Turning Down the Cost of Utilities
A holistic approach is helping retailers overcome barriers, prioritize activities, and accelerate payback of energy-saving measures in stores
October 2014 | by Daniel Burk
Energy is the fourth largest in-store operating cost for US retailers (after labor, rent and marketing). A typical hypermarket may have energy bills of $500,000 per year, for example. While overall energy costs differ by type of retail format—between about 4 and 9 percent of in-store operating costs—they also vary widely between stores of the same age, type and size. That suggests a significant opportunity for cost reduction. When we looked at energy consumption across the network of one large retail chain, for example, we found differences of up to 40 percent between otherwise similar stores. Indeed, when retailers conduct energy audits on their stores, they typically identify opportunities to reduce energy consumption by 20 to 30 percent, and sometimes by up to 50 percent.
Savings aren’t the only reason retailers should be interested in cutting energy consumption. Many organizations now accept that, to do their fair share in the fight against climate change, they should be reducing carbon emissions by at least 3 percent a year. Most retailers have energy savings targets in place as part of their overall operating and sustainability policies, but these goals aren’t always as aggressive as those that climate scientists suggest are required.
In practice, however, even the savings currently targeted by retailers have proven frustratingly hard to capture. The difficulty stems from three root causes; one is common to energy efficiency improvement in any industry, the other two are more specific to retail networks. First, there’s the universal fact that there are no silver bullets in energy efficiency. Cutting energy consumption is an incremental process, which relies on the accumulation of dozens of small changes in equipment, operating parameters and policies. Identifying and implementing these changes requires technical expertise, stamina and discipline.
Second, there’s the need to balance energy efficiency improvements with their potential impact on store operations and customer perceptions. In a typical grocery store, about 60 percent of the energy consumed is used to run refrigeration and heating, ventilation and air-conditioning (HVAC) equipment; 30 percent is used in lighting; and the remaining 10 percent to run other equipment like cash registers or closed circuit TV. That means that the vast majority of changes—altering lighting levels or in-store temperatures, for example, or adding doors to refrigerated cabinets—will have a direct impact on customers and staff. That can make managers nervous about introducing energy saving measures, or can leave them struggling with unintended consequences once changes are made.
Finally, there’s the challenge of rolling out efficiency measures across hundreds of stores. In a large market like the US, retailers will often have stores of many different shapes, sizes and ages. They will be located in regions with different climates, and use different refrigeration, lighting and HVAC equipment. They will buy their energy from different energy suppliers with different tariff structures. The other costs at these stores, from rents to labor, will vary too. All that makes it hard for managers to decide which improvement initiatives they should focus on in which stores. It also makes it tough to compare the likely return on investment (ROI) of energy savings measures with other potential investments.
Retailers shouldn’t shy away from utility spend reduction measures. Energy is a high and rising part of store operational costs, and the opportunity to reduce that cost through technical and operational changes is significant. The challenge for companies is to go about capturing these savings in a structured and sustainable way. Using the methods described in this article, some are now showing that it is possible to overcome the barriers to improvement and transform the energy performance of their networks.