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09/24/2021

Why Retailers Need to Care About Facilities Performance

Modernizing facilities management helps grocers understand and manage maintenance and repair costs to improve the bottom line
Mike Troy
Editorial Director, Grocery Group
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Grocery is the most asset-intensive sector of retail, thanks to refrigeration equipment, which is also the leading source of maintenance and repair costs.

Properly functioning facilities, the equipment and systems that make grocery go, are the unsung heroes of every retailer’s operation. They serve their purely utilitarian roles of keeping products chilled, frozen or hot while ensuring store environments are clean, comfortable and well lit. And they have to do so efficiently and reliably.

It’s a tall order, and the stakes of getting facilities right are high. Facilities failures are costly for a variety of reasons that go beyond the obvious cost of repairs, which can be quite significant. Just how significant was documented in great detail in a recent “Grocery Facilities Benchmark Report” from ServiceChannel. The provider of facilities management software and services explored how much grocery stores in the United States spend on facilities management and what they spend it on. It did so by looking at data on its platform, which includes about one-fourth of all grocery locations in the United States and five of the top 10 largest grocers in North America.

[To view recent "How Grocery Leaders are Modernizing their Facilities Programs" webinar with ServiceChannel, click here.]

The headline from the report, which looked at 2020 calendar-year information and roughly $2 billion worth of transactions, was that the average spend amount on facilities maintenance and repair per location was $101,900, which works out to about $1.71 per square foot. Those numbers were basically flat from 2019, with a roughly 5% increase in invoice cost offset by a corresponding decline in invoice volume.

Where Grocers Spend the Most

Facilities repairs and maintenance cost grocers an average of $1.71 a square foot in 2020. Here’s a spending breakdown by top areas:

Refrigeration: 33%
HVAC: 9%
General Repairs: 9%
Plumbing: 6%
Kitchen Equipment: 4%

Source: ServiceChannel Grocery Facilities Benchmark Report

The visibility provided by ServiceChannel’s new report presents a valuable way for grocers to get a handle on whether they’re spending too much or too little, relative to others in the industry, on maintenance and repairs. That information, combined with a breakdown on expenses by asset type, is crucial for understanding the scope of the facilities opportunity overall while pinpointing areas to improve performance.

“The reason why retailers need to care about facilities performance comes down to assets, because when you look at a typical grocery business, property, plant and equipment make up roughly 40% of the assets on the corporate balance sheet,” says Grant Salisbury, chief marketing officer with ServiceChannel. “In a highly competitive low-margin business like grocery, you want to be sure that you’re getting the best possible return on those assets. Those assets tend to be critical for supporting revenue or customer experience and for broader company goals like sustainability.”

Those observations may seem basic, but the reality for many grocers is that facilities aren’t managed and optimized with the same rigor as merchandising and marketing. In these areas, retailers deploy sophisticated technologies to make precise assortment and pricing decisions or to optimize the performance of personalized marketing campaigns. That’s not the case with facilities, generally speaking.

Refrigeration in Focus

There are an average of 36 refrigeration repairs per year at a typical store, and almost half are emergencies. The average repair cost of $1,136 breaks down as follows:

Labor: 55%
Materials: 32%
Travel: 7%
Other: 6%

Source: ServiceChannel Grocery Facilities Benchmark Report

“Too often, the status quo today is that facilities is decentralized, and it’s inconsistently digitized, which practically means departments tend to live in spreadsheets,” Salisbury explains. “Companies aren’t in control; they’re reacting to breakages and outages rather than understanding the root causes or being able to take preventative measures. As a result, facilities can feel like a black box where a lot of money gets spent, but perhaps company leadership doesn’t always see value created.”

The Role of Facilities Has Changed

Store-remodeling activities include painting, new fixturing, signing, changing category adjacencies, and the configuration of checkstands. Remodeling even extends outside the four walls to include grocery pickup capabilities, parking lot resurfacing and navigation enhancements, and even upgrading landscaping. The overlooked aspect of upgrading stores involves modernizing retail facilities essential to operations. That’s a mistake, because the role of facilities, like everything in retail, has changed.

The changes driving the need to modernize facilities can be broken down into six areas:

  • Business innovation: New service offerings such as grocery pickup require new types of equipment and increased capacity.
  • Financial pressures: Equipment breakage is unpredictable, but costs can be controlled through better management of repair and maintenance processes.
  • Regulation: Increased complexity and regulation variability across a retailer’s operation have further elevated the importance of compliance.
  • Labor market dynamics: Employee turnover among repair technicians has affected the availability and reliability of service.
  • Technology: The availability of affordable technologies to improve monitoring and early diagnosis of repair needs or impending failures has changed the calculus on investment decisions.
  • Sustainability: Proper maintenance of existing refrigeration systems or installation of high-efficiency equipment is a key way for retailers to reduce their carbon footprint.

The grocery sector has always been the most asset-intensive sector in retail, thanks largely to the huge installed base of refrigeration, but the intensity has grown due to more expansive foodservice operations and e-commerce. That means there’s more opportunities for things to break and chances to disappoint customers.

Repair Cost Scorecard

The average repair cost by asset type includes the following:

HVAC: $2,772
Refrigeration Rack: $2,013
Rotisserie: $654
Auto Sliding Door: $575
Refrigerated Case: $507
Floor Scrubber: $413

Source: ServiceChannel Grocery Facilities Benchmark Report

“We see leading retailers being more proactive in the way they manage the performance and the cost of these revenue-generating assets, because when assets are unmanaged, there’s no source of truth,” says Chris Zach, a senior product marketing manager with ServiceChannel. “You don't know what assets you own, if they’re under warranty, how old are they and how many there are. If there’s a lack of data for reducing the down time and understanding which units break down the most and the root causes of those breakdowns, then the capital spend becomes reactive. You’re not planning ahead you’re just running the assets until they catastrophically fail and you have to replace them at that point.”

The High Cost of Failure

Repair and maintenance costs, when not properly managed, can be quite high, as illustrated by ServiceChannel’s “Grocery Facilities Benchmark Report.” However, there are costs beyond the actual funds expended to fix equipment. The most extreme examples involve refrigeration, where broken equipment can require product to be discarded if not repaired quickly enough. To address the situation, some retailers are employing Internet of Things (IoT) devices to provide a steady stream of performance details allowing for early identification of problems.

“Some of the leading use cases that we are seeing for IoT are with refrigeration,” Salisbury affirms. “If you can lose $250,000 of product because of a single case or rack failure, there’s a really strong business case for using IoT to accelerate diagnosis and get ahead on preventative maintenance.”

The other element of facilities failure is the message of neglect that it sends to shoppers when they encounter an improperly functioning cold case or lapse in service due to a broken piece of foodservice equipment. This issue has gained new relevance as shopper traffic began returning to stores in 2021. Throughout much of 2020, when repair and maintenance costs were largely flat, there was greater spending on janitorial aspects of facilities due to pandemic concerns; however, those expenses have waned and at the midpoint of 2021, overall facilities investments had risen.

As Zach notes, “We’ve seen that spend is up 15% in 2021 versus last year, so it’s clear that brands are investing to attract customers back into their stores in person and making sure that they have a good experience when they show up again.”

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