Energy efficiency management delivers big savings to supermarket chain
Supermarkets operate in extremely competitive marketplaces, with an average profit margin of only 1%. It is estimated that North Americans spend some $550 billion on food in various store formats, but the competition for those dollars force all participants to continue to find ways to cut prices. Conventional supermarkets are now finding that they are losing market share to the more mainstream retailers like Wal-Mart and Costco. This competition has led to consolidation in the marketplace such that only 50 companies have 70% of the business. Our supermarket client is not one of those giants, but still has over 120 stores operating in 4 states.
The company engaged the services of a leading retail consultant to review all of its operating procedures and financial performance. It has been calculated that a 10 percent reduction in energy costs for the average supermarket is equivalent to increasing net profit margins by 16 percent. Energy costs were identified as one for review. Through a preliminary benchmarking assessment, it was quickly evident that the energy consumption for the chain was running some 20% higher than industry standards. With this gap in hand, we agreed with the company that a pilot project was warranted in which we drilled down on the operating procedures and energy consumption for a selection of 6 of the stores. These sites were then subjected to energy audits. From these results, we drew up a number of retrofit, re-commissioning & operating procedure recommendations, supported and prioritized through the application of a LCCBA model. When the company proceeded to carry out all of the capital and operational recommendations in the pilot project, we provided assistance with the RFP process for the capital and directed the actual implementation contracts. We also completed and filed the necessary incentive and rebate filings.
The company not only carried out the recommendations contained in the pilot program, but is expanding the program in stages to over 70 of its stores. The actual annual energy savings are estimated to be in excess of $700,000 for the chain, based on the actual results of the pilot project stores. The capital investment was found to have an IRR of 34%, well in excess of the company’s hurdle rate of 17%, and the individual store project NPV’s were used to prioritize the rollout. These results reflect the receipt of substantial incentives from our efforts.