November 22, 2022

How marquee brands are managing rising energy costs

2022 Inflation Report: Insights brought to you by David Energy

As an operator, there’s no doubt you’re feeling the recent increases in the price of, well, just about everything. Whether it’s the cost of new equipment, cleaning services, employees, or monthly utility bills, prices are sky high.

While there are several factors underlying this increase in prices, a big driver of the uptick is the global rise in energy costs. Because energy is a major input into nearly everything – transportation, agriculture, manufacturing and more – when energy prices go up, everything gets more expensive.

So, why is energy so expensive?

To give you a sense for how much things have changed in the last 12 months, let’s take a look at the last year of energy prices in New York.  As you can see on the left, price increases started January 2022 and have continued throughout the summer.

There are two main factors driving the increase in prices – one is the triumphant return to business-as-usual coming out of Covid-19, and the other is a global reduction in the production of oil and gas. Let’s dig into each of those a bit more:

  1. Bouncing back: As facility operations normalize, that means more customers more regularly visiting your sites. This means longer operating hours than during the pandemic, and as a result greater electricity usage across the board
  2. Decreased supply: Covid-19 heavily impacted the global production of oil and gas by constraining supply and driving up prices, and the conflict between Russia and Ukraine further pinched supply, leading to even higher prices. While the U.S. has a domestic supply of natural gas, solar, and wind power softening the impact, prices at home are still elevated

These two factors have combined to both drive up demand while constraining supply – leading to skyrocketing energy prices and rampant inflation across the economy.

Does the new normal call for a new approach?

Despite this new normal, most businesses have not been able to insulate themselves against price spikes. That has to do, in large part, with how most businesses buy their energy today.

Today, there are essentially 2 options for purchasing electricity – through your local utility (in New York City, that’s ConEdison) or through an energy broker who procures a selection of prices from independent retailers. If you’re buying electricity from the utility, you’re buying what the industry calls an index rate — meaning that you’re directly exposed to the market and will pay a different rate depending on how energy markets have moved. In cheap markets, you’ll pay less, but in expensive markets like today’s, your bill could get VERY expensive. In some cases, increases in energy prices for businesses on index rates can bankrupt small businesses, as is already happening in the U.K.

If your business works through an energy broker, you’ll be shown options for both index rates and fixed rates. Fixed rates are like an insurance product – you lock in a price for energy over a term length (for example 12, 24, or 36 months) and pay that rate every month, no matter what happens in energy markets. In cheap markets, you may be paying above where the market is, but in expensive markets like today’s you could be paying less than half of what the market rate is. Like insurance, you may not always need it, but when you do you’ll be very glad you have it.

Regardless of which kind of energy rate your business chooses, it’s imperative that you understand the set of options available to you and work with a partner who can advise you on the most cost effective and savviest strategy.

Energy Inefficiency: The dirty secret nobody is talking about

The other major driver of monthly energy spend is energy usage. For many multi-location businesses, heating and cooling is the biggest driver of usage, and it’s critically important to ensure that it’s being done in the most efficient way possible.

In our experience, inefficient heating and cooling in studio and gym spaces comes down to 3 things: poor HVAC performance, incorrect thermostat schedule configuration, and manual changes from onsite teams.

  1. HVAC performance: Subpar performance from HVAC units includes things like the units not reaching desired setpoints even after hours of running, or multiple HVAC units kicking on all at once and causing a peak demand charge, rather than gradually ramping up.
  2. Thermostat schedules: Setting thermostat schedules efficiently is surprisingly tricky – older thermostats have to be adjusted manually onsite, and cloud-based thermostats like Ecobee, Nest, and Honeywell have to be set up unit by unit, making the process of setting custom schedules across locations time-intensive. Additionally, figuring out what Heat and Cool setpoints make sense for your gym’s needs is typically a low priority compared to the other problems you’re tackling on a daily basis.
  3. Manual changes: On-site employees tend to manually adjust thermostats on a day-to-day basis for a variety of reasons – from legitimate reasons like member comfort complaints to pretty silly reasons like they forgot to bring a sweatshirt to work. Those seemingly inconsequential changes can have real impacts on energy usage.

Since inefficient energy usage can heavily impact your monthly bill, a key strategy for controlling costs is to invest in energy efficiency. This doesn’t have to mean sacrificing the physical comfort of your employees or members, paying up for expensive software solutions, or spending a lot of time learning about HVAC and thermostats to do it all yourself. There are solutions out there that can help you address all of these issues without sacrificing comfort, cost, or time.

Four strategies to tackle energy inflation’s impact on your business

To help lower your energy rate, work with an energy partner who will advise you on an energy pricing strategy that benefits you rather than one that lines their pockets. They should make it simple and straightforward for you to pick a strategy that gives you price freedom when you want it and price insurance when you need it.

To manage energy efficiency across your locations, there are a couple different routes to take. One low cost way is to simply set operational rules (Don’t touch the thermostats! Keep windows closed!) across your locations and hope your teams adhere – an inexpensive but somewhat high effort strategy. A higher cost strategy would be to invest in software and controls that will monitor your facilities’ energy usage for you – but that may require you to rip our your existing hardware and replace it with something that you don’t own and paying pricey software fees.

To ensure your HVAC and thermostats are working correctly, you’ll want to work with a consultant or contractor to evaluate your current set-up. While this requires some investment up front, what really matters here is finding someone who you can trust – either through referral or other trusted partner.

The last, most effective option is to find a partner like David Energy who will help you accomplish all of these things with one product – offering you visibility into your operations, savings, and peace-of-mind. We know energy markets, building automation, and energy efficiency like the back of our hand. Let us handle it so you can focus on what really matters – operating and growing your business.

If you want to learn more about how we help fitness brands like Crunch Fitness, Blank Street Coffee, New York Sports Club, and more, check out our solutions For Business. Have a question? Reach out to us and someone from our team will be in touch.