Saving on Utilities Can Mean Big Profit for Quick-Service Restaurants

    It's a battle worth fighting on the bottom line.

    McDonald's drive-thru employee handing food off to a customer.
    Adobe Stock
    About 80 percent of electricity and 100 percent of natural gas are consumed by refrigeration, cooking, HVAC, and water heating, with refrigeration and cooking leading in both categories.

    In the tough world of quick-service restaurants, owners are paid last. And often, the remaining profit is all too modest.

    How can a quick-service restaurant franchise owner increase their take home pay?

    Beyond the obvious—selling more and cutting product waste—what can an operator do to boost profit? An often-overlooked cost item is utilities: natural gas, electricity, and water. A typical quick-serve, like Tim Hortons or McDonald’s, spends $5,000–7,000 each month on utilities. Hardly a major cost, but every dollar saved on utilities goes directly to the bottom line.

    Where does energy go in a quick service restaurant?

    About 80 percent of electricity and 100 percent of natural gas are consumed by refrigeration, cooking, HVAC, and water heating. These are all areas where a hard-to-notice malfunction or an operational oversight may easily cause continuous energy waste.

    Problem: Energy waste in refrigeration, cooking and HVAC is invisible.

    It is possible to fight energy waste with traditional means—audits, equipment check-ups, preventative maintenance—but at a quick-service restaurant costs of running such programs quickly exceed savings. In the series of upcoming posts, we will discuss how to spot utility waste on a quick-serve's shoestring budget:

    All businesses routinely use more energy than necessary. A quick-service restaurant is no exception, energy waste is hardly a secret for an experienced operator.

    Typical causes of energy waste are incorrect heating/cooling setpoints in HVAC or cooking/storing equipment, dirty air filters or refrigerator coils, broken insulation gasket on a freezer, exhaust running overtime. In addition to costing energy, some issues may cause product loss or quality degradation (broken freezer gasket) or premature equipment failure (dirty air filters) or even customer discomfort which hurts repeat business.

    A detailed energy audit will find opportunities to cut energy costs at almost any restaurant, but is audit worth the findings?

    Two beliefs about energy take a bite from quick-service restaurant owner’s profit

    Belief No. 1: Energy waste is not worth the owner’s bother

    Energy waste in heating, cooling, refrigeration, and ventilation is invisible. In absence of visibility owners consider energy waste is immaterial. “It’s a cost of doing business,” and, “we have customers to serve, no time and resources to watch energy use” are standard operational procedures.

    Belief No. 2: Finding energy waste is too expensive

    Finding if a particular restaurant wastes energy is a routine audit task. However, since not every restaurant wastes energy, finding wasteful ones in portfolio by auditing all is prohibitively expensive. Besides, even when issues are found and fixed, results can’t be guaranteed to be sustained over time as "low hanging fruit tends to grow back." Therefore, fighting energy waste at quick-serves is considered an expensive uphill battle.

    Let us take a closer look at these beliefs.

    Reduction of energy waste can have a massive impact on profitability

    Just how material is the energy burden for a quick-service restaurant owner? Let’s translate this question to business terms: Selling how many burgers will produce the same profit for the owner as a 10 percent utility cost reduction?

    Though every franchise has its own financials, for this analysis I used data readily available from McDonald’s. According to corporate advertisement for prospective franchisees, an owner takes home $150,000 on a $2.7 million annual revenue; all numbers are in U.S. following the available data. This equates to 5.5 percent for an owner from a corporate poster. Discounting for advertisement exaggeration, I shall assume that a real-life owner makes 3–4 percent of gross sales. This means that from a sale of every Big Mac priced at $3.99 owner takes home about 15 cents—a proverbial “nickel and dime.”

    If such MacDonald’s burns through $6,000 monthly on natural gas and electricity, a modest 10 percent reduction equates to $7,200 going to owner’s pocket every year.

    How many Big Macs must this restaurant sell to generate the same $7,200 for the owner?

    • $7,200/15 cents = 48,000 Big Macs

     

    Selling such pile of Big Macs is not a small concept. If sales consisted of Big Macs only, such restaurant would sell just under 2,000 daily ($2.7 million/$3.99/365 = 1,854). Selling 48,000 Big Macs more would be like keeping doors open for 26 extra days per year without paying a dime for rent, burgers, royalty, and payroll.

    For a real-life quick-service restaurant owner, a 10 percent energy cost reduction equates to:

    • Selling extra 48,000 Big Macs every year
    • 26 days of restaurant work per year with no extra cost
    • 7 percent increase in take home pay

     

    Is 10 percent utility cost reduction attainable?

    Analysis of electricity and natural gas consumption data at 900 pubs in the U.K. has revealed that 44 percent of pubs used 30–50 percent more energy compared to similar pubs operating in similar conditions. The excess cost was quite material—£1,625 per month on average or nearly half of what a typical pub owner makes.

    What about the cost of finding energy waste?

    Energy waste in a quick service restaurant can be found at a cost of burger, fries, and pop combo

    In the previous post, we have established that cutting energy cost in quick-service restaurant is well-worth owner’s attention. We have also established that about 80 percent of electricity and 100 percent of natural gas are consumed by refrigeration, cooking, HVAC, and water heating, with refrigeration and cooking leading in both categories. These are all areas where hard-to-notice malfunction or operational error may easily cause an energy overuse, aka waste.

    Finding such issues is a routine maintenance task … if one knows where, when and what to look for.

    Looking for all operational issues everywhere all the time is prohibitively expensive, unless you are a tireless algorithm,

    Here is when AI algorithms come to the rescue: while for a human it is boring to monitor every fridge and every thermostat, it is a routine task for an AI algorithm to find wasteful restaurants by comparing consumption of restaurants in a big pool.

    If 500 quick-serves offer the same menu using similar equipment, their energy consumption after weather adjustments must be similar too. If some brands consistently use more energy—it’s time to inspect their equipment condition and operational procedures.

    AI algorithms can go further and provide a preliminary diagnostic of energy waste root causes. Here are several oversimplified examples:

    • Higher electric load 24x7—fridge gasket is damaged, or evaporator is dirty, or ventilation runs non-stop
    • Load bumps at night—faulty controls or wrong operational procedures for cleaners
    • Higher load in the morning than in the afternoon—shifts operate differently or higher level of operation

     

    Algorithm or not, just “show me the money”

    Use of AI is popular nowadays for a good practical reason: it is a cheap and effective way to find energy waste in big portfolios of similar establishments.

    An AI-based analysis of electricity and natural gas consumption data performed by kWIQly GmbH (Switzerland) at 900 pubs in the U.K. has revealed that 44 percent of pubs used 30–50 percent more energy compared to their peers. Average excess monthly cost amounted to 1,625 pounds or nearly half of what a typical pub owner makes.

    Most of this waste was operational—settings, leaks, gaskets, dust on filters, dirt on coils, etc. Once the analytical part was done—problematic pubs were found, price tags were attached to waste and likely causes of waste identified—fixing issues became a routine maintenance or management task.

    Now, the fun part.

    Monthly investment into consumption data analysis in the pub engagement was about the same as a price of a pint. How many pints (burgers, muffins) should a pub or a quick service restaurant sell to put 1,625 pounds into owner’s pocket?

    Is investment into energy use monitoring worth it? Do your own math.

    Anatoli Naoumov is the managing partner of GreenQ Partners from Toronto, Ontario, and can be reached at anaoumov@greenq.ca or 416-728-7239.