For Grocers, Refrigeration Management Is Often-Overlooked Lever For Profitability

by Jonathan Tan, co-founder of the Ratio Institute

In 1916, Clarence Saunders opened the first self-service grocery store in Memphis, Tennessee. In 1930, the modern supermarket arrived in the Jamaica neighborhood of Queens, New York, in the form of King Kullen. These innovations birthed the need for the fourth utility in food retail – modern commercial refrigeration.

Today, more than 40 percent of grocery sales are of products maintained at temperature. These come from the dairy, produce, meat, seafood, deli, bakery and floral departments.

Store climate controls may have complex air conditioning and dehumidification systems. All the systems responsible for cooling in a store require significant amounts of refrigerant.

Most grocery stores have more than 1,000 pounds of refrigerant installed on site, and many have more than 2,000 pounds.

The average leak rate of these systems exceeds 25 percent of total charge. This means 250 to 500 pounds of invisible gas escaping into the atmosphere – or, equally, profits evaporating into thin air.

Setting aside for the moment the known and unknown environmental impacts of hydrofluorocarbons (HFCs) and their substitutes and replacements, these leaks pose a significant risk to operations and profitability.

Common refrigerants in food retail have increased in price by more than 300 percent since 2019. This means that the average store today spends about $10,000 a year just replacing leaked refrigerant.

Nearly $200,000 in sales are required to offset the costs associated with these losses. (These costs do not include repairs, replacement of equipment or loss of products or associates’ time or disposal costs associated with system downtime.)

To compound this, on April 9, Honeywell notified its distribution network of a price increase of 10 percent for many common refrigerants. Some rarer and newer refrigerants have significantly larger increases.

With 50 percent of refrigerants coming from China and the impact of tariffs still uncertain, this creates problems with availability and future costs of replacement gas.

At the IGA Institute’s supermarket management class in May, it was reported that shrink represents about 3 percent of sales, and 25 to 30 percent of shrink is related to product handling, cold chain and exit strategy.

For refrigerated products, 15 minutes out of refrigeration equates to one day’s loss on the sales floor.

On average, shrink related to operations with critical temperatures can cost a 25,000-square-foot store more than $60,000 annually. This is product that is thrown out, attributed directly to costs, with no opportunity to be sold even at a reduced price.

Lastly, refrigeration and air conditioning can represent up to 60 percent of energy consumption. For a 25,000-square-foot store, this can be $100,000 just to energize these systems.

Maintenance and repairs for these systems range from $1.20 to nearly $2 per square foot of the store. Thus, they can cost as much as $140,000 to operate. That is more than $2.5 million in sales to cover the costs.

Best-in-class systems cost 20 percent less to operate, effectively adding more than $500,000 to sales.

Thus, the way to reduce the costs associated with refrigerant management is effectively managing resources and benchmarking the store against a common standard.

Knowing where you are relative to a well-defined standard can clarify what is attainable, where easy wins can be found and where to begin when building a store-level strategy.

Retailers can start by doing the following:

• Find the total charge of refrigerants, in pounds of gas, by system and type. (Common refrigerants are R404a, R407a, R410a and R507a.)
• Find the total pounds of refrigerant replaced in the previous 12 months at a minimum; 60 months is best.
• For each year of data, divide refrigerant replaced (in pounds) by total charge amount (by system). This is the refrigerant leakage rate.
• If this value is greater than 8 percent, subtract 8 percent from it.
• Multiply the value by system charge and multiply the result by cost for refrigerant (per pound). This value is what it is possible to add to annual profit.
• Set this potential annual improvement as a goal for operations or when creating a strategy for new equipment and payback.

Jonathan Tan is co-founder of Ratio Institute, an independent nonprofit organization dedicated to accelerating measurable sustainability and viability in food retail through expert collaboration, industry resources and practical tools. To learn more, visit RatioInstitute.org.