Financial accounting

Why Your Restaurant Should Consider Total Cost of Ownership in Purchase Decisions

Restaurant owners have many things to consider when making purchasing decisions. However, if you’re not factoring in total cost of ownership (TCO), you may be costing your business money. Here’s a closer look at TCO, along with why it matters so much in the foodservice industry.

The 411 on Total Cost of Ownership

Because commercial kitchen equipment can be a significant upfront investments, it’s easy to get caught up in price tags. But, a range, oven, griddle, charbroiler, steamer or fryer’s ultimate value isn’t represented by its upfront price. When it comes to the “big picture,” TCO is what really matters.

Which begs the question: What is TCO? Says Investopedia, “Total cost of ownership (TCO) is the purchase price of an asset plus the costs of operation. When choosing among alternatives in a purchasing decision, buyers should look not just at an item’s short-term price, which is its purchase price, but also at its long-term price, which is its total cost of ownership. The item with the lower total cost of ownership is the better value in the long run.”

Viewed through this lens, price tag becomes less indicative of a piece of commercial kitchen equipment’s worth and TCO takes on much more meaning.

Total Cost of Ownership and the Foodservice Industry

Despite the benefits of buying restaurant equipment based on TCO, many restaurants are still relying on price tag alone. As David Zabrowski, senior engineer/senior project manager of Pacific Gas & Electric Co.’s Food Service Technology Center, told Foodservice Equipment & Supplies magazine, “Unfortunately, operators are often driven by budget and time constraints that can limit their possibilities.”

Wondering what TCO issues to take into consideration when choosing equipment for your operation? Commercial kitchen equipment TCO comes down to a few key things, including energy consumption and repairs, parts and service. Proposed Dipak Negandhi, senior engineer, Unified Brands, to FES, “When you spend $60,000 to $70,000 for a piece of equipment (e.g., flight-type dishwashers), saving $10,000 to $20,000 on energy or maintenance over the course of its service life is significant.”

How well a piece of equipment suits a restaurant’s unique menu, as well as ease of use for operators, are also important factors. “Too many bells and whistles end up causing you problems. Don’t make the equipment too hard for the cook or the employees in the restaurant to use. … And the local service guy needs to be able to fix the piece of equipment on the spot, so there can’t be too many parts,” Danny Koontz, director of facilities management for Ruby Tuesday, told FES,

And then there’s a piece of kitchen equipment’s potential impact on sales. For example, if a high-output fryer will allow you to serve up more of the foods your diners demand, then you’re looking at increased revenue and greater diner satisfaction — two major boons for your restaurant business.

The good news? While restaurants may have been slow to get on board with the TCO-based purchases, more bottom line-minded operations are moving in this direction. Perhaps Angela Hughes, senior facility leader for Pizza Hut Facility Management, put it best in telling FES, “When I understand the value, I will pay more. And the restaurant operators are happier about it because we are not managing a quality issue.”