The “£20 pint” has been a hot topic in recent months, with the energy crisis being at the forefront of everybody’s minds, and many businesses across the UK wondering how they will afford to survive the coming months. Whilst the initial thought might be to increase retail prices to consumers, businesses rely on consumers to continue to use their services during this challenging period, and if they’re quadrupling prices in a time when people across the UK are tightening their purse strings, businesses will be forced to close their doors regardless.
With the government announcing ‘The Energy Bill Relief Scheme’ which will see a 6-month energy price discount for businesses starting 1st October, many businesses will feel that they have been offered a lifeline this winter. With the announcement of a “supported wholesale price” expected to be £211 a megawatt-hour (MWh) for electricity and £75 a MWh for gas, this has taken some pressure off businesses who were expecting to pay double this winter, where electricity was forecast to be at around £540. However, despite the lifeline that will help many businesses stay open this year, this does still mean that prices are still substantially higher than they were in early 2021 when the commodity price per megawatt hour was trading at around £40 – £50 and therefore considered action still needs to be taken.
Businesses need to be aware that the level of support for each organisation will vary depending on the type and date of the contract. The gov.uk website states:
“The discount applied will be in pence per kilowatt hour (p/kWh). The p/kWh government support for comparable contracts will be the same across suppliers, but the absolute level of individual bills will continue to vary across different contracts and tariffs.
For fixed contracts, the discount will reflect the difference between the government-supported price and the relevant wholesale price for the day the contract was agreed. The government will publish the wholesale prices we will use for calculating this for each day from 1 April 2022.
For variable, deemed and all other contracts, the discount will reflect the difference between the government-supported price and relevant wholesale price, but be subject to a ‘maximum discount’ that will be determined at the beginning of the scheme.”
It is therefore important to understand that the p/kWh government support for comparable contracts will be the same across suppliers, but the absolute level of individual bills will continue to vary. It is also important to remember that ‘The Energy Bill Relief Scheme’ is currently only available for the next 6 months, so businesses need to start to plan beyond April 2023 to avoid crippling costs.
With an annual turnover of more than £90 billion, the UK food & beverage industry forms a large part of our country’s economy, and right now it is the huge impact of rising energy prices that is uniting all sectors within the industry.
Recent figures from the Food and Drink Federation (FDF) show that August’s food and drink prices rose at an annual pace of 13.1%, which is the highest rate since 1989 when figures started being measured using the current methodology. While falling petrol and diesel prices meant the overall inflation rate eased slightly to 9.9% in August from July’s 10.1%, food and non-alcoholic drink made the largest upward contribution to the monthly rate, and as energy prices are spiralling, inflation is likely to accelerate in coming months and to remain high throughout next year.
Labour shortages, supply chain challenges, and increasing costs have all contributed to the dramatic increase in the UK’s Food & Beverage prices over the last year and the soaring price of dairy has pushed food inflation to its highest level in 14 years. The war in Ukraine has contributed to the huge increase in prices that consumers are witnessing, and with wages not rising in line with inflation, people are feeling the pinch, now more than ever.
Whilst businesses can’t negotiate their energy costs, other measures can be taken to mitigate costs in other areas of their business.
What can businesses do?
ESOS
Energy Savings Opportunity Scheme (ESOS) is a mandatory energy assessment scheme for organisations in the UK that meet the qualification criteria. The Environment Agency is the UK scheme administrator. If a company qualifies for ESOS, but the organisation is not fully covered by ISO 50001, they will need to carry out an ESOS assessment. In the past, this may have been more of a tick box exercise for qualifying companies, however, there should now be a key focus on completing these assessments with a high level of quality. By really getting under the skin of how a business operates and calculating the total energy consumption, cost-saving opportunities can start to be identified and actualised.
Make premises more energy efficient
Simple measures such as switching to LED bulbs and turning off lights and electrical devices when not in use is a good way to start reducing utility costs. Installing motion sensors that switch off lighting when not in use, in areas such as stores and washrooms, and installing smart thermometers to automate temperature control are also actions that will help to mitigate the cost.
Well-maintained equipment will be more energy efficient, so it is important to focus on maintenance. Checking for leaks on appliances where leaks are more prone such as boilers, cookers, and refrigerant systems will help to be more energy efficient as well as replace inefficient equipment. Whilst energy-efficient appliances have a higher upfront cost than standard appliances, they will reduce energy costs in the long run and do maintain their value more so than their standard equivalent. Invest in CAPEX now and reap the benefits of reduced energy bills.
Process planning will also ensure that production lines and equipment are being in the most energy-efficient way.
Opening hours
Reducing opening hours will reduce operating costs, and ultimately save on energy bills by only operating during peak times and advising customers of changes in advance to avoid disappointment. Even opening premises an hour later or closing an hour earlier will help to reduce energy costs and will have a positive financial effect on your business.
Reduce food waste
Cutting back on food waste is a good approach to saving on operating costs. Building the menu around inventory rather than the other way round is a good starting point and making the most of each ingredient by using the whole ingredient i.e., vegetable skins and meat offcuts will help to produce more sellable goods without increasing inventory costs. Adopting a pre-ordering model during seasonal peak times will help to limit the ambiguity around how much produce to order and adapting menus to use any leftovers before they spoil will also help to reduce waste.
Now, more than ever, businesses need to focus on reducing or mitigating costs within their business, to make the foreseeable future more manageable, or even survivable. There are many ways in which businesses can be more energy efficient, and even making small changes will have a positive financial impact.
Using our wide range of service offerings and our team of experienced procurement and supply chain practitioners, 4C Associates are currently helping several businesses in the F&B sector to manage their costs and navigate their way through these challenging times. If you would like to discuss how we can help your business, please email Laura Matthews at laura.matthews@4cassociates.com.
