New technologies, plus an increasing number of different models and efficiency options, make replacement considerations more complex.
You buy a car, it depreciates over time, and if you keep it long enough, it starts to require some big fixes and maintenance costs. Eventually, it seems like you're throwing more and more money at it until you've had enough and it's time to buy a new car. But here's where things get interesting. These days, a few extra complexities get thrown into the mix when you decide to replace your car: Do you buy a hybrid or even an all-electric model if you can afford it? Do you turn it in faster with less miles on it rather than letting it drag out to the end because you feel cars are just not made to last anymore? Do you lease? Do you finance, negotiate for a longer warranty or downsize your new model?
Restaurant owners and foodservice directors face these same complex questions when dealing with equipment. With so many more models on the market, plus new technologies, energy- and water-efficient options, rebates, deals and tax considerations, the question has become not just when to replace your equipment, but how.
In short, equipment replacement all comes down to age, price and condition, just like with cars, according to Dan Reese, director of training for the Commercial Food Equipment Service Association (CFESA). "I once owned a Corvette and loved driving it, but it got to the point where it was nickel-and-diming me and seemed to be constantly breaking," he says. "Heavy equipment is the same way; at some point, you can no longer keep up with the repairs."
We'll discuss warning signs for replacements of certain types of equipment in a bit, but first, Reese points out several general considerations when dealing with equipment replacements.
Replacing Old Equipment
Consideration 1: Safety
Safety should be the top priority when deciding whether to replace (or repair) a piece of equipment that has aged and continues to break down. "You don't want to have any equipment on your line that is no longer safe to operate or, worse, could start a fire," says Reese. Take a fryer, for example — if the tubes transferring the oil to the heat element begin to leak or crack and burn, it's absolutely time to replace the fry pot or the entire fryer immediately.
When it comes to ovens, an improperly working gas flue poses a fire hazard. "If you see any bare wires hanging out or the front panels of stoves missing or switches and lights are broken, that could shock and burn people, so it's time to replace that equipment," Reese says.
Consideration 2: Escalating Repair Costs
Going back to that car example, if it's no longer cost-effective to maintain and repair costs outweigh the current value, it's time to for the equipment to go.
"My Corvette had an oil leak, two blown tires and an air conditioning problem that would cost $3,500 to fix, but the car was only worth $7,500," says Reese. "That means the cost factor had reached 50 percent and it was no longer worth repairing."
Equipment can introduce slightly more complex issues, however. Let's say a range is worth $2,000 and a repair would cost $1,000 but could add several more years to the life expectancy without any additional repairs; in this case, it might be worth it, Reese says. But add one more repair to that model's service record and you just spent the same amount on what could have been a new range.
Total life cycle and depreciation should find their way into replacement considerations as well. "If I have had a piece for 30 years but it had a 10-year life cycle, it's been depreciated and it's likely time to budget for new equipment," says Reese.
Some pieces are simply not worth spending the money to repair because they're cheaper to buy new, according to Bruce Hodge, president and COO of General Parts Group in Bloomington, Minn. His list includes certain types of light equipment, such as some coffeemakers, disposers, popcorn makers, countertop warmers, soup warmers, blenders and microwaves.
Consideration 3: Parts Availability
Some older equipment models are so outdated, it's a challenge to find replacement parts for them, says Reese. "If you can't even get the parts anymore, or the repair costs are so high because the model is challenging to fix, it might be time to replace that equipment," he says.
Consideration 4: Major Menu Changes
Many operators — especially chains — will go through periods of major menu changes. That has a huge impact on the current equipment lineup and can influence decisions to invest in some new pieces.
"Say the craze is burgers, but you want to cook burgers faster and better and get more yield — it's time to investigate new technologies on the market," says Reese. "A chain might want to find a way to make a better sandwich by toasting it in a high-speed oven for one minute versus using a press that takes five minutes to cook."
For operators with less space but more menu items, consider purchasing multiuse equipment like combi ovens as opposed to a separate steamer and oven, for example.
Consideration 5: Volume Changes
Something as simple as business growth can influence equipment replacement considerations. A rise in sales volume at a location could introduce the need for two fryers or ranges instead of just one.
Now that you've decided to replace the equipment, it's time to contend with a host of other considerations when purchasing new pieces.
Purchasing New Equipment
Now that you’ve decided to replace the equipment, it’s time to contend with a host of other considerations when purchasing new pieces.
Consideration 1: Menu
Once the operator establishes the new menu, it becomes time to test some new equipment models for performance, speed, yield, heat recovery and more.
Some energy companies around the country operate innovation centers where customers can test specific types of equipment with their new menu items — for free. This is a great way to make comparisons between different models, Reese says.
And, if the operator establishes specific energy- and/or water-saving goals, that could influence the model they ultimately purchase. If an operator has a lot of fried food on the menu, for example, it might be time to consider a fryer that preserves oil quality over a longer period.
Consideration 2: Volume and Projected Growth
Just as business growth might impact an operator’s decision to replace the equipment in the first place, it can impact the type of equipment chosen as the replacement.
Reese recommends considering not just the current volume needs but also projected year-over-year needs for up to five years or more.
Consideration 3: Durability
Before purchasing new equipment, consider how long you might want to keep the model, Reese says. Schools and other institutions tend to change equipment less often, so durability and strong service records might be more important for them than for an independent or even a chain restaurant with more frequent budget and menu changes.
Consideration 4: New Federal Regulations and Standards
The Department of Energy, EPA and Energy Star have come out with a host of new regulations and standards for certain types of equipment, which can impact the models chosen to adhere to those goals.
Refrigeration and cold storage in particular have seen many changes — and will see many more.
Consideration 5: Incentives and Rebates
These days, utility companies offer more and more incentives, typically in the form of rebates, to entice foodservice operators to switch to more efficient foodservice equipment.
Operators with energy- and water-saving goals should fully investigate incentives and rebates on equipment replacement, which can cut down tremendously on up-front costs.
Reese also suggests working with dealers and manufacturers to negotiate a better or extended warranty, particularly for schools and institutions that tend to have a gentler hand on the equipment and don’t frequently change out pieces.
You’ve installed the new equipment. Guess what? It’s time to establish a training and planned maintenance program for your new pieces.
Maintaining the Equipment
You've installed the new equipment. Guess what? It's time to establish a training and planned maintenance program for your new pieces.
"Educating the cooking staff on how to use, clean and maintain the new equipment is huge for protecting your investment," says Reese. "This is where many chain restaurants can fail."
For all types of operators, Reese suggests writing in the new standards for equipment treatment into standard operating procedures, training manuals and documentation. Cleaning the equipment thoroughly and even making some small maintenance checks should be part of closing duties, he notes.
For larger, more expensive equipment, consider working with a service agent to set up a regular, affordable preventative maintenance plan for
Thoughtfully considering the when, why and how of equipment replacement remains the key to securing a faster return on investment and managing costs over time, especially in this competitive, constantly changing market.
"Each case is so unique," says Hodge. "You have to evaluate different equipment one by one, which isn't easy, but worth it in the long run."
At-A-Glance Equipment Replacement
Bruce Hodge, president and COO of General Parts Group in Bloomington, Minn., outlines a series of signals that indicate it might be time to replace a piece of equipment. Here’s the breakdown across three product categories: refrigeration equipment, cooking equipment and warewashing/sanitation.
Refrigeration Equipment: The Cold Side
With large walk-in coolers and freezers, specifically, “you want to look at the age, condition and amount of money you have spent keeping it running,” Hodge says.
A need to replace a compressor, evaporator coil, remote condenser or door could signal the need to replace the entire unit, unless these parts remain covered under warranty. If these parts begin running loudly or start to freeze up, that could mean they’re nearing the end of their service life. Plugged evaporator coils or those with bent fins also pose issues.
“If the panels on the box start to sweat or develop ice in the seams, that means water has gotten inside of the unit, and this is a warning sign,” says Hodge.
With large refrigeration units, spending just 25 to 30 percent of the cost of the item on repairs could indicate it’s time to replace it completely. Also, check for temperature issues, specifically those not caused by the staff leaving doors open or by the absence of air curtains.
For undercounter refrigerators, when the system fails to shut off, this could mean it’s not meeting its cooling requirements. Deteriorating walls and floors as well as doors not closing properly are problematic signs.
When purchasing new refrigeration equipment, consider the Department of Energy’s new standards and the EPA’s goals for certain refrigerant phaseouts.
Section 612 of the Clean Air Act, EPA’s Significant New Alternatives Policy (SNAP) program, outlines which refrigerants are acceptable for different uses. The EPA has de-listed the most commonly used HFCs, which include 134A, R404A and R507, as well as other special refrigerants used in certain equipment, such as self-contained refrigeration and compressors. However, the EPA has suggested alternatives, such as R-448A, R-449A, R-450, propane and isobutene. The EPA will continue to phase out certain HFC refrigerants over the next four years.
New DOE energy-efficiency standards for reach-in refrigerators and freezers will take effect in March. The stricter standards aim to improve efficiency in this area from 30 to as much as 50 percent. That means there will be new Energy Star specs for those pieces.
By 2018, the DOE’s more stringent standards for commercial ice makers will take effect. New DOE regulations for walk-in coolers — which should improve efficiency in that area by 20 to 40 percent — will take effect in January 2020.
Cooking Equipment: The Hot Side
Gas ranges showing yellow, not blue, flames can indicate problems with gas pressure or other components and require maintenance or replacement.
“Once you’ve sunk in a third or quarter of the cost of a new range, you really have to look at what’s the most effective way to spend your dollars,” says Hodge.
Repairing a five-year-old convection oven with no history of problems might be worth it, but “repairing a five-year-old convection oven that you’ve been repairing once a year is definitely not worth it,” Hodge says.
The revised Energy Star specification for electric fryers took effect Oct. 1, 2016. The Version 3.0 Specification increases the minimum energy-efficiency level for electric standard-vat fryers from 80 to 83 percent.
With so many new and more efficient fryers on the market, it’s worth considering replacements for these items. “If you have to replace a fryer vat out of warranty right away, I would look at buying a new one,” says Hodge. “You can buy a single-vat 14-pound model for less than $1,000, or invest in one that will cut down on oil costs.” There are also many more rebates for efficient fryers nowadays.
Repair costs can really add up when it comes to grills, which can last 10 years or more. Signs of wear and tear include corrosion, pitting, and/or excessive rust and holes in the burners. If it takes longer for the grill to heat up or cooking results have become inconsistent, this will negatively affect food quality and/or speed of service.
Closely examine any equipment with a boiler during a repair. “If you have to replace a boiler, that’s really expensive,” Hodge says.
Another piece of equipment to pay attention to is combi ovens, which continue to gain popularity among operators. “These are huge investments, so they really should and need to be maintained properly,” says Hodge. “Check your monthly and annual service requirements — this is critical to maintaining the longevity of the equipment.”
When purchasing combis, consider checking the Energy Star Commercial Oven Version 2.1 Specification, which took effect Jan. 1, 2014.
Warewashing and Sanitation
“If you have had a warewasher for 8 or 10 years, chances are you’ve written it off already, so it’s worth considering a replacement if need be,” says Hodge.
Also, pay attention to how much you spend or might spend on a repair for an undercounter dishwasher that’s three to five years old. “Large flight-type warewashers might be more worth the cost of service because they are huge investments,” says Hodge. “But if you have to change out a large pump or motor, it’s time to look at the costs for a new one and calculate the life expectancy.”
Many newer warewasher models have impressive heat recovery capabilities that can significantly reduce energy costs over time. They also bring down the temperature of the dish room, which puts less strain on the HVAC unit.
Depreciation Tax Breaks
With profit margins continuing to tighten, restaurant and foodservice operators know they must make the most of every penny. That includes taking advantage of tax breaks.
Section 179 deductions allow restaurants to receive deductions for new or used restaurant equipment. Certain new tax rules will allow operators to deduct depreciated food storage, preparation and cleaning equipment over 5 years versus 7, 8 or 10, according to CFESA's Dan Reese. "It's important to look into these deductions because government regulations change all the time," he says.
Refrigeration units, condensers, compressors, accumulators, coolers, pumps, connecting pipes, and wiring for the mechanical equipment for climate-controlled rooms, such as walk-in freezers and coolers, function on a 5-year depreciation schedule, according to the IRS.
Steam trays, cooking vessels and ice machines on separate water line hookups are also on a 5-year schedule, as are fryers and ovens that use special gas lines. Dishwashers that require electric and plumbing hookups, as well as ventilation systems or kitchen air makeup units used solely to maintain specific ventilation requirements essential for operation of kitchen equipment, are also on a 5-year schedule.
Foodservice businesses can also use Form 3115 to earn deductions for smallware equipment, glass and silverware. Furniture, beverage equipment and decor fall into Section 1245 property.
In late 2015, a new law passed that allows restaurant operators to deduct the cost of restaurant-building improvements and new construction on a 15-year depreciation schedule, rather than a 39.5-year one.