shoppers had changed their main store over the past 12 months. These types of shifts can have huge impacts on a store’s top line!
“The total cost of an unplanned refrigeration outage can easily be five times greater than the direct maintenance costs.”
When you add up all of these indirect costs, the total cost of an unplanned refrigeration outage can easily be five times greater than the direct maintenance costs. Fortunately, Axiom Cloud’s apps can predict the equipment issues that lead to these outages and prevent them from occurring in the first place. If you’re interested in learning more about how Facilities Analyzer and Virtual Technician can help you improve refrigeration management and reduce both the direct and indirect costs of refrigeration outages in your supermarket, reach out today!
Turner is a Lead Sales Engineer at Axiom Cloud.
Axiom Cloud’s mission is to use software and automation to transform how the world’s cooling systems are powered, operated, and maintained, in order to generate significant climate and financial impact. Axiom’s team of refrigeration experts, data scientists, energy nerds, and software developers solves retail grocery’s biggest energy and maintenance challenges by layering intelligence onto their existing refrigeration systems. If you’re interested in learning more about our mission or our apps for commercial refrigeration, please contact us today.