Stores must make ‘fundamental’ changes to their business models to survive the energy crisis, with the average independent store needing to find nearly £15,000 in extra annual gross profit or savings to offset its impact.
The crisis in Ukraine has escalated the risk for retailers coming to the end of their energy contracts.
Energy broker Neil King, of Wiser Utilities, explained: “Many retailers hedged their bets that prices would go down in April, often taking out expensive bridging tariffs. Their gamble has not paid off and the rates are climbing. The day before the invasion, prices were as low as 20p per kWh night rate and 26p for day rate. Now, it’s 28p and 35p respectively. This isn’t going to be something stores can wait out.”
Retailers with long memories remembered the last energy spike in 1973. betterRetailing associate editor Steve Denham was working for WHSmith at the time. He said: “Store managers had an energy budget, and when it was gone, it was gone. It meant switching off was the only way to manage. That meant taking lightbulbs out and cutting off air conditioning and heating. The staff room was the only place heated in the winter, and coats on the shopfloor coupled with a hot drink was the only way to manage.”
Ballymena shop owner Eugene Diamond added: “Even during the 1970s, when we had lots of trouble in Northern Ireland, we never saw anything like this.”
A survey of more than 10 store owners to have changed energy tariff in the past six months reveals the scale of the problem. The average store’s bill increased by 128% from £964 per month to £2,201. With ACS suggesting an average store margin of 22%, this equates to having to find an extra £1,298 in weekly sales just to stand still. The figures do not include the impact of April’s upcoming wage and National Insurance rises.
Fighting back against the energy squeeze
Energy-saving measures, such as LED lighting and retrofitting doors on chillers, were the main actions being touted by store owners surveyed. For instance, Diamond said: “Last year, I installed LED lighting, and I can’t recommend this enough to other retailers. My usage has dropped by 20% every quarter.”
However, many will have to take more-drastic action, according to Ferhan Ashiq, who has sold one of his stores partly due to energy costs, which equalled having to find an extra £2,000 in weekly sales to offset the bill increases. “For many stores, the simple ways of cutting bills have already been achieved, there’s no more tinkering around the edges to be done,” he said. “Those at risk will have to look very hard at turning off chillers containing non-perishable goods – soft drinks, beers and wine, and at scaling back fresh-and-chilled ranges to reduce the number of meters needed.”
Andrew Taylor, owner of Taylors Premier in Hull, suggested: “We reviewed our chillers to find items that were ranged there, but did not actually need to be kept chilled, like long-life milks.”
However, stores will have to find the right balance for them between sales and cost, with each 1°c drop in soft drinks chiller temperature equivalent to an extra 1.6% in sales, according to analyst IRI.
An ACS focus group of 20 store owners held in mid-January suggested Ashiq’s advice is already being considered in other stores. A synopsis read: “Efforts to make the business more energy efficient were also seen to only go so far before the impact of cost increases led to prices having to go up or the range of products offered being reduced.”
Counter-intuitively, keeping any freezers that remain switched on full with stock significantly reduces the device’s energy consumption by cutting the volume of cold air that escapes when they are opened. Ashiq said: “As we are selling one store we are running down our stock, you do notice the effect it has on the electricity used by freezers.”
To understand the potential saving and energy consumption of different devices in store, Avtar ‘Sid’ Sidhu, of St John’s Budgens in Kenilworth, Warwickshire, suggested stores get their hands on a clamp meter. “We borrowed one from another retailer. You put it around the power lead and it tells you the power consumption. There weren’t any surprises for us, but it’s important to check.”
Using the device can help retailers understand whether devices are ‘leaking’ energy.
For instance, a lack of refrigerant or vents becoming blocked by dust can increase chiller power consumption by up to 50%. Clamp meters can be purchased either online or from hardware stores from as little as £20.
Other stores reported looking at longer-term investments, such as solar panels, but with a 10-year return on investment period, many are looking for grant funding to support the installation. Local and national grants can be found at gov.uk/business-finance-support
Describing the long-term impact on independent stores, ACS chief executive James Lowman told betterRetailing: “Typically, retailers will look to cut down on labour costs, delay projects or cut back on services to balance the books, but these continued cost increases can’t keep just being absorbed, so many retailers are looking at a fundamental change to the way they run their stores, looking to increase margin without alienating their customers.”
Midlands retailer Rav Garcha agreed. He said: “It’s easy to cut costs by taking away staff, but when it gets busy, we are the ones who get worn out. I’m going to train staff to upsell at the till. The worst thing a customer can say is ‘no’. If I’m able to get an extra 20p from every customer, it will help.”
Serge Notay, of Notay Stores in Batley, West Yorkshire, said the pressure was influencing his refit plans. “We are looking to carry out a refit in the next six months and we will be making sure to only get energy-efficient fridges,” he says. “They are more expensive at the start, but, in the long run, they will help make back the money. The prices aren’t going down any time soon, so as retailers we have to make long-term investments to make savings.”
Ashiq said retailers must look at their product and category mix with a view to increase overall shop margin.Click here for examples of high-margin non-traditional convenience categories that deliver well-above-average shop percentage margins
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