It’s getting more expensive than ever to operate a convenience store these days. Profits are up, sure, but direct store operating expenses (DSOE), which include repairs and maintenance costs, are on the rise. If things are beginning to seem like a sadistic, corporate version of Whac-A-Mole—the industry finally makes progress on credit card fees, only to find another DSOE eerily creeping up—well, that’s probably apt. Minus the cathartic, novelty-sized hammer, of course.
While some retail companies have the resources to address repairs and maintenance in-house, many others are left to engage third-party contractors and service people, which come with a collective diminishing window of availability. In either case, there are technological solutions that allow retailers to monitor and manage contractors and repair expenses, bringing efficiency to a category that threatens to continue erode store profits.
By the Numbers
The most recent CSX data (January through August 2018) reveal that stores are paying an average of $3,593 per month for repairs and maintenance (R&M), up 5.5% from the same period in 2017 ($3,407). This is not an isolated uptick; rather, according to the NACS State of the Industry data, repair and maintenance costs have been trending up (mostly) for the past several years (see graph below).
Source: NACS State of the Industry data
The increase can be traced, in part, to the recession just a decade ago, with a mass exodus of skilled tradespeople from certain regions. During this time many construction companies—such as The Daily Co. in Michigan—lost employees who either moved for better job opportunities or retired early. This, in turn, drove up construction and maintenance costs.
Some see a deep-rooted shift in national demographics as the source for the cost increase. “Our country is facing a decline in the number of kids who want to go into [trade] professions,” said one construction industry executive. “And we haven’t attracted sufficient people to replenish the baby boomer [retirees].”
Both scenarios have led to a dearth of skilled workers to handle repairs, increasing costs as well as efficiencies. Retailers looking for a quick repair have become accustomed to hearing, “You want it when?”
Doctors in the House
As a result of these and other factors (for example, rising health-care costs have had an impact on most corporate balance sheets) some companies have decided to bring R&M in-house, taking control of processes while ensuring costs are predictable.
“When the economy is going well, it’s tough to get companies to build or repair stores,” said Chuck McDaniel, vice president of facilities for QuikTrip. The Oklahoma-based retailer handles repairs and maintenance in-house with its own technicians “because we want to have our equipment up and working as quickly as possible with people who are trained to meet our high standards,” McDaniel said. As a result, R&M costs are a predictable part of QuikTrip’s operations costs, with salaried employees handling R&M incidents, irrespective of number or frequency.
Retailers looking for a quick repair have become accustomed to hearing, “You want it when?”
While the company has assessed outsourcing work to other companies, McDaniel said the numbers don’t create a compelling scenario to make the switch. “We’ve looked at outsourcing R&M several times, comparing what it costs internally versus what it would cost to hire outsiders, and it always comes out pretty close,” he said. Without an overwhelming swing in savings, “our preference is to maintain the control and predictability.”
That’s not to say QuikTrip’s existing setup comes without internal scrutiny. McDaniel said the company continually works to minimize call volume and frequency, ensuring that all R&M calls necessitate attention. “There are a lot of times when a piece of equipment goes down, and it is back up and working by the time the tech shows up,” McDaniels said. “We’re always trying to eliminate those unnecessary visits.”
Michigan-based Quick Dairy takes a similar in-house approach, dispatching salaried employees from a central location to tend to the company’s 30 Midwest stores.
“We do nearly everything in-house; the only time that we use subcontractors is if we have something to do that is electrical, because we don’t staff master electricians,” said Kevin Krause, maintenance supervisor for Quick Dairy. “We’ve always done things internally to avoid increased costs.”
For the lone skilled tradesman that the company doesn’t staff, Krause said it’s something the chain is reconsidering, especially as the company looks to embark on a number of store teardowns and remodels. “One thing about hiring outside electricians [is] we have difficulty getting them when we need them,” he said.
Recruiting Outside Help
Other retailers look to outside contractors—a piecemeal, reactive approach when equipment or fixtures break down. But such a strategy is vulnerable to inefficiencies, especially when the company operates stores that are dispersed. “They’re dealing with multiple location networks, which in turn employ hundreds of contractors who work remotely and are therefore difficult to manage consistently,” said Tom Buiocchi, executive director and CEO of ServiceChannel, a company that offers a digital platform for sourcing, procuring, managing and paying for facility maintenance and repair services.
Think of ServiceChannel as an Uber or Lyft for hiring contractors, Buiocchi said—an on-demand service that provides complete transparency, along with real-time reporting, of repairs and maintenance costs. “With hundreds of stores, there’s no way you can personally vet all contractors,” he said. “You can’t look into all of their background, and you can’t manage pricing effectively to ensure consistency. Not to mention, you’re never going to meet most of the people, so developing a relationship and therefore trust is impossible.”
ServiceChannel takes care of this back-office work, and once deployed, its platform offers an intuitive user interface that makes connecting with and monitoring contractors a breeze. “You can see who was hired, their complete history and job approval, as well as the price that will be charged,” said Buiocchi. And with more than 95 million transactions to date, ServiceChannel allows facilities managers to drill down to determine the right price for a certain repair performed in a certain region.
The retailer handles repairs and maintenance in-house “because we want to have our equipment up and working as quickly as possible with people who are trained to meet our high standards.”
The service allows for scheduling recurring maintenance jobs, too, with companies planning for such services several months before they are required. The service also integrates job tracking for companies that take on some jobs in-house, so companies can keep tabs on job progress through the same online platform.
Companies sign a minimum one-year agreement with ServiceChannel. Buiocchi said the expenses can be paid for quickly in R&M cost savings, which he estimated as 18% to 22%. “We look at all metrics, especially outlier costs, allowing you to make decisions that drive down costs,” he said. For instance, if you’re typically paying $100 for a certain repair in your Dayton, Ohio, store, and ServiceChannel lets you know that the average cost is $75, you can go back into the portal and refine parameters for your contractors, establishing price limits.
Because its legacy system was unable to provide clarity in terms of repair and maintenance spends, Atlanta, Georgia-based RaceTrac tapped ServiceChannel to provide greater transparency and visibility into the work order process at its 700 stores. The change provided dramatic cost savings and efficiencies, along with improved contractor management. Unresolved daily case tickets dropped 50%, and the chain’s field services team met or exceeded its goals despite enduring a period with more than 40% staff attrition. “It’s been like night and day compared to our old process,” said Jelani Headley, senior manager, field services support, for RaceTrac.
Best Practices
No matter what your arrangement, there are a number of best practices you can implement to minimize R&M costs.
Prevention is the best medicine: Preventive maintenance can help preserve the functionality of your equipment while curbing costs. This seems like a no-brainer, but getting bogged down in daily operations often can cause you to miss the obvious. For instance, change your air conditioner filters regularly and check your HVAC system at least twice per year to ensure efficiency.
Predictive testing: Distinct from preventive maintenance, predictive testing can point out usage-related conditions that signal imminent failure, allowing you to address a problem before it evolves into a more costly incident. Examples include performing an ultrasonic sound analysis to find leaks and conducting infrared thermography scans to assess the integrity of insulation.
Keep it simple: Regularly review your repair and maintenance procedures to uncover redundant or outdated processes that either can be nixed or replaced with better practices. Additionally, as staff turnover occurs, processes can become unnecessarily layered, tacking on inefficiencies that drive up R&M costs.
Review training procedures: Educate and train non-maintenance personnel who operate company equipment, making sure they’re on the lookout for performance degradations that might signal a more serious disruption. Often, early detection of equipment problems can prevent more costly repairs.
Insure against failure: Consider an extended warranty when you purchase new equipment, which can reduce R&M costs when they’re likely to occur—after the original warranty expires.
With so much effort invested in attracting customers to shop your stores, taking these simple proactive measures to control repair and maintenance costs can ensure you retain a larger share of customer spend, which looks healthier on any bottom line.