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Faced with so many plates, food service operators may make quick decisions when purchasing new equipment. But in the long run, if you do not consider the total cost of ownership of the equipment, it may eventually bring thousands of dollars in losses to the operator.

Anyone who says it is easy to choose new food service equipment may have made the wrong choice. Most operators expect their kitchen equipment to last 7, 10, or even 15 years. In just a few years, equipment purchased without consideration, usually purchased only at a marked price, may cost the owner thousands of dollars in additional energy, water, maintenance, and other aspects.

Operators should not make decisions in a hurry, but slow down, check their needs and study which food service equipment will actually bring the most benefits to their bottom line not only this month but also in the next few years.

In the food service industry, this calculation has several different names, including life cycle cost and total cost of ownership, or TCO. Although there is no universally accepted method of calculating TCO, most companies and organizations agree on some common factors.

The main voice of this conversation is the Food Service Technology Center (FSTC) of Pacific Gas & Electric. Richard Young serves as the group's senior engineer and education director. “Usually in the catering service sector, operators only include the initial cost and installation cost,” he explained, “but in order to really make good business decisions, TCO should also include energy and water (if applicable), maintenance costs, and any Other inputs-for example, the oil used in the fryer. The TCO should also [consider] any cash benefits, such as utility energy efficiency rebates."

Although these factors can lead to a large number of numerical calculations, food service operators and their supply chain partners can use online tools provided by different organizations to calculate many of these factors. For example, FSTC provides calculators tailored to more than 20 types of commonly used food service equipment. In addition, the North American Association of Food Equipment Manufacturers (NAFEM) provides a downloadable spreadsheet that will also perform TCO calculations.

Although these online tools are useful, plugging some numbers into them can be a challenge. For example, repairs and maintenance are one of the more difficult to predict costs.

Failures really cannot be budgeted because they are unexpected and there is very little publicly available information about the reliability of specific equipment. However, operators can predict and manage certain maintenance costs. Operators can budget for the costs associated with extended warranty and planned maintenance agreements and insert these numbers into the TCO calculation.

With some extra work, operators can understand the reliability of a piece of equipment, and they can use it for TCO calculations. Operators can ask their service organization if there are specific equipment that frequently fails and if there are any issues that occur regularly.

Mike Dykeman, technical manager of Webb Design, a food service design company based in Tustin, California, says they can also ask colleagues for insight. Large organizations such as schools and hospitals often have their own maintenance personnel, which allows them to track maintenance costs. In addition, chain stores can rely on the large number of identical equipment they own on site to have a clear understanding of the cost of owning and maintaining specific equipment.

“Every time I go to a conference or listen to these webinars like FE&S, those people start talking, and you can hear them in their voices,” Dyckman said. "Even if they don't disclose everything they know, you can hear that they have experienced this before, and they have some data like this. Try to solicit this data to get an honest, specific assessment... just these types of things. In terms of things, a good professional network is great."

Although the purchase price and maintenance cost play an important role in determining the total cost of ownership, operators also need to weigh other factors. Utilities are an example of this.

Utility costs are relatively easy to calculate-you only need the amount of energy and water consumed per unit, the price per unit of energy or water, and the number of hours the unit has operated in a given period of time. But most units will serve for many years.

"This is a good guess. Energy costs will be higher in the future, and the cost of water will definitely grow faster than inflation, and it has been for some time," Yang said. "The important message is that if you buy efficient equipment, as energy costs increase, your [return on investment] looks more attractive. Conversely, if you buy a gas-consuming machine, as energy prices rise, Over time, operating costs will become more painful."

Therefore, operators may need to consider an additional piece of energy-saving equipment. Even if it does not lead in TCO calculations now, these numbers may change significantly in just a few years.

Labor costs are another key consideration. Many sophisticated operators do consider labor in their purchasing decisions, but do not include this cost in their official TCO calculations. One of them is Cici's Pizza. According to Alan Daoust, the operating system director of the chain, Cici's excludes labor costs from the TCO, "because your wage rate will change, and your average hourly wage will be different, because the salary of the position is different... Labor It is part of the purchase decision, but not part of the TCO calculation."

Of course, in some cases, labor costs can be calculated very clearly. Large warewashing systems, such as those found in schools and hospitals, may require a certain number of employees to operate, while cooking/refrigeration systems can reduce labor costs through batch cooking. Both of these scenarios may produce a hard number of labor savings that can be put into the TCO spreadsheet.

Operators should also consider how they will use the equipment in the future. Dykeman said that as consumer tastes change and menus evolve, for operators, higher TCO devices may be more valuable than lower TCO devices with fewer features. "Consider how a more flexible product allows you to expand your menu in five years without investing in new units."

Although calculating the total cost of ownership may be a lot of work for operators, it is worthwhile in the long run. By conducting research, using the tools available to them, and considering how their operations may change in the next few years, operators can ultimately save time, reduce stress, and save a lot of money.

"If you really want to clearly understand the true return on your investment in a certain device," Young said, "then the more information you can add to the model, the better."

How Cici cuts TCO PIE

Recently, Steven Jones has been considering total cost of ownership. The chief operating officer of Cici's Pizza is developing a new prototype of the buffet chain. The goal is to provide the company-owned and franchise units with the most profits in the long run. This process involves modifying the equipment package of the chain.

"We are looking for new equipment, [TCO] is one of the things we absolutely want to consider. It may be an extra money at first, but you will save money because you have bought better equipment: more energy efficient, more designed Good, so you won’t encounter repair and maintenance problems if you maintain it properly,” he said.

Although the logic is clear, it requires Cici to make some cultural changes. Chain stores are built on value, and this focus can be seen in Cici’s old kitchen packaging, where the price tag drives the buying decision, Jones said.

Therefore, the leaders of Cici expect that obtaining support from their franchisees will be a challenge. However, these conversations are not as difficult as the operations team expected. Operating system director Alan Daoust said that franchisees dealt with their fair share of reliability and maintenance issues in the old equipment package. This makes them willing to spend a little more money now and make their future life easier-more profitable.

"Because they have been on the path of low-cost equipment, they know what difficulties they have encountered... Therefore, we actually didn't have as many challenges as we thought," Daoust added.

Nevertheless, life cycle cost calculation is not the final decision of Cici's purchase decision, Jones said. The chain tried to keep the list price of the new equipment at between $500 and $750 for the older, low-cost products. Part of the reason does come down to the sticker shock, but part of the reason is how quickly they hope to recover the extra upfront costs. Jones said that Cici's hopes to recover the money within three years of the purchase. In addition, the cost is too great to justify it, and too many variables will change the cost equation.

Jones added that TCO is related to the way Cici shows its return on investment (ROI) to potential franchisees. The chain store does not perform ROI calculations for individual equipment, but for the entire store, including facilities, fixtures, and equipment. The calculation takes into account the throughput of the equipment package, the income of the food, and the income profit.

Jones pointed out that the TCO issue also comes into play when Cici's decides whether to repair or replace a product in its company's store. Considerations include maintenance costs, the cost of new equipment, and the possibility of damage to old equipment again. "I can't say that we have a specific breakpoint, but the decision to enter the repair, repair cost and frequency enter the decision, maybe we should continue and replace it," Jones said.

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November 7-9, 2021, Scottsdale, Arizona ifmaworld.com

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Food service equipment and supplies (FE&S) is a media source that connects equipment and supplies manufacturers and service providers with a complete distribution channel, including catering service equipment distributors, regulators, operators, and supply chain cooperation News, trends and best practices from partners.