The Savvy Food Retailer’s Guide to Managing Energy Costs in Grocery Stores

food retailer's guide to energy managment

Energy costs can account for up to 15% of a grocery store’s operating budget. Because grocery stores typically have low-profit margins (~1%), a $1 increase in energy savings is equivalent to approximately $59 in increased sales.1 That’s compelling enough to warrant any grocery store manager to re-evaluate a store’s energy usage, management, and strategy. That said, when you’re wearing several “hats” as a store manager, it’s tough to keep track of all the nuances and changes in energy.

Things are shifting in the energy industry right now, and there are fundamental changes taking place that will have significant impacts on future energy costs. This can already be seen through rising transmission, distribution, and capacity charges. With such thin profit margins in grocery retail, knowing where the market is, where it’s headed, and how you can leverage strategies, new technology, and data for energy savings can mean the difference between making or breaking your bottom line.

As a grocery store manager of a large grocery chain or even an independent food retailer, you’re likely pulled in many different directions every day. Below are a few tips that can help you work smarter when it comes to grocery store energy management.

Energy Management Tip #1: Know what drives your energy price

To purchase energy wisely in a deregulated market, you should understand the fundamentals. Electricity and natural gas have robust futures markets. Pricing trends are subject to change at any time in response to a host of drivers such as:

  1. The economy
  2. Weather
  3. Natural gas supply
  4. 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.

 Energy Management Tip #2: Know your options

There are essentially three ways to buy energy:

  1. Go through your local utility
  2. Go direct to an energy supplier
  3. 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.

Energy Management Tip #3: Be strategic

When it comes to effective grocery store energy management, you should look at both sides of the coin – how you purchase energy and how your store(s) use 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. Your procurement approach should reflect:

  • Your store’s 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.

 Energy Management Tip #4: Prioritize projects and energy initiatives

Most businesses want to know which energy initiatives and solutions will provide the greatest positive impact. Managing energy costs in grocery stores now require energy optimization from 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. (check out this blog post for more info on this)

 On average, grocery stores spend $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. Contact a Usource energy consultant today to learn how your grocery store can reduce energy costs.

1https://www.energystar.gov/sites/default/files/buildings/tools/SPP%20Sales%20Flyer%20for%20Supermarkets%20and%20Grocery%20Stores.pdf

2https://www9.nationalgridus.com/non_html/shared_energyeff_groceries.pdf


About the Author

Mike Connolly is a Senior Energy Advisor at Usource. He works with mid- to large-sized companies to develop strategies around energy procurement, energy efficiencies, and sustainability to meet the financial goals and objectives of valued customers.

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