An energy crisis in the making

Oct. 14, 2005

Though less than 2 percent of the continental United States suffered damage from Hurricanes Katrina and Rita, 100 percent of Americans eventually will feel the pain of the beachfront beating doled out by the Twister Sisters.

Gasoline prices already are at record levels, and now its fossil fuel cousins are expected to hit historic highs this winter. Energy experts predict natural gas prices will rise as much as 70 percent in the Midwest, and heating oil costs will leap 40 percent in the Northeast. And while some may think dodging those increases is a matter of driving fewer miles and keeping the thermostat below 65 F, avoiding other price spikes will be impossible in a nation with a production and distribution network hooked on Texas Tea. If economists' gloomy predictions come true, the cost of nearly everything sold in the U.S. will rise as a result of hurricane-related reductions in oil and natural gas supplies from the Gulf of Mexico.

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"We're all going to pay this year because of the storms' ripple effects," said Jeff Hart, chief executive officer at Cadence Network, an energy consulting firm in Cincinnati. "Other countries have paid high energy prices for years, but we've been a very spoiled nation. It was a great run, but it's over for now."

Inside the pizzeria

At 1,500 square feet, a typical delivery-carryout pizzeria might not look like the energy hog it is. But most are equipped with gas-burning ovens and fryers, electrically powered mixers, exhaust hoods, food warmers, POS terminals, bag rechargers, lights and refrigerators.

Getting raw materials to the back door requires diesel at every level of the farm-to-factory supply chain, which means restaurant suppliers' costs are soaring. Tom Bianco, president of Atlantic Consulting and Sales, an Atlanta-based distribution and restaurant consulting firm, said 10 percent to 15 percent fuel surcharges are popping up on his clients' produce and linen bills. Those and other restaurant suppliers are paying more for their products, he said, and the costs are being passed along to restaurateurs.

"The farmer who grows the wheat has to use gas to harvest it, so his costs are going up significantly," Bianco said. "Someone's got to pick that wheat up and take it to the (mill), and that person is tacking on a fuel charge, which then gets passed on to the distributor. Everybody feels it eventually."

Larry Whitty, president of Happy Joe's Pizza & Ice Cream, said he's already paying more for the food he's buying, but that he's not ready to increase menu prices. Over his long career in the pizza business, he's watched prices rise and fall many times. So he doesn't want to make customers pay more unless it's necessary.

"We don't get excited about it right away because sometimes it's short lived," he said. "We try to absorb as much cost as possible for short run, which for us

Energy-saving Tips

Lighting* Switch to fluorescent lighting where possible. They use as little as one-fourth the energy used by standard incandescent lights. Fluorescent lights also generate less heat than incandescent lights.

* Install occupancy sensors, timers and photo sensors in areas that don't always need lighting.

DishwasherLoad the dishwasher fully. Partial loads use just as much energy as full loads.

* Install low-flow pre-rinse spray nozzles.

* Set the water heater thermostat no higher than it needs to be: 140 F for dishwashers; and 110 F for hand washing.

* Consider using chemical sterilizers instead of higher water temperatures in dishwashers.

Ovens* While ovens must run during business hours, their use outside those hours can be wasteful. If the oven is needed for prep work, attempt to schedule cooking times for periods when the oven is already on but business is slow.

* If your operation includes stacks of decks or conveyors, run only the ovens you need relative to demand.

* Many new conveyor models are increasingly energy efficient. If you're in the market for an upgrade, check out the options.

Exhaust hoods* Consider retrofitting exhaust hoods with a two-speed blower. You may be able to lower the ventilation rate over an appliance that's not in use and reduce both make-up air input and the energy needed to condition it.

* Consider installing "smart" hood controls. Most kitchens operate at less than 25 percent capacity during the day, but the exhaust hood runs at 100 percent capacity. Using a combined temperature and optical sensor, such hoods "know" when to be on based on exhaust air temperature and smoke load.

Refrigeration* Clean air conditioning and refrigeration condenser/evaporator coils every three months.

* Check refrigerant charge and fix leaks if necessary.

* Regularly clean or replace air filters on ventilation and heating/air conditioning equipment.

* Clean grease traps on ventilation equipment.

* Check freezer and walk-in seals for cracks and warping. Replace if necessary.


is about three to six months. If it's not gone down after that, we may assume it's for the long haul and take an increase."

Getting finished materials to customers is expensive for operators, too, because of the need for gasoline. Record costs mean delivery drivers want higher mileage reimbursements, or they're quitting altogether. Happy Joe's always charged customers $1 for delivery, but with this fall's higher fuel prices, it bumped up the fee to $1.50.

"We hated to do that to the customers, but we didn't have a choice," said Whitty, whose 65-unit company is in Bettendorf, Iowa. "We pay our drivers a healthy wage and they make good tips. But when they have to pump gas into their cars at a dollar more a gallon than they used to pay in April, we had to throw some money their way to keep them happy."

Happy Joe's isn't the only one paying drivers more. Higher fuel price led Papa John's to institute a $1 delivery charge at its 570 corporate units this summer. Many chain franchisees and independent operators followed suit and broke their free-delivery promises for the first time.

Energy management is crucial

Energy management in a home is pretty simple. Add another layer of insulation and seal cracks around windows, and you'll lower your heating bills.

Getting a similar net savings in a pizza store is more complex. Insisting staffers close the back door to keep heat inside or turn off warmers that aren't in use are simple ways of pinching power pennies. But the thought of spending five figures to buy an energy-efficient pizza oven is far more sobering.

Firms like Cadence take energy management even further for businesses by running audits on utility bills to ensure meters are correctly calibrated and customer charges reflect the correct usage. In areas where energy sources are deregulated, it advises companies on where to purchase their power to get the best rates. Overall, said Hart, proper energy management is a strategy that mitigates a business owner's risk and creates budget certainty.

To achieve that, Cadence does an audit of the business's energy use history, and it also shops around for cheaper energy prices. It also looks within the operation to learn about the type of equipment used, the store's hours of operation and operational characteristics, such as whether it's a dining spot or a delco. Where necessary, equipment upgrades are suggested to maximize efficiency.

"If we suggest they put in new equipment, we want to know what kind of incentives they can get from the utility in the form of rebates," said Hart, whose company monitors energy costs for thousands of businesses. Utility companies willingly offer customer rebates, he said, because any reduction in power consumption equates to a reduction in their need to build costly new generators.

Hart said energy management firms earn the bulk of their money through sharing in the savings enjoyed by customers. Fees for other services, such as bill audits and payments, are assessed on a customer-by-customer basis.

Not every business benefits from an energy management strategy, Hart said, but others, especially operators with units in multiple regions, may benefit enormously from someone watching their energy-use expenses. As a result of an extensive audit, one large Cadence client realized the utility company had overcharged it $246,000 over five years.

"We're analysts, and our job is to work on behalf of the customer in an objective fashion," Hart said. "We want to make sure the customer getting best value for the money."

This, too, will pass

If economists are right and prices soar across the board, people likely will spend less. Businesses whose goods consumers deem unessential will suffer through lower sales and higher operational costs. Whether that means they'll buy less pizza, no one knows yet. But what Hart believes is pizza operators, like every other business owner, will have to pass along the upcoming cost increases consumers.

"People have to got to stop thinking that there's not going to be a pass-through," he said. "I don't see how they can avoid that."

Where the entire country must begin to work, he said, is on reducing energy usage. We've had it too good for too long, and now Americans have to pay the piper.

"We can do that through using the right equipment, through changing our behavioral patterns and through being more responsible with what we have," he said.

He appeared confident that his countrymen are up to the task. "One of the great things about the United States is that its people are very resilient. We've lived through stock market crashes, lived through 9/11, lived through the energy crisis of the '70s. We can do this, but it's going to take time to work itself through the system."

Topics: Independent Operation, Operations Management

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