Keeping a handle on costs in chain restaurants can be like bailing out a leaky ship, with an endless need to spend time and money replacing equipment, negotiating bills or investing in maintenance.
Bob Gentz, owner of Tempe, Arizona-based Mountain Range Restaurants, is a Denny’s franchisee with 31 restaurants in four states. In balancing repairs of equipment versus replacement, Gentz favors investing in reliability and energy efficiency over squeezing the longest-possible life out of equipment. The balance, he says, helps multi-unit operators like himself avoid being "penny-wise and dollar-foolish."
With a long career in franchising before purchasing his Denny’s locations in 2000, Gentz is experienced in the fluctuating costs of repairs and maintenance as his business has grown.
"When you’re a one-store operator, you have a tendency to do everything on your own and you want to limit every dollar that goes out of your pocket," he said. "As you increase the number of restaurants that you have, your ability to spend your time doing those things decreases considerably."
Repair or replace?
Whether it’s a grill, fryer or air-conditioning unit, he said, the goal is the same: maximizing the life cycle of the equipment while minimizing the amount of in-house effort spent managing repairs.
"The mistake most operators make is they want to repair everything instead of replace it," Gentz said. "You end up spending just as much money on the repair as you would if you replaced the equipment and got something newer that had a warranty."
With more companies now offering preventative maintenance contracts, he added outsourcing can be a better deal in helping companies to avoid critical outages.
Each piece of equipment used beyond its warranty period, he added, should have oversight to monitor recurring problems and maintenance to determine whether it’s time to repair or replace.
Gentz experimented with having his own in-house facilities team, but found working with the right vendors across his four-state territory better allowed his restaurants to stay on top of equipment issues.
Maintaining little things, such as filters on HVAC units, he said, avoids more costly repairs. Even something as simple as adding LED light bulbs helped the company improve efficiency and reduced preventable service calls.
Mountain Range tries to spend 2 percent or less of its sales on repair and maintenance, but Gentz added that would be higher with a higher-volume stable of restaurants.
In house or outsource?
The decision to staff an in-house repair and maintenance staff or to outsource weighs heavily on multi-unit operators accustomed to squeezing every penny out of restaurants.
Back when Lee Engler, of New Hope, Minnesota-based Border Foods, was a single operator with 16 restaurants, staying on top of equipment and facilities demands was easier. He carried tools and spare parts around in his truck.
That changed as his portfolio swelled to nearly 200 restaurants. Border built up an in-house facilities group that included 12 service technicians, three "plant guys" who handled carpentry, and a fleet of trucks. Adding in tools and training, suddenly Border Foods had a sprawling service department that made Engler and his brother and business partner, Jeff, uncomfortable as it wasn’t a core competency.
"All of a sudden a small number became a larger number and we said to ourselves, ‘Oh my gosh, what are we doing here?’" he said. "We knew we were getting quality work, but we didn’t know what the true cost of that work was."
Border Foods elected to downsize significantly, keeping three facilities employees in house and outsourcing the rest to Summit Commercial Facilities Group. It also partnered with New York City-based ServiceChannel, which dispatches service calls to Summit and maintains reports that help Border Foods keep tabs on its repair and maintenance spend.
With a smaller empire now including about 100 Taco Bell locations, the Englers have focused on replacing equipment at the end of its predicted life cycle, an approach they acknowledge depends on one’s access to capital and willingness to invest in the business.
"I think it really becomes a question of what’s your longevity in the business," he said. "We’re fortunate enough to have a brand that has a strong economic model and, therefore, we’ve chosen to reinvest in the business in a manner that says we’re in it for the long haul."
Striking the right balance
At Summit Commercial Facilities Group, CEO Kevin Yakes sees a trend of larger organizations and multi-unit restaurant operators moving toward outsourcing repair and maintenance. The primary benefits, he said, include not having to hire, maintain and train service-focused employees.
"If you’re not serving a couple thousand restaurants, it’s really hard to have the right economies of scale," he said, adding most multi-unit restaurant operators typically spend one to two percent of their annual revenue on repairs and maintenance.
He often sees operators keeping equipment much longer than is economically feasible.
"Somebody thinks they’re saving money, but in actuality they’re ultimately short-ing the life of the facility’s equipment," he said. "They’ll have a catastrophic failure, and then you have emergency fees" and must buy new equipment "that you don’t get a chance to negotiate."
Yakes sees Border Foods’ experience as defining the trend of clients working with service providers, an in-house facilities manager and third-party data collection firms to strike the right mix between doing some things in house or outsourcing everything.
"If I was in the shoes of a multi-franchise holder, you’ve got to have some internal people who speak equipment and speak facilities," he said. "If you don’t, you could end up spending more money in the education process."
As kitchen equipment becomes more and more complicated, Yakes expects outsourcing to gain further steam as the repairs become more challenging for less experienced tradespeople.
With 18 branches across the country, Bloomington, Minnesota-based General Parts services commercial kitchens, including HVAC and refrigeration equipment.
From his experience, Business Development Manager Chuck Knuth said operators with five to 10 locations will often hire an in-house technician. Beyond 10 stores, he said, it often pays to begin outsourcing services, rather than growing an internal repair and maintenance department.
With training, benefits and overtime, Knuth estimates just one in-house technician can cost $75,000 per year. Knuth said companies like his often cost more than smaller subcontractors, with labor rates generally between $80 and $100 an hour, but said the speed and life cycle equipment tracking from larger, specialized companies like General outweigh the price difference in hourly rates or parts.
"People are piggybacking more on relationships with vendors that have a larger footprint, because it saves them time," he said. "Time is more important than a lot of things. When it comes to getting a part, if one guy is $20 and one guy is $22 and one guy has it, who cares if they’re spending an extra 2 bucks?"
Skinning the cat
Knuth recommends cultivating a personal relationship with service agencies by including the provider in conversations about minimizing the company’s overall R&M spend. He recommends both management and on-the-ground team members meet technicians and managers from providers to share concerns, improve service and seek cost-savings advice.
"Is every owner-operator of 12 different Taco Bells an expert in water filtration?" Knuth asked. "The service agency can say you know what, you probably don’t need that $300 filter changed every quarter—that’s $1,000 you’re guaranteeing to spend. Could we not skin the cat a different way?"
You can renegotiate fixed costs, one expert says
Outside of core expenses like labor and food costs, multi-unit operators may be able to renegotiate bills like vendor maintenance contracts, waste removal, telecom, bank fees, insurance, property taxes, credit card processing and others.
SIB Fixed Cost Reduction, of Charleston, South Carolina, is a "vendor-neutral expense management company" that performs cost reduction audits to renegotiate a range of bills that fall outside a company’s wheelhouse.
SIB has 75 employees working to reduce costs at 20,000 business locations across the country—largely healthcare, retail and restaurant groups, exclusively multi-unit operators. Its sweet spot for savings is operators with 10 or more locations.
SIB’s franchised restaurant clients include Yum Brands, Taco Bell, Pizza Hut, KFC, Burger King, Hardee’s and Arby’s, and several franchise associations.
To begin an audit, SIB examines the expense categories to see if there are any billing mistakes or opportunities to renegotiate existing contracts. Multi-unit franchise groups, said CEO Dan Schneider, often have small back offices and resources stretched too thin to dedicate time to renegotiating contracts.
"They’re focusing on labor costs and operations and expansion, and we’re looking at their bottom 10 to 20 percent of spend to see if there are opportunities, if they’ve ever been overcharged or if there are better rates out there," he said. "What we also find, too, is some of these franchisees, a lot of things have to be done brand-specific or there’s a brand purchasing group involved, and we’re able to work alongside those purchasing groups. Sometimes we find that they’re not being billed according to the rates that they’re supposed to be from the vendors, and there’s no checks and balances—it’s another set of eyes so they have some peace of mind."
Depending on the category, SIB estimates savings in the 10 to 40 percent range, but occasionally saves clients much more on a single account. The company works with clients on a five-year term and charges clients half of the savings (or one-time credits) they’ve realized.
While some act like they won the lottery when they see the cumulative savings, others, Schneider said, are less likely to tell friends or associates how much they were previously overpaying.
"No one’s golfing and on their ninth hole they tell their buddy how great their proctologist is, because they don’t want to let their friend know that there was ever an issue and we found savings," he said. "They’re happy about the savings, but nobody wants to say, ‘I had this group come in and they found me $100,000.’ "
10 ways for restaurants to save on maintenance costs
- Plan maintenance agreements to increase the life cycle of equipment and catch problems before the unit fails.
- Build a relationship with your service agency to improve communication and billing accuracy.
- Set up a maintenance plan while still in warranty period.
- Use a service agency with well trained, certified technicians.
- Build a relationship with your parts supplier to improve speed and pricing.
- Combine service calls to save on trip fees—and keep a list of issues to have a technician address when on site.
- Track your equipment repair history to aid deciding between unit repair and replacement.
- Purchase equipment brands that have technical and parts support in your marketplace.
- Teach staff to clean equipment to boost efficiency and reduce issues.
- Change water filters regularly based on the needs of the equipment.
Source: General Parts