The Business Case for Refrigerant Management
Why Food Retail Executives Should Prioritize Leak Rate Reduction
Professionals who are in the business of helping food retailers reduce their refrigerant leaks are always asking me, “Why don’t the high-level executives at these companies pay attention to refrigeration?” The answers to that question are as numerous as the pinhole leaks in their stores’ copper piping.
Most of the executives at your average food retail company do not know enough about refrigerants, refrigeration systems, and refrigerant leaks to know that there is enormous opportunity in supermarket refrigeration to cut costs.
Take your average supermarket industry CEOs and CFOs, for instance. Rarely, do you hear them talking about refrigeration. The few CFOs who tried at some point to understand why refrigeration costs are so high may have been told by the company’s operations team that everything related to refrigeration was just the cost of doing business, as if nothing can be done about it if the company wants to sell refrigerated food.
Financial Impact of Refrigerant Leaks
CFOs especially should involve themselves in refrigeration, because their job is all about costs. In the food retail industry, an industry with a 1.1% average profit margin, cutting one dollar in costs is about the same as earning an additional $1,000 in grocery sales. Opportunities to cut costs in supermarket refrigeration are abundant.
Most supermarket companies have millions of pounds of refrigerant in their stores’ refrigeration systems. Unfortunately, the average store leaks about 25% of that refrigerant every year. That refrigerant has to be replaced, and replacement refrigerant can cost anywhere from $8.00 for some HFC refrigerants to up to $30.00 per pound for R-22.
This leads to a cost line item every year in the millions for replacement refrigerant. Food retailers have to sell hundreds of millions of dollars’ worth of goods just to break even on refrigerant replacement costs. That doesn’t count the corresponding costs for service technician time for repairs, energy efficiency losses due to leaks, refrigerated food inventory losses due to refrigeration outages, and the negative effect on food quality from improper case temperatures.
The Executives’ Role in Leak Rate Reduction
While reducing refrigerant leaks is not exactly easy, supermarket executives should know that it also isn’t exactly hard. There is no one right answer to the question of how to go about achieving refrigerant leak reductions, because the reasons for different companies’ high leak rates can vary. In fact, the causes of high leak rates often vary tremendously from store to store within the same company. Therefore, careful analysis of the specific situation in a company’s stores is necessary. Whatever the causes, they are inevitably a symptom of a lack of executive involvement in this very important, and expensive, issue.
The executive’s role is to challenge the refrigeration specialists to conduct the required analyses, come up with strategies to address the causes and set goals to make improvements. In holding the whole refrigeration team accountable for achieving the agreed-upon goals, the people at the top are sending the very clear message that managing the company’s leak rate is of the highest priority.
High-level Attention Leads to Success
Examples of the financial rewards of high-level attention to leak reductions abound within the food retail industry. Perhaps the most well-known example is Weis Markets, which managed over several years to improve their already better-than-average leak rate across all their stores to a corporate-wide leak rate that few companies can beat.
Weis saved so much money in reduced refrigerant costs that they decided to hand back a portion of the savings to their service technicians. I was invited to their headquarters in Pennsylvania one year to congratulate their team and help hand out the checks. (Service technicians are not a particularly gregarious bunch, but I was worried that some of the techs’ faces would crack from smiling so much that day.)
Weis Markets didn’t have a magic wand that they waved or some kind of secret sauce that no one else in the industry has. They simply focused high-level attention on the problem, developed a plan, set reasonable reduction goals, and then enabled their people to achieve those goals. That approach is not specific to refrigeration management; it’s characteristic of good overall company management. It’s no accident that good refrigeration management correlates to good company management.
Improvement Becomes Part of Company Culture
If your company currently has a corporate-wide leak rate of 25%, which is about average for the industry, it should be possible to reduce the amount of replacement refrigerant purchased by about 10% annually. That should result in about a 2.5 percentage point reduction in the corporate-wide leak rate in year one, 2 percentage points in years two and three, etc. Once you get down to about a 15% corporate leak rate, consistently achieving further 10% reductions may become challenging, but there is definitely still room for improvement.
It’s even possible, in fact it’s probable, to continue to reduce leaks after your company achieves the holy grail of a leak rate below 10%. By that time, reducing leaks will be so ingrained in the company culture that your refrigeration team won’t accept stagnation. They will challenge themselves to find new ways to continue to improve… and food retail executives can go back to ignoring refrigeration. ∎