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Guest Column - May/June 2004

Price vs. Value

What that food-service equipment is really costing you

By Michael A. Orlando


For those of us in the food-service and concession industry, actual food-service operators are always a great source of input, both positive and not so positive (all right, negative) with regard to the functionality of any piece of equipment that they use day in and day out. Manufacturers can learn a lot about what customers like, dislike and really need in order to make their lives easier and the equipment better.

This kind of user feedback is especially interesting to me. For example, while recently speaking with an operator with two concession stands at an East Coast attraction, he informed me most equipment was priced way too high for his operation. So I asked what he had based this statement on, and he confided in me the reason he felt that way was because the equipment only needs to last about six months. I was shocked, amazed, bewildered. Most manufacturers engineer food-service equipment for much longer life cycles than six months.

The next thing he said shocked me even more: "I throw the stuff out after the season ends," he explained. "It costs too much to clean it, pack it and store it."

Again, I was amazed.

I understand that this is not a common practice for the entire industry. The vast majority of operators take very good care of the equipment that they use, and it lasts for several seasons, but it does bring up a very good question about what value really is. Let's look at a few examples of price vs. value, and why this operator, and others as I have come to find out, make this choice.

Example 1

An operator buys a hot dog grill for $600. The grill works great for the first six months and then the element burns out. The warranty covers the replacement of the element, but the operator is not selling hot dogs while the grill is not working. His net loss for the days that this grill doesn't operate is approximately $300 in profit. The grill gets fixed, works fine for the next eight months and then burns out again. There goes another $300 in profits, but it doesn't end there. Remember, now the grill is out of warranty, and the operator bears the cost of the repair on top of the loss in profit. That's $150 to fix the grill, and it is up and running again…for another 10 months. It quits working again, and the operator decides to buy a new one.

The total life cost for this hot dog grill is $1,350. This includes the original purchase price, the cost of any consumables (in this case there were none), the cost of any repairs over the useful life and then any additional costs like the loss of profits when not serving hot dogs because the grill wasn't working. That is $675 per year.

Example 2

An operator buys a hot dog grill for $900. The grill works great for three years and maybe longer. The warranty doesn't have to cover anything since there is no failure.

The total life cost for this hot dog grill is $900. Spread this over three years, and that is $300 a year. This includes the original purchase price, the cost of any consumables (in this case there were none), the cost of any repairs over the estimated useful life (again none) and then any additional costs like the loss of profits when not serving hot dogs.

In Example 1, the lower priced hot dog grill seemed like a great value. It had a lower acquisition cost (price), and it cooked the hot dogs the same as the more expensive one. If the operator had seen the more expensive grill (example 2) in the dealer showroom, he might not have even considered it based on price alone. Here is the tricky part. Price is not a good indicator of value. The objective is to get the right piece of equipment for your operation with the least amount of risk. The more expensive grill in this case could very well have been the one with all of the problems.

How do you get good value?

When you are considering any new food-service equipment item you should be careful in determining what your needs really are. Don't buy less than what you need because you will undoubtedly replace it in short order. Buy items that can handle a slightly larger load or are flexible to allow for menu changes.

Check with your peers. They may have had experiences with similar pieces of equipment and can guide you in your selection. Check the manufacturers warranty to see how long it lasts, what is covered and, more importantly, what is not covered, then call the local service center. All manufacturers have service companies that repair their equipment. Ask them for recommendations.

The typical distribution channel for obtaining equipment is through a local restaurant-equipment dealer. They add value by providing a service that you can't get from mail order or a Web site, namely experience. If you go into a dealership, and they can't answer your questions, walk out. Find the dealer that can answer any and all concerns that you may have. Dealers make their livelihood by selling you the right piece of equipment for your operation, so in a sense you are paying for their experience. Get it all, and don't be afraid to ask questions.

There is much more information on food-service equipment out there than can be disseminated here. In short, the simple answer to make sure that you get real value from the equipment is to do a fair amount of homework before you buy. Remember, the lowest initial cost may not be the best option, and value is not dependent on price.

Michael A. Orlando is managing director of corporate marketing for A.J. Antunes & Co., a food-service equipment manufacturer. He can be reached at mike.orlando@ajantunes.com.

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