You may be aware that energy costs account for up to 15% of a grocery retailer’s operating budget. But are you aware that certain adjustments in your energy management strategy can improve energy efficiency and lower energy costs? Since grocery stores typically have low-profit margins (~1%), a $1 increase in energy savings is equivalent to approximately $59 in increased sales.1 Those numbers should be compelling enough to warrant a review of your energy usage, energy management, and energy strategy. That said, grocery store managers spend each day wearing several “hats”–making it difficult to keep track of all the nuances and changes in the energy market.
The energy industry is continually changing, and 2020 has brought unprecedented changes on many levels. The fundamental changes taking place today can significantly impact your future energy costs. For example, transmission, distribution, and capacity charges are rising now. Taking a proactive approach to lock in current energy prices before they continue to rise can result in significant savings. Knowing where the market is and where it’s headed, understanding your energy procurement options, and analyzing data for energy insights can make or break your bottom line.
As a grocery store manager of a large retail food chain, or even an independent local food market, you have multiple objectives competing for your attention every day. The tips below can help you learn how energy management and cost savings.
1. Know what drives your energy price
To purchase energy wisely in a deregulated market, it is important to understand the fundamentals. Electricity and natural gas have robust futures markets and pricing trends are subject to change at any time in response to a host of drivers such as:
- The economy
- Natural gas supply
- Regulatory and political events
Longer-term pricing is impacted by supply forecasts based on retirements and the development of new power plants, natural gas production, and pipeline delivery capacity. It’s important to continuously monitor the market and the fundamentals to make good buying decisions.
2. Understand your energy procurement options
There are essentially three ways to buy energy:
- Go through your local utility
- Go direct to an energy supplier
- Use an energy consultant or broker
Larger grocery stores and chains are big energy users, and therefore typically see price benefits when getting supply outside of the utility. In addition, because the utility contracts for supply on a set schedule, standard service rates will fluctuate with energy market prices. Unless you choose an alternate energy supplier, you will receive your energy supply from the local utility.
It’s important to recognize that the best supply offer is not always the lowest price offer. Not all supplier contracts are the same, and suppliers may make modifications to their contracts periodically. Key contract terms to review include payment terms, “swing” allotment (how much energy you can use within the range of your agreed-upon consumption), Change in Law clauses, and early termination fees.
3. Develop an energy strategy
When it comes to effective energy management, grocery stores have a lot to gain with the right strategy. It is important to know how you purchase energy and how each store uses energy. Commodity purchasing options can be as simple as a fixed-price all-inclusive contract or as complex as multi-layer hedging with a variety of variables. For effective energy management, grocery store managers should consider:
- Load profile (how your facilities use energy over a specific period of time)
- Risk tolerance
- Budget constraints
- Expansions or reductions that may impact energy consumption
- Any organizational sustainability goals
Energy reduction efforts such as energy efficiency projects, onsite generation, demand response programs, and peak load management are all initiatives that should be carefully considered to reduce energy costs at grocery stores. One word of caution; if you’re going to reduce energy usage, be sure your electric supply contract terms are adjusted in a way that allows your company to maximize savings benefits. For example, if you are going to reduce your load on peak days to lower your grocery store’s CapTag, make sure your supply contract is written to pass-through capacity charges so that you can get the savings in future energy supply bills.
4. Prioritize energy projects and initiatives
Food retailers want to understand which energy initiatives and solutions will provide the greatest positive impact. Managing energy costs in grocery stores and supermarkets require energy optimization from three key areas: energy procurement, energy efficiency, and sustainability. Conducting a forward-looking analysis that incorporates a variety of energy options allows you to prioritize, plan, and execute an optimized energy strategy. Once you understand the potential cost savings and sustainability benefits of certain actions, you can then take a deeper dive into your operation, facilities, and energy usage data to develop a road map. Read this blog to learn more about energy optimization through predictive analytics.
A grocery store spends approximately $3.95 on electricity per square foot annually.2 If you’re not strategically managing your energy usage and spend, you’re likely leaving money on the table. Other organizations are benefiting from an integrated, data-driven approach to energy procurement and management, and so can you. If you’re ready to develop or refine your energy management plan, you don’t need to hire someone or invest capital you don’t have in order to do so.
5. Leverage the expertise of a consultant
Deregulated energy markets are among the most complex commodities markets in the world and the choices you make today can have long-term implications. Energy consultants have the knowledge, market insight, and experience necessary to make the most strategic and advantageous decisions regarding energy procurement and sustainability. An energy consultancy will “sit on your side of the table” to understand your energy needs and goals and help you develop an energy strategy that will keep energy costs under control.
Contact us to request a free energy consultation and learn more about your options.