Buying Equipment: Expensive or Cheap?

Whether you’re talking about a combi-steam oven, a water goblet or a two-ounce ladle, most pieces of foodservice equipment are available in a wide price range.

An argument for buying expensive equipment

Obviously your purchasing department is motivated to buy from the lower end of that range, but ask yourself these questions before deciding what to buy: How much do those cheap purchases really cost you? How is your equipment-purchasing program aligned with your business capitalization strategy? And how might it impact valuation when it’s time to consider your exit strategy?

When you really think about it, effective equipment purchasing becomes far more complex than a simple price comparison.

First, let’s consider “utility” driven purchases. Since the middle of the last century, it’s become a common marketing practice that goods and services be marketed in the good, better, best scheme, each with a correspondingly higher price point. Remember the old Sears, Roebuck catalogs where this concept was openly highlighted? While at first it would seem to make sense to just buy the cheapest item, there are obviously situations when cheaper does not mean better, otherwise why would those various price points exist in the first place?

The reason lies in a concept that economists call “utility,” in other words the “value” the purchaser places on what a particular good or service does for them. Seems simple, but it’s far trickier than what’s on the surface. Take a six-quart saucepan, for instance. A simple view is that the pan doesn’t add much value since all it does is conduct heat from the range to whatever is in the pan. But, further reflection reveals another aspect of utility, and that is the protection of other assets, such as food. You don’t need to burn too much sauce to make up the difference in cost between a cheap aluminum pan and a nice clad bottom stainless steel pan that heats more effectively and coddles a valuable (read expensive) demi-glace or beurre blanc. And this consideration extends to more than sauce pans. What about a convection oven that doesn’t heat evenly and burns a couple of pans of bacon every day? Do the math. And wouldn’t you know it, oftentimes cheap equipment lasts a long time, costing even more every day it performs poorly. Face it, buying cheap equipment can cost you a lot of money.

An argument for buying cheap equipment

Okay, so now you’re thinking that we’re promoting the notion that you should buy the most expensive level of equipment, no matter what it is—right? Well, we’re not. Let’s look at another item, such as a simple two-ounce ladle. Honestly, the only utility expected of a two-ounce ladle is that it accurately measure out two ounces of a liquid, and that’s about it. And if you’ve spent any time in the kitchen, you’ll also know that the typical two-ounce ladle doesn’t last very long because they are often quickly lost to the trash can due to inadvertent disposal. So you needn’t worry about buying one that’s engineered to last for a lifetime of use; its life is pretty short. So, buy them cheap and, unfortunately, often.

For bigger projects, especially startup operations, an additional dimension comes into play, and that’s capital cost. Sure, it’d be great to have the newest top-of-the-line dishwasher and it’d be easy to justify the ROI over a long haul, but what about the impact it has on your immediate capital needs? Remember that as an entrepreneur, your goal is to own as much of your venture as possible. Does buying the top-of-the-line equipment cause you to share a larger percentage of the business with other investors?

Let’s be honest, the concept of risk-adjusted cost of equity cuts deep in the restaurant business. Maybe a used dishwasher will last for a couple of years while your business gets some traction, allowing you to access more reasonable financing terms later on. While you might be better dealing with higher energy and consumable costs in the short run, you are more likely to win the longer game of shareholder equity when it comes time to exit. If you didn’t pick up on it, this is the old concept of bootstrapping, an approach that’s more than simply being frugal; it’s about being savvy and maintaining control of your dream.

We could go on with other examples, but hopefully you get the idea. Equipment purchase decisions, large or small, should be tailored to meet both short-term and long-term objectives using a thoughtful and realistic calculation of ROI. But let’s also recognize that owning the most efficient, highest-yielding ROI equipment doesn’t mean much if it ends up costing you your business.

Like the folks at Mercedes Benz are fond of saying, it’s not the purchase price that’s important, it’s the total cost of ownership.

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