How Vending Machines Erode Food Retailer Profits
July 3, 2023 | Peter Cooke
Did you know that outdoor DVD vending machines use refrigeration to avoid heat damage to the DVDs? These machines—like vending machines for cold beverages—consume a lot of electricity to keep their contents cold, particularly on hot summer days. On cold winter days, beverage vending machines actually heat the beverages so they won’t freeze. Remarkably, the electricity usage of outdoor vending machines can be comparable to 4–5 home refrigerators.
Many food retailers have vending machines in front of their stores. These energy guzzlers not only reduce a company’s sustainability performance; they also significantly affect the bottom line, particularly for companies with many store locations. Assuming an electricity cost of 12 cents per kilowatt-hour, we estimate that a beverage vending machine, placed outdoors, has an annual electricity cost of $613. Consider this $613 as lost profit. For a grocery store chain with 100 outdoor vending machines, the profit loss would be $61,300.
The food retail industry has a low profit margin, which makes it especially important to avoid unnecessary expenses that erode profits. According to data from the food industry association FMI, the industry’s average net profit margin between 2011 and 2021 was just 1.58%.
It’s also useful to look at the implications of that $613 in lost profit for a food retailer’s sales. According to the U.S. Environmental Protection Agency, every dollar in electricity costs has an equivalent value to $18 in sales. That means a grocery store would need to sell an additional $11,000 in products to recover that $613. A grocery store chain with 100 outdoor vending machines would need $1.1 million in additional sales to recover the lost profit from those machines.
We recommend that retailers carefully evaluate the extent to which outdoor vending machines provide value. Do they bring customers into stores? If the costs far outweigh the benefits, remove the machines. If the service benefits both customers and the retailer but has significant environmental impacts, the retailer should review the operational agreements with the vending machine owners. These agreements may include options for reducing energy consumption and costs. For instance, it may be possible to install vending misers or other devices that optimize energy consumption based on outdoor temperatures and the presence of customers. Another potential option is to use ENERGY STAR-certified refrigerated vending machines, which are on average 40% more energy-efficient than standard models.
Outdoor vending machines are just one of many low-hanging fruits for energy efficiency that retailers can address at little or no cost—and with significant benefits for the bottom line. Here are a few other examples:
Heated wrapping machines: These machines, often used in deli and meat departments, are typically turned on for 12–18 hours each day, but they are actually needed for less than 4 hours. A store that keeps five machines on for 12–18 hours each day would lose $1,750 in profits. The store would need to increase its sales by $31,500 to recover those lost profits. Food retailers can switch to wrapping machines equipped with sensors that automatically shut off the machine when not in use and that quickly heat up the machine when needed. Alternatively, a storage manager could implement a strategy to leave more frequently used machines on for longer periods. Staff training and energy conservation reminders can also help keep the machines off when not needed.
Return air vents: In produce departments, the vents that recirculate cold air in open refrigerated shelves are often blocked by overstocked produce. As a result, refrigeration units need to consume more energy to maintain desired temperatures, increasing energy costs and component wear and tear. Because blocked vents also diminish product freshness, store associates then need to remove nonsalable food more frequently. Based on our site visits across the food retail industry, we have found that stores typically have about 20 feet of blocked air vents. This translates into $2,336 in annual profit loss and $40,174 in equivalent sales. Stores can establish a standard operating procedure of not overstocking the cases to the point of blocking vents. They can also introduce a practice of an employee walking the store twice per day to remove produce from the vents.
Doors on walk-in freezers and coolers: Our industry partners tell us that these doors are unintentionally left open for about 4.5 hours per day. When the doors of just one walk-in freezer are left open for that long, the resulting increase in energy consumption translates into a $4,920 annual profit loss—or $88,560 in equivalent sales. When training staff and interacting with vendors that unload products into freezers and coolers, store managers should emphasize the importance of keeping the doors closed to save energy. Another simple, low-cost measure involves maintaining the gaskets that seal these doors. According to our calculations, a single leaky door results in an annual profit loss of $2,190. The equivalent sales amount is $39,420.
Together, the several simple measures we’ve discussed in this article can increase a store’s annual profit by about $12,000. This is quite significant, considering that a medium-size grocery store typically has an annual profit of $250,000 to $275,000. Keep in mind that these measures are just the tip of the iceberg. There are numerous other zero- or low-cost measures that can reduce a grocery store’s operational costs. You can identify some of these measures by completing the free 15-question sustainability self-assessment that we offer with the Retail Learning Institute.
Addressing these low-hanging fruits is not only good for an individual retailer’s profit and sustainability. Food retail is a major portion of the U.S. economy. According to the U.S. Census Bureau’s Annual Retail Trade Survey, annual retail sales for grocery stores in the U.S. in 2021 was about $792 billion—or 12% of total annual retail sales for all types of businesses in the U.S. Adopting these measures across the food retail industry can make the economy more efficient and sustainable.
Ratio Institute helps food retailers identify and prioritize measures to advance sustainability and increase profits. As part of our Sustainable Food Retail Certification, we conduct store audits that reveal the value associated with existing and potential future practices, technology upgrades, and behavioral changes. Our Food Retail Environmental, Social, and Governance (ESG) Reporting Standard provides a systematic reporting approach to set operational performance and profit targets and track progress. Contact Ratio Institute to learn more.