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Restaurant Equipment: 4 Factors For Calculating Total Cost Of Ownership

There’s always a significant amount of cost involved whenever you buy a new piece of restaurant equipment.  Those costs only continue as that equipment ages in your restaurant – from energy use to repairs, the consequences of new equipment will be around for a long time after you’ve written the check to purchase.

Of course, restaurant equipment makes you money as well.  Without that fryer or reach-in refrigerator or griddle, you wouldn’t be able to prepare your product for your customers.  But understanding the total cost of a piece of equipment over its lifespan has been ignored all too often in the food service industry for years.

Many chains have started doing a Total Cost Of Ownership analysis for equipment because they buy large numbers of the same type of equipment all at once.  A faulty or inefficient piece of equipment can mean thousands of dollars in extra expenses for the chain over the lifespan of the piece, and conducting a cost analysis beforehand helps avoid problems down the road.

By and large, most independent operators do not undertake the complicated task of calculating total cost – usually because the information or the know-how necessary to make an accurate calculation isn’t available.

That doesn’t mean independents and smaller chains can’t benefit from a cost analysis before they buy new restaurant equipment.  Here’s a quick guide to help you get started on your own cost analysis before you buy your next piece of equipment.
Restaurant Equipment: 4 Factors For Calculating Total Cost Of Ownership
Capacity. The larger the piece of equipment, the more volume it can handle.  The trade-off here is that larger equipment also uses more energy, which means higher operating expenses.  That’s fine if you’re using that capacity to generate revenue, but one of the biggest traps smaller operations fall into is buying too much capacity or not enough capacity.

Let’s use an ice machine as an example.  A large air cooled ice machine with a 1,000 pound ice bin will use a significant amount of energy every day, translating into hundreds of dollars of electricity expenses every month.  That’s perfectly fine if you’re coming close to emptying that bin every day to keep your bar stocked and your kitchen well supplies with ice.  But if you’re barely putting a dent in that ice, even during your busiest periods, then you’ve got a two-fold problem: first, you’re paying to make ice you don’t use, and second, you’re adding labor costs to your budget because now you’ve got to clean all that unused ice out of the bin regularly to prevent the buildup of bacteria and other pathogens.

On the other hand, if your ice machine is too small, you risk shortening its lifespan because the unit never gets a break as it tries to keep pace with demand, not to mention the inconvenience to your staff and your customers that comes with an ice shortage.

In general, you want to size new equipment capacity based upon your best estimate of growth over the course of the unit’s life.  A good ice machine should last about 10 years.  Hopefully in 10 years your business has expanded and needs more ice.  That means you need to buy more ice capacity initially to accommodate future growth.
Of course, that means more energy expenses at first as you ramp up to full capacity, but down the road, one ice machine is more efficient than two.

Energy Efficiency. Unfortunately, energy usage information is very hard to come by when it comes to food service equipment.  The government run program Energy Star has begun to rate more and more restaurant equipment, so before you buy, check there to see if you can get some energy usage information.Restaurant Equipment: 4 Factors For Calculating Total Cost Of Ownership

Energy use is a big one when calculating the total cost of a new piece of equipment.  Most equipment in your kitchen uses a lot of energy, so even the smallest differences in usage can translate into thousands of dollars in savings over the lifespan of the piece.

Try to collect energy use information from the different manufacturers as you’re shopping for a new piece of equipment.  Often more efficient units have a higher initial price because more efficient components are usually also more expensive.  However, paying 10% – 20% more for a unit that’s 30% more efficient means you’ll still be saving thousands of dollars over the entire lifespan of the unit.

It’s common practice in the food service industry to shop aggressively for the lowest price point.  While there’s absolutely nothing wrong with bargain hunting, an unintended consequence of this has been that many new units still employ older component technology that keeps the price low, even though those components can be significantly less efficient.

Keep in mind that sometimes, spending a little more up front can actually save you a lot of money down the road.

Stay tuned tomorrow as I explore two more areas where calculating the total cost of your restaurant equipment is important.  Click here to read the second installment of this article.

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One Response to Restaurant Equipment: 4 Factors For Calculating Total Cost Of Ownership

  1. Cathy Denver February 18, 2010 at 3:00 pm #

    These are excellent points. Although the initial cost of purchasing new restaurant equipment is high, in the long run it will pay for itself, especially if you choose Energy star rated appliances.

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