Professional Documents
Culture Documents
Larry Miller
Director
Michael Kienzlen
Assistant Director
2013 Shrink Study
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Get smarter
with your space.
RGIS is proud to present the 2013 Shrink Study from the National Supermarket Research
Group (NSRG).
The 2013 NSRG Shrink Study provides in-depth, current research about supermarket
shrink. It delivers a detailed view of the critical control points needed to accurately assess
and measure shrink. Additionally, the study examines the operational practices that have
proved effective in managing and controlling shrink exposure.
As a gold sponsor, RGIS supports the research needed to understand and ultimately help
contain the shrink problem. Through proper assessment and training at the store level, we
firmly believe you can quickly and efficiently reduce shrink.
Sincerely,
John J. Ling
Chief Executive Officer
RGIS, LLC
Gold Sponsor
For over 55 years RGIS has been the leading provider of physical inventory services in the world, with expertise
in all types of industry segments, inventory practices and retail services – performing in excess of 550,000 inven-
tory counting and other services annually. With proven successes in all aspects of retail inventory, it’s no surprise
that more retail companies, in more places, trust RGIS to provide the information and insight they need to fully
understand their assets and make better business decisions. Turn your next inventory event into an opportunity
to get smarter with your space with RGIS.
RGIS now offers inventory management and shrink control services for center store and perishables to help you
to improve your best practices vital for shrink control, cash flow and data analysis reporting.
OpenEye is an innovator in the business of designing and manufacturing surveillance equipment and excep-
tion based recording software for the retail industry. OpenEye integrates analysis of transaction data with
video surveillance, to help you identify costly hidden problems so you can correct them before they affect your
bottom line. Dedicated to providing the ultimate customer experience with heroic levels of service and support,
OpenEye is known worldwide for quality products offering intuitive operation and ease of use. We are proud to
Sponsor this 2013 National Supermarket Shrink Survey.
We train Store Managers in the proven best practices for shrink control and guarantee up to 18% shrink
reduction within 120 days for the grocery and convenience store industry.
As America’s leading Shrink Loss “Diagnosis”/Loss Prevention Experts, we are the only company that guar-
antees shrink reduction results.
Table of Contents
Executive Summary. ...........................................................................................................10
The Winds of Change…............................................................................................................................................................ 10
Three (3) Emerging Key Factors................................................................................................................................................11
Additional Findings.................................................................................................................................................................... 12
Summary................................................................................................................................................................................... 13
Store Profile....................................................................................................................14
Overview.................................................................................................................................................................................... 14
Facts and Findings.................................................................................................................................................................... 14
Summary................................................................................................................................................................................... 15
Overall Shrink..................................................................................................................16
Overview.................................................................................................................................................................................... 16
Overall Shrink Facts and Findings............................................................................................................................................. 17
Summary................................................................................................................................................................................... 19
Analyst Recommendations........................................................................................................................................................ 20
Operational Shrink............................................................................................................34
Overview.................................................................................................................................................................................... 34
Operational Shrink Facts and Findings..................................................................................................................................... 34
Summary................................................................................................................................................................................... 36
Analyst Recommendations........................................................................................................................................................ 37
Perishable Shrink..............................................................................................................46
Overview.................................................................................................................................................................................... 46
Facts and Findings.................................................................................................................................................................... 46
TOP 6 CONTRIBUTORS TO PERISHABLE SHRINK.............................................................................................................. 48
Summary................................................................................................................................................................................... 49
Analyst Recommendations........................................................................................................................................................ 50
Receiving Shrink................................................................................................................56
Overview.................................................................................................................................................................................... 56
Receiving Shrink Facts and Findings........................................................................................................................................ 56
Summary................................................................................................................................................................................... 57
Analyst Recommendations........................................................................................................................................................ 58
Automation
& Technology....................................................................................................................64
Overview.................................................................................................................................................................................... 64
Automation & Technology Facts and Findings.......................................................................................................................... 65
Summary................................................................................................................................................................................... 66
Analyst Recommendations........................................................................................................................................................ 67
As you read this 2012/13 National Supermarket Shrink Survey and digest its findings, we urge that you examine the
facts and trends, and then look beyond the superficial evidence to the belief systems and the organizational and cultural
causes of excessive shrink loss.
Many of the facts in the survey report are important in and of themselves, but when cross-referenced and considered
with others reveal the need for a shift or evolution in the role of Loss Prevention. Key to your shrink control success will
Introduction
be creating a company focus on PROFIT through shrink control and a culture of shared accountability between Loss
Prevention, Operations and Merchandising.
As company leaders embrace the findings in this Survey it is our hope that their respective “best in class” shrink control
will result.
Senior Executives responsible for company profit should, as a result, shift their thinking away from catching or stopping
shrink to implementing best practices to preempt shrink loss by implementing the best “operational” practices to
maximize profit.
We urge you appreciate the guidance of national averages, but consider your own potential level of implementation
effectiveness of vital shrink loss controls and disciplines. Consider how your Operations and your Loss Prevention
teams are working together to achieve optimal shrink loss control in your unique stores.
It is clear that the role of Loss Prevention and Operations, as it relates to shrink control and profit making are changing.
Collaboration and coordinated efforts and trainings are vital keys to optimizing the results of your shrink loss efforts.
Thank you.
Executive Summary
implement coordinated shrink control initiatives. Evidence
shows that consistent and ongoing store manager and
store team Best Practices training is a key factor in control-
ling store shrink.
-15 % When store teams are trained and held accountable to execute these
“Control Conditions” with discipline, the affect is a systemic reduction in store
shrink of up to 15%.
2. The study revealed that 64% of all shrink was caused by the breakdown of Operational Practices at the
store demanding new focus on operational practices to prevent shrink and disrupt shrink causing conditions.
3. Over the past 5 years, certain core technologies are now present in most companies, but overall shrink loss remains
essentially flat at 2.70% of retail sales.
4. Since 2003, survey respondents have reported that continuous training of store teams in the operation-
al best practices to reduce and control store shrink has the most significant shrink loss control impact.
Executive Summary
5. Distraction Management, Prioritization and FOCUS was reported to have significant impact on maximizing profit. New
survey data indicates that Supervisors in the 30% top performing companies spend (on average) 75% of work hours in
stores, including 1-2 evenings each week and 1-2 Sundays each month. These Supervisors are consciously protected
from distracting, non-vital meetings, committees or otherwise distracting assignments and report 9% below average
shrink loss.
The Evolution of Loss Prevention. When considering a statistical bell-curve analysis of best performing vs. worst per-
forming companies, it becomes clear that traditional loss prevention tactics are not working to move average shrink
loss below 2.70%. But when examining the beliefs, behaviors and practices of the Top 30% performers, we see focus
shifting to address the root causes of shrink loss and the implementation of practices that disrupt shrink loss. Rather
than just trying to stop or reduce shrink loss, top performing companies are focusing on integrating shrink loss best
practices into their store operation excellence strategies.
In the end, best shrink control results occur when Loss Prevention and Operations become enablers of profit by teach-
ing, training and causing best practices implementation and execution. In doing so, they can preempt shrink loss,
rather than simply focusing to catch misdeeds or react to shrink loss after the fact.
The outcome result is that top performing supermarket companies (top 30%) experience 36% lower shrink
than the 70% remaining companies and thereby gain a substantial profit and competitive advantage.
[A Note to Company Leaders: National averages are always interesting, but every companies best case shrink loss may be
lower or higher given store format, desire or ability to adopt and implement specific best practices. We urge that you take steps to
determine your unique best case shrink loss objectives and then take appropriate actions to achieve that objective.]
Overview
Respondent companies reported based on their
specific store characteristics in 2 separate formats:
Super Stores (larger format) reported annual sales Average Annual Sales by Format
of $24,191,677, and reported store shrink of 2.52%. Super Store $24,191,677
Conventional Stores reported average annual sales
Conventional Store $16,384,019
of $16,384,019 and 2.81% shrink.
Total Average $18,986,571
Summary
Over the last 5 years, the profile of survey respondents has shifted. Of 64 companies representing
3,235 stores who responded to this years survey, we see a decrease in the % of Super Stores par-
ticipating vs Conventional Stores participating. Statistically this can result in a higher level of reported
shrink as a percentage of sales than in prior years.
Store Profile
Conventional Store 10 58% 3.25
Analysts Recommendations
1. When comparing your shrink numbers to the national average store shrink of 2.70%, factors such as store format,
store sales, sales mix, demographics and shrink accounting practices are all variables that must be considered.
Most importantly is how your stores compare to each other and to prior years.
2. Certain factors are noted in this survey as having an impact of reported shrink loss:
• higher sales volume stores sell through their product faster, and; therefore should have less shrink. Other
considerations include:
• forward buy practices can be manipulated to mask shrink,
• buy-and-hold strategies can result in excessive carried inventory and/or damage, and
• percentage of sales area committed to perishables, etc.
3. While national shrink numbers provide a platform to better understand shrink, more important are the practices,
processes and technologies used that are proven to reduce shrink and increase profit. Accurately recording and
measuring company shrink provides the best platform to reduce shrink.
4. Self Check Out. There are emerging concerns from companies about the total profitability impact of SCO in their
stores. Primarily these retailers are stating “service concerns” for the reason to not put in as many or actually pull
there SCO’s from their stores. 43% of companies stated their shrink went up after installing SCO.
2.7% Overall shrink in 2013 was reported at 2.70% of retail sales, with best in class
companies (18%) reporting shrink at 1.72% of retail sales. This confirms a 6 year
trend of retail shrink in supermarkets remaining principally unchanged at 2.70% (+/- 3%). The question
is “why,” and the challenge is to discover what works to reduce shrink.
Supermarket shrink is defined in this Survey as “the difference between the retail value of product
received and the amount received for that product at the time of its sale.”
Overview
Shrink represents a significant company/store expense As shrink is to be expected in each department, the differ-
category deserving of senior executive focus and atten- ence between best in class shrink levels and average shrink
tion since for every dollar of shrink, net profit is reduced levels must be examined as a significant profit opportunity
by one dollar. and potential competitive advantage or disadvantage.
From a “prevention of loss” perspective, shrink is much A major challenge in this survey and with any similar
more than the difference between book inventory and survey is variations in tracking and reporting methodol-
physical inventory. Evidence from survey participants ogy. While respondents collectively acknowledge having
supports the fact that more and more companies are too much shrink, they individually measure shrink differ-
viewing shrink as more than just a cost of doing busi- ently. As such, an analysis must be done to interpret the
ness. More companies are viewing shrink as an operat- known variables between companys, so that effective
ing expense – similar to other operating expenses such comparisons can be made.
as maintenance, payroll, and supplies – that can be and
must be managed for success. It is vital to note that: data supplied by participants to this
survey has been cross-tabbed to numerous related data
The acceptable (minimal) levels in each department vary
points in order to best determine true inventory shrink
greatly. Many factors can affect product shrink from the
levels verses single-point data tabbing.
time of “receipt” to the time of its “sale” including; receiv-
ing errors, accounting errors, vendor/ warehouse errors,
employee errors, scan file, damages, product handling,
rotation, production planning and theft.
Example
Best In Class Difference between Avg. Average Profit Gain
Average Shrink High Shrink
Shrink and Best In Class Shrink Opportunity
Store 2.7 1.72 3.45 1.80% $324, 869.89
Grocery 1.1 0.40 2.50 0.70% $42.529.94
Meat 4.1 3.20 7.50 0.90% $18,796.72
Produce 4.8 4.0 8.20 0.80% $12,151.41
Overall Shrink
focus on increasing same store sales. Equal focus
should be given to shrink prevention since every
dollar of shrink saved, yields a dollar of added profit
Accounting to bottom-line. Respondent best in class companies
Methods Used enjoy significant and quicker profit advantages from
Cost shrink control as they focus on added sales at higher
Retail 43% profit margins.
57%
Shrink Trends
3.0%
2.76% 2.70%
2.48%
2.5%
2.28% 2.26% 2.32%
Summary
This year’s survey continues an 11 year trend of retailers reporting total store shrink above 2.46%. When
looked at on the surface, it appears that there has not been significant progress in reducing store shrink.
However, upon analysis of shrink prevention practices reported in prior years surveys we see two
significant patterns:
1. Responding companies are measuring shrink loss significantly better today than in years past,
and as such, are accounting for and reporting a more accurate (and higher) shrink number.
2. Companies are better using technology and proven best practices which are helping to
reduce shrink.
When loss prevention and shrink control budgets are examined, evidence indicates there is a disproportionate
allocation of budget dollars toward the company’s investment in technologies that attempt to catch theft
versus the investment in training management and associates in effective store operating practices known
Overall Shrink
to prevent operational shrink loss.
64% 36%
Avg Shrink $ at 2.70% $328,088 $184,549 $512,637 2.70%
Possible Reduction % -57% -30%
Possible Reduction $ ($187,010) ($55,365) ($242,375) -47%
New Potential Shrink $141,078 $129,185 $270,262 1.42%
Analyst Recommendations
From analyzing the input from the 64 participating companies in this year’s survey coupled with the aggregate
of previous surveys, best in class companies – those companies reporting the most accurate and lowest
shrink numbers - do a very good job of measuring shrink completely and accurately. Conclusion: Proper
shrink loss tracking and accounting is a vital best practice for reducing and preventing shrink. This pro-active
approach is a key culture of control component of best in class companies and they follow 3 simple beliefs:
1. They Believe Shrink is controllable… and the first step in gaining control over shrink loss is to be
certain that you are tracking and revealing it in all of its segments. You cannot gain optimal control over
your shrink if you cannot see it and determine its root causes.
2. They Think about PROFIT first, shrink second. There is a subtle, but important distinction between
profit optimization best practices and shrink control best practices. Beyond semantics, profit optimization
best practices preempt shrink loss and shrink loss is typically considered reactive. This shift in thinking
causes collaborative, cross functional and shared accountability for “profit.”
3. Managing controllable Shrink. To control shrink, certain programs or practices must be in place
to create awareness, visibility, accountability and a high sense of urgency surrounding shrink
prevention. Among the many programs that are available, there are control practices recommended
for immediate focus when managing controllable shrink as reported throughout this study.
The best way to measurably reduce shrink is to first track it, record it, measure it and determine its cause at
the department level in each store. The key is to establish a baseline beginning shrink loss level to determine
the beneficial delta between following or not following a specific industry best practice or set of practices.
Once your baseline is determined accurately and completely, Best Practices and Technologies can be
employed to reduce shrink to its lowest possible level, internal audit can be charged with measuring the
implementation effectiveness of key performance best practices, which result in companies being able to
quantify the value of one best practice versus another.
64% of all reported shrink was attributed to a breakdown in, or the absence of,
operational best practices as compared to 36% of total store shrink which
was attributed to Theft and misdeeds.
Overview
Where’s The Shrink? Inventory shrink is most Causes of Shrink
accurately defined as “the difference in the value of While the problem of store shrink may be easy to define,
product received versus the amount received for that it can remain difficult to measure and even more difficult
product at the time of its sale.” to solve. Solving the problem of profit shrink depends on
implementing cost-effective, operational shrink prevention
This definition specifically covers “inventory” shrink and theft prevention best practices, technology, store
loss but does not include other forms of loss such as manager and supervisor training and a collaborative culture
losses from cash shortages, bad checks, counterfeit for storewide shrink control. Primary to these initiatives is
money, coupon mishandling, and theft of time and time- the understanding that shrink prevention and control is
card abuse (etc.) which are not classified as shrink every employees job. Every department must have a clear
in this survey. role in shrink control and prevention initiatives.
When looking at the causes of inventory shrink one Chief among the causes of store shrink is “tolerance.” This
must first acknowledge that some level of shrink is is best illustrated by best in class companies who reported
inherent in every retail operation. Key to this point is 36% lower shrink losses and substantially higher Profit From
to discover how much shrink is natural and, therefore; Operations (PFO) than do “average” performing companies.
mostly uncontrollable versus how much shrink is not
natural and therefore is mostly controllable.
• 36% of all reported shrink was attributed to Theft and or Misdeeds. This does not diminish the importance of combating
shrink from theft, but it does allow retailers to prioritize and focus resources to areas where the greatest ROI can be gained.
64% 36%
Avg Shrink $ at 2.70% $328,088 $184,549 $512,637 2.70%
Possible Reduction % -57% -30%
Possible Reduction $ ($187,010) ($55,365) ($242,375) -47%
New Potential Shrink $141,078 $129,185 $270,262 1.42%
Shrink
Shoplifting.
Low 4.0%
• 11% of all reported shrink was attributed to
Production Planning Inefficiencies. Total 100.0%
• 11% of all reported shrink was attributed to
Cashier Theft.
of
• 9% of all reported shrink was attributed to
Product Handling Errors.
Primary Causes
Guards 8%
EAS 8%
• 9% of all reported shrink was attributed to TOP defense
General Employee Theft. methods for
preventing Mgmt. Employees
• 9% of all reported shrink was attributed to shoplifting. 36% 84%
Employee/Cashier Errors.
• 8% of all reported shrink was attributed to Cameras
Rotation Errors. 64%
• 4% of all reported shrink was attributed to
Damages and Un-Salables.
• 4% of all reported shrink was attributed to
Receiving Errors.
• 3% of all reported shrink was attributed to
How often do you conduct a physical
Vendor Theft. Non-Perishable inventory?
• 3% of all reported shrink was attributed to Scan Frequency Percent
File Errors. 1 times per year 4.0%
• 2% of all reported shrink was attributed to 2 times per year 44.0%
Accounting Errors. 3 times per year 12.0%
4 times per year 36.0%
12 times per year 4.0%
Total 100.0%
• 77% of survey respondents said they are now formally We identified 9 operational areas that were reported as
tracking, measuring, and reporting shrink in each “key” to gaining shrink reduction, control and prevention.
department. As a group, these companies reported These areas should be a focal-point of company profit
17% lower shrink than the 23% of companies that do protection disciplines as each serve as a catalyst to proper
not follow strict shrink tracking and reporting methods.
policy and control implementation, cross-functional and
• 72% report a medium-to-high confidence level in their inter-disciplinary training, best practice definition, and
physical inventory results. internal audit monitoring.
• 91% of respondents have a program in place to Floral 1.0% $189,866 5.10% $9,683
compare host files to the store files. Pharmacy 6.0% $1,139,195 2.20% $25,062
Video 0.5% $94,933 4.10% $3,892
• 84% utilize shoplifting prevention training for
$18,986,581 2.70% $512,922
employees as a key defense against shoplifting.
• 91% utilize cashier performance monitoring systems
and data mining as a loss prevention tool.
Summary
As a result of respondent reporting, there appears to be an emerging awareness and subsequent
shift occurring in how Loss Prevention and Operational personnel are addressing their shrink loss
environment. Companies are breaking down “silo-thinking” traditions and embracing operationally-
centric collaborative work teams. Cross-functional and dual accountability for shrink prevention
and control and profit optimization is elevating loss prevention and shrink control into top corporate
priority status.
Shrink
Companies report to be focusing on the management of three (3) store “conditions” and
of
three (3) technologies known to control store shrink rather than just targeting finite causes.
Primary Causes
1. Training of Store Managers to recognize “operational control conditions” and
engage in their management in all departments.
3. Strict Inventory Controls for Optimal Cash Conversion and workforce optimization.
* Notable is the emergence of tablet-based audit and monitoring solutions but ROI survey responses were too few to meaningfully measure.
Analyst Recommendations
Top performing companies report using these controls and practices and technologies as having the best
impact on controlling theft related shrink.
1. Get Loss Prevention more involved in total store shrink (operational and theft). There is clear evidence of
a ‘shift’ away from viewing loss prevention as a “department” to more integral and collaborative part of the
company “culture” by becoming more pro-actively engaged with Operational and Merchandising teams.
2. Implement a pro-active, in-store culture of shrink awareness, consistent communications related to reducing
and controlling shrink loss and implementation of “conditional” practices known to disrupt and prevent theft-
related shrink loss.
3. Shoplifter proof your customer service initiative with a high visibility Shoplifting prevention training for all
employees and managers that includes visual and verbal (non-confrontational) interruption of suspected
shoplifting instances. A focused and effective program to curtail theft related shrink loss could yield a $55, 364
profit improvement opportunity in the average store.
4. Hold periodic and consistent theft and shrink prevention best practices training for all employees, but especially
store management groups.
5. Draft formal Written Receiving Practices that are strictly adhered to, implemented by a trained receiver and
audited for compliance.
6. Draft Written Policies for and practice audit of Key Control, Employee Purchase Policy, Blocking of check-stands,
After-Hours Access Control, Night Crew Access Control Guidelines, and Written Cash Office Procedures.
8. Implement Automated Cashier Monitoring Systems and/or POS Data Mining systems that include a weekly
implementation and accountability processes.
65%
of store shrink was reported to come from Perishables and 35% of store
shrink was reported to come from Center Store / Grocery departments. A
close look at these two vital findings reveal significant profit improvement opportunities
for companies adopting noted best practices within a culture of store operations and loss
prevention collaboration.
Overview
Every store department suffers shrink loss. The vital ques- Over the 20 year history of this survey, examining
tions here are how much shrink by department should you combined responses representing over 700 compa-
have as compared to other stores/companies of similar nies, we can see that respondents have improved
size, format and demographics, assuming common prac- their reporting detail and accuracy. As such, current
tices in the accounting and recording of shrink? survey responses appear more detailed and reliable
than in past years.
When examining shrink by department, the desired result
is a prioritized focus on shrink reduction in areas where
greatest profit recovery is possible. Where’s the Sales?
This 2013 Shrink Survey clearly shows that perishable Perishables
departments contributed 65% of all store shrink, and non- 38%
perishable departments were reported to contribute 35%
of all store shrink. Non-Perishables
62%
The dynamics of how Perishable Departments – while
doing significantly less sales than Non-Perishables
– contribute significantly more shrink dollars than
Non-Perishables is seen more dramatically when we
examine shrink loss dollars by department in an av-
erage store. While annual non-perishable reported Where’s the Shrink?
shrink loss was reported at $172,303, annual perish-
able department shrink loss dollars were reported at Non-Perishables
$333,025. Focusing on “dollar” loss rather than just 35%
percentages of shrink loss illustrates most clearly the
profit recovery opportunity by department. Perishables
65%
Table 6 below provides a detailed look at each depart-
ment’s contribution to both sales and shrink loss, as a
percentage of total sales and in dollar amounts.
Department
• Deli ranked #3 contributing $74,047 in 3. Code Dating, Freshness and Known
shrink loss. Loss Controls.
• Grocery ranked #4 contributing $71,010 in 4. Department Manager Operations and
shrink loss.
shrink loss control best practices.
• Respondents reported 2013 consolidated shrink loss 5. Inventory Accounting for accurate shrink
in all Perishable departments climbing to 5.32%. This loss tracking and reporting.
represents an 18% increase over prior year surveys. 6. Increase in sales.
Comparing Perishable product sales growth against
by
shrink loss indicates that respondent companies are • Best Practices listed later in the Survey are known
increasing sales at an increased rate of shrink loss. to reduce Perishable shrink and related negative
When the current consolidated average of 5.32% is
Summary
Optimal shrink loss control demands proper policy and controls execution, effective processes
and a store-wide focus on “best practices” for loss prevention, security and the implementation
standards of operations by trained and standards compliant store teams, supported by supervision
who are sales driven and shrink control orientation.
Department
2006 2011 % Change 2006 2011 % Change
Grocery 41% 38% -7% Grocery 1.34% 1.10% -18%
HBA 4% 3% -25% HBA 3.85% 2.50% -35%
GM 5% 8% 60% GM 3.45% 2.70% -22%
Frozen 4% 5% 25% Frozen 0.85% 0.80% -6%
Beer/Wine/Liquor 3% 5% 67% Beer/Wine/Liquor 1.36% 1.00% -26%
RX 2% 2% 0% RX -0.45% 2.20% -589%
Video 2% 0.5% -75% Video 2.45% 4.10% 67%
Non-Perishables 61% 62% 1% Non-Perishables 1.62% 1.48% -9%
Meat 13% 12% -8% Meat 4.86% 4.10% -16%
by
Produce 9% 9% 0% Produce 5.02% 4.80% -4%
Dairy 6% 7% 17% Dairy 0.82% 1.50% 83%
Analysts Recommendations
As respondent companies continue to focus on Perishable sales for growth, differentiation and increased
customer satisfaction, Perishable sales continue to grow as a percentage of total sales, increasing 6%,
overall. Correspondingly, while Perishable sales were growing at a 6%, Perishable shrink loss grew at a rate
of 18%. Evidence indicates that Perishable shrink loss grew due to two main factors: (1) actual shrink loss
increases, and (2) improved accuracy in tracking and reporting of shrink loss and possible manipulations.
Perishable shrink loss control offers the greatest profit recovery returns (shrink reduction) on invested time,
effort and cost. Add to this ROI from shrink reduction the direct link between shrink control in Perishable
departments and customer satisfaction, and the combined impact of shrink reduction with sales improvement
calculates to a significant gross/net profit gain opportunity.
1. Inefficient Ordering accounted for 14% of total store shrink, or 22% of Shrink from Operations, making Ordering this
year’s number one root cause of shrink loss. Ordering caused shrink includes; failure to take a proper on hand inventory
before making an order, failing to use a formal ordering guide, failure to check previous movement information, failure
to properly determine, use and accomplish Ordering Best Practice Standards and over-ordering quantities not needed
to meet immediate sales expectations.
2. Inefficiencies and/or Errors in Production Planning were reported to account for 11% of total store shrink or 17% of
Operational Caused shrink. Production planning caused shrink includes over-production, under-production, poor space
allocation, unsanitary production and failure to accurately plan production needs to meet anticipated sales.
3. Improper Product Handling (or mis-handling) is reported to account for 9% of total store shrink or 14% of Operational
Caused shrink. Product handling errors can occur during the time of delivery, while stocking product in backrooms
and coolers, while stocking displays or by excessive space allocation. Cause: Poorly defined, written and executed
Product Handling Standards.
4. Employee/Cashier Errors were reported to account for 9% of total store shrink or 14% of Operational Caused shrink.
Employee / Cashier errors include intentional and unintentional mis-rings by cashiers, improper pricing, improper or er-
roneous price changes/modifications, mis-labeling, failure to properly account for book inventory changing practices, etc.
5. Improper Rotation of Product is reported to account for 8% of total store shrink or 13% of Operational Caused shrink.
Inefficiencies in rotation include, failure to rotate product in the cooler, failure to rotate product during the stocking process
and failure to rotate product on a regular basis. Cause: Poor training, operational execution discipline and failure to define,
communicate, audit and enforce rotation Standards and best practices.
6. Improper Receiving Practices were reported to account for 4% of total store shrink or 6% of Operational Caused shrink.
Receiving practices that cause store shrink include, but are not limited to vendor errors and fraud, receiver errors and
fraud, DSD receiving system errors, cost/retail file maintenance errors and “warehousing” by vendors.
7. Damages/Unsalable Product was reported to account for 4% of total store shrink or 6% of Operational Caused shrink.
Operational Shrink
Product can be damaged prior to entering the store and is undetected during the receiving process, or it is caused during
the work flow process or can be caused by customers prior to its point of sale.
8. Scan File errors and Maintenance Inefficiencies accounted for 3% of total store shrink or 5% of Operational Caused
shrink. Scan file errors are basically a disparity between the “host” retail value we should get for a certain product versus
what that same product actually scans for during the time of purchase.
9. Accounting Errors accounted for 2% of total store shrink or 3% of Operational Caused shrink. Accounting errors are a
non-fraudulent discrepancies in financial documentation. Cause: Failure to follow simple “checks and balance processes”
to assure accurate accounting for the product that has been purchased.
Of the above 9 root causes of Operational shrink, certainly some causes affect Perishable departments more than they do Center
Store / Grocery shrink. This supports other survey findings indicating that Perishable shrink (65%) is greater than Non-Perishable
department shrink (35%) and; therefore, provides determined retailers great shrink reduction and profit enhancing opportunity.
Rotation Production
13% Planning
17%
Handling Cashier
& Storage Errors
14% 14%
Summary
2013 survey responses indicate a shift in the role and areas of engagement by Loss Prevention
department personnel. Top performing companies (14%) reported closer alignment with store
operations and higher degrees of participation and collaboration with operations in support of the
training and implementation of operational best practices for profit realization.
This integration and evolution of loss prevention focus and inter-departmental collaboration with
shared accountability is the number one emerging best practice trends for the control of operational
shrink in this 2013 National Supermarket Shrink Survey.
In summary, Operational Shrink Losses are best reduced through proper and regular accounting, proper
policy, process and controls implementation, cross-functional and inter-disciplinary training, best practice
and Standards definition and internal audit monitoring.
Analyst Recommendations
Sourcing the causes of Operational shrink and determining the delta between best performing companies
and worst performing companies required over 60 cross-tabulations and reveals controls and processes
most beneficial to the control and prevention of Operational Shrink.
1. Hiring & New Hire Orientation: 84% of responding companies use some form of formal Criminal
Background check method ranging from “minimal” to “formal.” Top performing respondent companies
(32%) report emphasis in the areas of hiring practices associated with multi-step hiring practices (Drug
Operational Shrink
testing, Integrity/Honesty testing, DMV record check, Credit checks, Education verification). Also included
in best in class practices are multi-level interviewing, and interviewing for specific characteristics associated
with honestly and customer centric personality.
2. New Hire Orientation: Top performing companies reported emphasis and specific focus on new hire
orientation training including significant shrink awareness training and specific training on new hire written
job description responsibility. When these practices are defined, written and executed with consistency,
these stores/companies report 11% lower overall shrink.
3. Operational Business Practices Training: 77% of responding companies report having some form of
standard business operating practices, but only 23% report having and using “written” standard practices.
Top performing companies have well defined, written standard operating procedures with clear shrink
prevention and control emphasis and formally train and retrain their employees in operational practices.
These top performing of companies report 17% lower overall shrink.
4. Inventory Control: There exists a clear thread of practices associated with the control of inventory,
inventory turnover and inventory management with resulting shrink loss levels. Top performing companies
report having 26% lower inventory levels resulting is 30% more inventory turns and 15% lower shrink than
companies without clear and consistently executed inventory control practices.
5. Operational Practices Audit: 79% of respondent companies report having internal audit departments, but
only 9% of companys report having specific, “operational best practices” as an internal audit component.
These 9% of companys report 21% lower overall shrink as compared to companies that do not audit
operational best practices when implementation audit scores are consistently above 83% effectiveness.
36% of all store shrink was reported as the result of Theft or Misdeeds. This makes
shrink from Theft the second largest primary cause of inventory shrink, sec-
ond behind Operational Caused Shrink. Respondents identified 4 primary categories of the
causes of theft related shrink which were: Shoplifting, Cashier Theft, General Employee Theft
and Vendor Theft.
Overview
“Theft” is that class of inventory and/or profit shrink In the study of theft and how retailers report it, combined
caused by the stealing, pilfering, larceny and/or other survey and interview data shows that many companies
misdeeds resulting in product and/or profit loss. Theft is focus prevention and control practices on theft and
intentionally caused by one of three groups of people: misdeeds because of its associated (emotional) negativity
Employees, Customers, or Vendors. When survey and seemingly “outside of our direct control” nature. This
focus then tends to drive the “perception” or “feeling”
that shrink caused by theft is a larger problem than it is
Where’s the Shrink
reported to be.
Theft-Caused Shrink
Theft
16% = Males under a high of 27% of all items shoplifted in 1998 to just 3%
Shoplifting the age of 21
in this year’s survey. The combination of 2 facts have
13% = Females under
Vendor the age of 21 contributed to this decrease:
39% = Males under
• Over 95% of survey respondents now sell
by
the age of 21
32% = Females under
the age of 21 cigarettes from the security of locked enclosures
Shrink Caused
making it very hard for anyone to steal cigarettes.
• Overall sales of Cigarettes have diminished over
• Survey respondents reported that 55% of all shoplifting
the years and; therefore the ‘demand’ to steal and
instances were by amateurs, 26% by professionals and
resell stolen cigarettes has decreased.
19% was attributed to Organized Retail Crime.
• 55% of all shoplifters were male while 45% were female.
• The number one shoplifted items were in Health and Who is Shoplifting?
Beauty Care products (28% of all shoplifting instances),
Organized
Meat items (23% of all shoplifting instances) and Beer/ Retail Theft
Wine/Liquor (20% of all shoplifting instances). Professionals 21%
26%
• 80% of survey respondents reported that they believe
Amateurs
shoplifting will increase in the upcoming 12 months and 55%
sighted the economy and related unemployment as the
number one cause.
• The economy was reported by survey respondents as
the number one motivating factor for shoplifting in 2013.
• Overall, Shoplifters are categorized in two primary groups: Amateur and Professional. Amateur
shoplifters steal for personal gain and/or consumption. Professional shoplifters most often steal for
product resale or trade in order to extract monetary value from products stolen. Both amateur and
professional shoplifters participate in Organized Retail Crime (ORC).
• Amateur shoplifters are most often individuals who shoplift occasionally, do so on impulse and
most often for personal consume.
• Professional shoplifters regularly and with pre-planned intent. The motivation for these criminals is
beyond personal consumption and is primarily to resell or trade stolen products turning those items
into cash by selling them for cents on the dollar to friends and family.
• Organized Retail Crime appears on the rise as 75% of survey respondents stated that they have
experienced an increase in Organized Retail Crime activity over the past year. When asked to
how they would rank the threat of ORC in their company, 65% of respondents ranked ORC as a
MEDIUM to HIGH level of threat.
• 64% of respondents allocated additional resources over the past year to combat ORC. Only 27%
of respondents stated they will be allocating additional resources to combat ORC.
• 21% of all shoplifting instances were associated to ORC and the average loss per ORC incident
was $840.12.
Theft
amount than full retail. (Manually keyed).
were involved, the amount of the loss more than
quadrupled to $814.00. 5. Using the Void and/or Error Correct Key to
remove scanned items.
• Bottom of the basket shrink loss is somewhat unique
by
in that it can happen passively – whereby the cashier 6. Intentionally failing to register or ring
unintentionally fails to ring up items on the bottom of items on the bottom of the shopping cart
Shrink Caused
the basket or intentionally when a cashier ignores or basket.
those items on the bottom of the basket for friends 7. Utilizing the No Sale key (or Signing Off and
and family. back On) to open the cash drawer in order
to steal cash, manipulate coupons, food
• Survey respondents reported that on average
stamps, lottery, money orders or otherwise
10% of shoppers have items on the bottom of
manipulate a transaction or funds.
the basket with an average value of $10.59.
8. Creating fraudulent Refunds.
• Respondents said that on average, Cashiers
will fail to ring up those items 8% of the time 9. Creating fraudulent Cancelled Transactions.
costing the average retailer with 10,000 *Other instances of Cashier Caused shrink that are not
customers up to $44,054 annually to bottom intentional are covered (later) in the Operational Caused
Shrink section of this study.
of the basket losses.
• 49% of General Employee Theft instances were • 41% of all General Employee Theft instances was by
reported to have been done by employees with employees stealing product through the front door or the
less than one years’ service. back door without paying for it.
Summary
Theft is a serious problem contributing to store shrink. It is important that companies have a theft prevention
and control culture combining the effective use of internal audit, technology, operating practices and controls
and pro-active, pre-emptive training.
While shrink from theft and misdeeds accounts for 36% of all store shrink and 29% of theft related shrink being deemed
“controllable,” a focused and effective program to curtail theft related shrink loss could yield a $55,364 profit improvement
opportunity in the average store.
While 20% of all store shrink is attributed to employee theft, this doesn’t mean 20% of employees are thieves. Studies have
shown that only a small portion (5-8%) of the workforce population are intentionally dishonest and are actively looking for an
opportunity to steal.
Theft
by
Shrink Caused
Analyst Recommendations
In order to combat shrink caused by theft and middeeds, the following practices ranked
highest or most effective as reported by survey respondents. Top performing companies
report these top control and process practices and technologies as having the best
impact on controlling theft related shrink.
1. Entrance / exit controls and monitoring suspected shoplifting instances.
technology. 8. Written Receiving Practices that are strictly
2. Employee purchase policy and practices that adhered to, implemented by a trained Receiver
encourage shopping but discourage theft, and audited for compliance.
discounting, switching, collusion, etc. 9. Written Policies for and practice audit of Key
3. Strong theft prosecution practices. Control, Employee Purchase Policy, Blocking of
4. Effective use of 7 primary technologies DVR, Check Stands, After Hours Access Control, Night
EAS, Automated DSD Receiving, BOB theft Crew Access Control Guidelines, and Written Cash
prevention, Access Control, Exit Alarms and Office Procedures.
POS data mining software. 10. Automated DSD receiving and system use best
5. A pro-active, in-store culture of shrink prevention practices.
awareness, consistent communications related 11. Automated Cashier Monitoring Systems and/or
to reducing and controlling shrink loss and POS Data Mining systems that include a weekly
implementation of practices known to identify implementation and accountability processes.
and correct shrink loss conditions. 12. Consistent use of CCTV Camera and DVR
6. Regular and consistent theft and shrink systems, often with data analytics capability.
prevention best practices training for store team 13. A pro-active and formal Customer Service
leaders. Excellence program to train store employees in
7. Formal Shoplifting prevention training for all safe suspect approach practices to discourage,
employees and managers that includes visual prevent and disrupt employee and shoplifter theft.
and verbal (non-confrontational) interruption of
There is an inseparable
connection in Perishables
between shrink and
customer satisfaction.
65% of all store shrink in 2013 was attributed to Perishable departments. The Meat
department contributed the highest amount of total store shrink at 18% of total
store shrink or $93,414 in annual in profit loss. Produce was the second highest shrink contributing
department at 16% of total store shrink or $82,022 in profit loss. Deli department contributed the
third highest amount of total store shrink (tied with Grocery department) at 14% of total store shrink
or $74,048 of profit loss.
Overview
Research shows that a 10% reduction in just the Meat, Produce and Deli department shrink will yield an overall
store shrink reduction of 5%. This 5% reduction in shrink drops directly to the bottom line and would increase store
profitability by 9.4% (assuming a Net Profit of 1.40%).
• 60% of all survey respondents reported that they conduct Perishable inventory counts 12 times per year, or once
per month. 24% of survey respondents reported they conduct Perishable inventories only 4 times a year, or once
per quarter and reported 9% higher shrink than the group taking inventory on a monthly basis.
• Companies with best in class Perishable shrink said they formally and consistently record, measure and report
on “known” shrink in each Perishable department.
• Of the 9 primary causes of operationally caused shrink identified in this year’s survey, 6 were identified as having
a more negative impact in Perishables then in Non-Perishables when not implemented correctly. These include:
Ordering, Production Planning, Product Handling, Rotation, Receiving and Damages/Unsalable Goods.
Perishable Shrink
2. Production Planning / Space Allocation: Improper production planning and space allocation was the sec-
ond largest contributor to Perishable shrink combining to account for 26% of shrink losses. To maintain an
attractive presentation, departments such as fresh Meat, Seafood, Produce, Deli and Bakery often display
quantities of fresh product greater than necessary to meet anticipated customer demand. When product
doesn’t sell, it “shrinks” which in turn retards sales and customer satisfaction. The primary reason given why
department managers do not utilize production planning guides is because they are not taught effectively, the
information it produces is not utilized effectively by supervisors and its use is not mandated.
3. Rotation: Poor product rotation was the third largest contributor to Perishable shrink accounting for 21% of
Perishable losses. Proper (first in, first out) rotation in the Perishables department is critical to sales growth,
as well as shrink control. Proper rotation brings the product that needs to be sold first into the first position for
the customer to buy. Proper rotation allows Perishable product to be “culled” as it is being rotated allowing
any questionable quality product to be removed from sale.
4. Improper Scan/Scale File Control: Improper scan file and or scale file control was the fourth largest con-
tributor to Perishable shrink accounting for 14% of Perishable product shrink loss. Improper scan/scale file
control includes poor control of POS scan file maintenance, poor execution of prices changes, failure to moni-
tor POS scan HOST pricing to in-store actual pricing, poor control of Scale price and item files and intentional
and non-intentional scan and/or scale file manipulation.
5. Receiving Errors: Receiving errors (including poor quality of product received from the supplier) was the
fifth largest contributor to Perishable shrink accounting for 12% of Perishable shrink losses. Over 57% of all
receiving related shrink was caused by errors in the receiving function – either by the person checking in the
product or the person delivering the product. 43% of all receiving related shrink were reported to be the result
of theft or acts of dishonesty on the part of the receiver or the vendor. Not following written and prescribed
receiving practices was reported as the number one cause of errors and acts of receiving dishonesty.
6. Theft of Product: Product theft in most of the Perishable departments was minimal with the exception of the
meat department. Survey respondents reported that up to 22% of meat shrink was attributed to shoplifting.
This accounted for slightly over $20,000 of meat profit loss annually.
Summary
As supermarkets continue efforts to differentiate themselves from their competition, they are learning that cus-
tomer loyalty is cultivated more through Perishables and people, than just dry groceries with competitive pricing.
As a result, companies are increasingly focused on enhancing and expanding their Perishable departments as
a competitive advantage.
Freshness, quality, and product availability all contribute to a strategic advantage in the competition for
customers but, if not closely managed, these factors also contribute to excessive amounts of shrink and
lost profit.
Maintaining high product freshness with a minimal amount of loss due to waste is the key to a success-
fully operating Perishable department. As it relates to shrink and profit loss, traditional loss prevention
activity has historically focused on theft and thieves and rarely target the operational causes of profit loss
in perishables.
Perishable Shrink
Analyst Recommendations
This year’s survey reveals the policies, procedures, and/or technologies commonly
utilized by those stores with the lowest amount of Perishable shrink. The reported
methods that had the most positive impact on Perishable department shrink are:
• Begin with a Smart Order: While improper ordering is the number one largest cause of Per-
ishable shrink, proper ordering is the easiest thing to implement and sustain over time. The
number one solution to eliminate improper ordering is simply to utilize written ordering guides
and follow 3 practices for smart ordering:
3. Order quantities that will be enough to get you to the next truck.
• Code Date Coolers: Code dating Perishable product with the day it is received takes little to
no extra time to do. Fresh Perishable products lose weight/value every day so the Code Dates
tell everyone working in the department which product should be use first. Additionally, Code
Dating coolers provides valuable information to the person doing the ordering.
• Record Pull Backs: Companies using a formal Pull Back or Known Loss program (83%) re-
ported up to 16% lower shrink in their Meat departments, 18% lower shrink in Produce depart-
ments, and 7% lower shrink in Deli departments. As product is culled, it is important to record
those items that should no longer be sold at full retail value. Out of codes, damages, “tired”
looking product are all examples of product that is “pulled back” from the sales floor and should
be recorded for casual analysis.
• New Employee Shrink Awareness Training: Companies that have comprehensive new em-
ployee shrink awareness and training program (80%) reported 9% lower Perishable shrink.
Strategically Thinking;
Compartmentalize your
Prevention Practices
35%
of all store shrink in 2012/13 was attributed to Non-Perishable departments.
According to this years survey respondents, the average Grocery department
reported 1.10% shrink, or $71,010 in annual in profit loss. General Merchandise (GM) shrink aver-
age was 2nd highest non-perishable shrink at 2.71% shrink, or $41,011 in profit loss.
Overview
Grocery and Center Store (which includes all other Non-Perishable departments including Dairy, Frozen, Beer/Wine/
Liquor, HBA, GM and Pharmacy) sales averaged 62% of the total store sales and contributed 35% or $172,303 of total
store shrink. Unlike Perishable departments where the profitability of the product begins to decline from the moment you
receive it, non-Perishable departments experience uniquely different opportunities of profit loss from shrink.
• Frozen Food reported shrink of .80% and contributed $7,595 to annual shrink.
• Pharmacy department shrink averaged 2.20% contributed the third highest amount of Non-Perishable shrink with 5%
of Non-Perishable shrink or $25,062 of profit loss.
• Inventory management and the subsequent reporting accuracy for Pharmacies have improved in the past few years. In
the past, primarily because of the way Pharmacies count pills and track inventory (buy in bulk and repackage in smaller
quantities), Pharmacies created a situation known to produce positive shrink. In essence, there is a profit gain in Pharma-
cies that counteracts and effectively masks the effects of shrink in the Pharmacy.
0.0
0.2
0.4
0.6
0.8
1.0
• 35% of responding companies allowed retail inventory manipulation at the store level in five main categories. Methods
used to manipulate inventory values at store level ranged from “Forward Buying” (67% of respondents used this method)
to Deal Buying (21% used this method) and POS retail manipulations (33%).
• 21% of Grocery products were reported by participants to be delivered to supermarkets by direct-delivery vendors. The
• Effective use of automated receiving systems is reported to reduce Non-Perishable shrink by an average of 7%.
• 76% of all survey respondents said they had some form of technology or process that automatically verified prices from
the store POS to a master host file to assure price accuracy and when implemented properly at 85% + implementation
effectiveness, contribute to 18% lower shrink than companies not using this technology.
• 66% of companies reported taking physical inventory in Non-Perishables on a 12-week, quarterly basis.
Non-Perishable Shrink
and
Department Shrink Sales % Sales $ Shrink % Shrink $
Grocery
Grocery 34.0% $6,455,438 1.10% $71,010
Summary
Center Store / Grocery contributed 35% or $172,303 of total store shrink with Grocery department
contributing the largest share with $71,010. Accordingly, the average supermarket reported 1.10%
shrink in Grocery while the best in class supermarket reported .40%. This accounts for a potential
63% Grocery shrink reduction of $45,000 in bottom line annual profit for the average store, if properly
prioritized for recovery.
As in previous studies, survey respondents reported 5 vital control areas that, when controlled effectively,
enabled them to identify opportunities for shrink reduction and establish their own, unique shrink control
standards. They are:
2. Inventory Control
Additionally, top performing companies reported substantial improvements in Center Store / Grocery shrink
losses by following these Control Practices:
1. Assure proper and accurate measuring, recording and accounting for shrink.
2. Known Loss shrink must be accounted for and controlled in all departments.
3. Prohibit any means to manipulate shrink numbers and/or create “positive shrink” like Deal Buys, Forward
Buys, Breaking up larger packs of product to sell individually and POS to Host comparison report to pre-
vent retail price manipulation at the POS.
Analysts Recommendations
1. Preventing profit loss from unknown shrink in the Non-Perishable departments - specifically, Gro-
cery, Health, and Beauty Care, and general merchandise - requires continual and consistent discipline
but is vital to store profitability. The process of shrink control in these departments begins with disci-
2. Proper Receiving Disciplines. With an average of 7% of all shrink originating from the receiving area,
clear and effective control practices are very important.
3. Focusing on consistent discipline and efficiency in the receiving area positively impacts store-wide
shrink awareness. The three most important disciplines in this area are:
• Only use authorized and properly trained receivers to count and verify incoming product
against delivery invoices.
• Automated product receiving systems to ensure proper item and price administration.
4. Backroom Organization and Inventory Control. Effective organization and backroom discipline
creates a condition that breeds organization throughout a store. Companies that report using strict
backroom controls achieve better than average shrink control, cash flow management, labor productiv-
and
ity, sanitation and organizational discipline. Surveyed companies report that optimal shrink and orga-
nizational control is achieved when backroom stock levels are kept to no more than 8 - 10% of total
Grocery
Non-Perishable inventory and further produce to inventory turnover of approximately 15 turns per year.
Except as part of an organized forward buying program, surveyed companies reported that excessive
back stock negatively contributes to store shrink.
5. Known-Loss Control. Companies that consistently and accurately track, report and adjust ordering and
handling practices based on a formal Known Loss control program report 16% lower shrink than compa-
nies that do not. Defined Known Loss control processing areas, vendor credit areas, discontinued item
and reduced price processing areas all create conditions that contribute to lower levels of shrink loss. All
product processed as known loss for credit against retail (book) inventory must be recorded, the cause
of loss identified, and high dollar losses investigated by management to prevent future loss.
6. Pricing Accuracy. There are three areas of concern when managing pricing accuracy in nonperishable de-
partments: price change procedures, price and item scan-file management, and direct vendor price auditing.
7. Accurately accounting for shrink. Line item recognition of Shrink should appear on all Operational Fi-
nancial reports and P&L statements. Additionally, accurate inventory accounting measures must identify
all shrink to its most accurate levels and all practices that allow for any type of retail manipulation includ-
ing Forward Buys, Deal Buys and POS Retail Manipulation should be eliminated.
R eceiving errors, theft, misdeeds and inefficiencies accounted for 6% of the total store
shrink in the average respondent supermarket for a loss of $35,884 annually. Of this
amount, 57% of all backdoor receiving shrink was attributed to receiving “errors” and 43% was
attributed to vendor and/or receiver “dishonesty.”
Overview
Backdoor receiving is a cornerstone business func- of product needs, secondary suppliers and Direct Store
tion that must include consistent and disciplined Delivery (DSD) vendor companies that supply direct de-
shrink loss control and store operations practices. livered products. Each of these suppliers cause their own
Every supermarket has supplier groups delivering unique shrink loss opportunities that must be addressed.
goods that must be received and these include: the
main or central wholesaler that supplies the majority
2 times, 21% reported having 2-6 errors per month, • Receiving related shrink was down slightly to 6% of
15% reported having 7-12 errors per month and 21% total store shrink from 10%.
reported having more than 12 errors per month. • Dollar loss per incident was up significantly from
• 55% of respondent companies reported that they $585 to $760.
have low levels of confidence in their implementation
consistency of written backdoor receiving practices.
• When receivers are trained on proper backdoor
receiving policies and procedures at least annually
and audited regularly and effectively at least quarterly,
Receiving Shrink
22% less receiving shrink was reported .
Summary
Top performing companies report consistent, annual investment in the training and retraining of backdoor vendor
receiving personnel coupled with an internal audit program that identifies breakdowns in the operational processes
of the receiving function.
With SBT, the vendor/supplier maintains ownership of inventory until, and only if, items are scanned at the point of sale,
thereby eliminating delivery or receiving related theft.
While this method may not require retailers to check in deliveries as they would in the past, standard practices for the SBT
item receiving function, although different, should still be followed to minimize opportunities of other receiving area related
theft, fraud and other misdeeds associated with the vendor and/or the receiver.
Analyst Recommendations
There were five backdoor receiving loss prevention methods and technologies that had the most measurable
effect on reducing store shrink in 2013. Companies with these programs reported 36% less receiving shrink,
fewer incidents of vendor errors and vendor dishonesty. These loss prevention methods were:
• Top performing companies have formal, written Receiving Practices coupled with an internal audit
function to assure compliance.
• Top performing companies have strict inventory control limits on vendor backstock.
• Top performing companies periodically use replacement Receivers for 1-2 weeks at a time to discover
and/or disrupt shrink causing activity or practices.
It is notable that these loss prevention methods to minimize receiving shrink (Formal Receiving Practices
Training, Written Inventory Control Program and Formal Loss Prevention program) are based on operational
controls and not technology. Companies using these disciplines, along with the technology of an automated
DSD system, reported up to 36% less receiving shrink.
Overview
Self-checkout permits customers to scan their own theft, to enforce payment and to enforce age verification of
items, requiring them to manually identify items such age restricted items such as alcohol and tobacco.
as fruits and vegetables, and then place the items into
a bagging area where the items are typically weighed. The intended benefit to the customer is reduced checkout
The weight of the item placed in the bagging area is time. The intended benefit to the retailer is reduced labor
checked against previously stored information to en- cost expense associated with staffing requirements. The
sure that the correct item is registered and then bagged. cost saving benefit is particularly worthwhile where the
price of labor is high.
Common practice and indeed best practice dictates
an attendant be present watching over several self-
checkout machines, to provide assistance, prevent
15% 14%
their non-SCO lane productivity increased while
12%
38% reported that productivity remained the same.
Only 6% of the respondents felt that productivity had
Refunds/Voids
10% 9%
Save Feature &
Order Deleting
5%
• 43% of respondents stated that total store shrink
had increased since installing self-checkout while
Till
Summary
Self-Checkout emerged as an in-store technology with 3 primary value propositions: (1) Customer
Service choice, (2) Labor Savings, and (3) Shrink Control. To date, there is no evidence that
Self-Checkout offers retailers any shrink control advantage and 43% of survey respondents
said their shrink went up following install of Self-Checkout. In fact, at the time of this publishing,
some companies are re-evaluating the value proposition of Self-Checkout as a customer service
enhancing or labor savings technology.
Analyst Recommendations
According to responding companies, self-checkout shrink can be reduced through a variety of methods,
including employee training, Self-Checkout best practices and effective policies.
1. Formal Self-Checkout Attendant Training: 64% of survey responding companies stated that they
have a formal Self-Checkout Attendant training program that “certifies” cashiers who have been prop-
erly trained on Self-Checkout systems, processes and Customer Service practices.
2. Maintain Self-Checkout Attendant coverage: The number one reported method to prevent Self-
Checkout theft and losses was simply to make sure the Self-Checkout Attendant is on duty and not
pulled away from their Self-Checkout responsibilities. Further study revealed that 83% of Self-Checkout
related losses could be prevented by having a dedicated Self-Checkout Attendant that is free from all
other responsibilities. Self-Checkout Attendant must be visible, present and actively assisting custom-
ers with Self-Checkout use and pro-actively encouraging other customers to use the Self-Checkout
lanes and to keep the Self-Checkout area neat, clean and organized.
3. CPMS and Data Mining: 72% of respondent companies reported that they do not use data mining to
analyze Self-Checkout activity to determine when shrink causing activity is occurring. The 28% of com-
panies that do employ data mining analytics to assess how and when Self-Checkout shrink is caused
reported 55% less Self-Checkout shrink than companies not utilizing data mining at Self-Checkout.
4. Assign unique Self-Checkout Attendant Sign-on numbers: 31% of survey respondant companies
stated they assign different Self-Checkout Attendant sign-on numbers through the day (usually by shift)
in an effort to help isolate what Self-Checkout Attendant was working when a potential losses occur.
This practices appears to help reduce Self-Checkout losses by up to 14%.
Strategically Thinking;
Inventory management and
control best practices are at
the heart of shrink control.
50%
of all survey participants report that they do not plan to increase or decrease
loss prevention technology budgets in the coming 2 years. 37% plan modest
increases and 13% project deceasing technology budgets in the coming 2 years.
This signals a retrenching of thinking and capital expenditures for loss prevention related
technology in so far as 63% plan to stay the same or decrease spending.
Overview
Loss Prevention technology has for the past 10 years tions rather than hardware based solutions ap-
been a cornerstone to company initiatives targeting pear most interesting to participating retailers.
shrink control. During this period, core technologies
have seen expanded implementation and focus. Automation & Technology in the retail environment
Today; DVR/CCTV, Automated Backdoor Receiving is increasingly essential to retailers’ efforts to reduce
Systems, POS Data Mining Analytics and EAS ap- costs and improve productivity. As scanners, Self-
pear to be materially installed in a majority of the Checkout, cameras, and automated receiving be-
companies seeking such technology. come ubiquitous, the competitive advantages and
cost savings from these devices become progres-
There will always be new and exciting technologies to sively more dependent on their effective use and im-
peek retailer interests and updates to existing tech- plementation. In addition to simply purchasing and
nologies will continue. With 63% of participating re- installing automation devices, retailers must focus
tailers reporting no planned increases, or a decrease on how to apply these tools to get optimal benefit.
in spending and combined with reports that retailers
measure their current use of technology implemen-
tation effectiveness at just 54%, attentions appear Technology Implementation Effectiveness
to be turning to garnering added ROI from existing 100
technologies rather than adding to technology-based
shrink control arsenals. 80
87%
60
As stated, 63% of companies are assessing current
68%
levels of use and effectiveness of use trying to get 40
more yields from currently installed technologies.
43%
The 37% of retailers who project increased spend- 20
ing report probable spends in the areas of: Busi-
0
ness Intelligence analytics, tablet PC-based audit First 6 months 7-12 months 12+ months
tools, DVR analytics and advanced access control
alarm systems. Many of these tools have remote
use/monitoring capabilities. Clearly software solu-
Summary
In prior year’s surveys, participating retailers reported on which technologies have had the most
positive impact on reducing shrink. This year we find that 85% of participating companies all have
high levels of same technology installation (POS, DVR, DSD, EAS, Alarms, etc.) making it difficult to
compare and contrast the shrink reduction impact of having a given technology.
Retailers are focusing on “ease of use” and “non-labor intensive” technologies in the coming 24
months. Loss Prevention payroll budgets are decreasing and technology as an enabler of improved
shrink controls remains a focus, but it appears from survey respondents that clear and on going ROI
and profit-producing value will be in the forefront senior executive decision making processes.
Given all facts, companies should assess their current level of implementation effectiveness as it
concerns each automated loss prevention method. Based on that assessment, and combined with
the findings in this year’s survey concerning automation and technology, retailers should then look
at how to improve implementation of their existing technologies before buying new technology.
Finally, loss prevention technology must integrate with operational disciplines. Achieving complete
and thorough technological integration within the operating culture will provide most companies with
the single largest ROI impact for their shrink prevention efforts.
Analyst Recommendations
As we have seen throughout this survey, technology alone does not stop shrink; we must also look at how
companies are using automation (Implementation Effectiveness) to achieve improved profitability. As such,
we can see valuable benefits in organizations that combine technology with applicable industry best practices
to achieve synergistic shrink reduction.
Given all facts, companies should assess their current level of implementation effectiveness as it concerns
each automated loss prevention method. Based on that assessment, and combined with the findings in this
year’s survey concerning automation and technology, retailers should then look at how to improve imple-
mentation effectiveness of their existing automated loss prevention methods before buying new technology.
In 2012/2013 best in class supermarket companies reported 1.72% store shrink composed
of 51% shrink from Grocery / Center Store and 49% from Perishables. This 1.72% shrink
loss serves as the benchmark standard for best in class companies exercising complete exposure
of and accurate recording of storewide shrink.
Overview
There is wide variety between how companies account for
and report shrink loss. The industry has no clear standard
and therefore companies are left to their own best devices Causes of Operational Shrink
to account for and report shrink loss in manners that give
Scan Files Accounting
them the best chances of identification and prevention. 5% 3%
Receiving
6%
Combining available research from the 10 year period Damage Ordering
ending December 2012, there are three practices common 6% 22%
to all best in class performing companies.
Rotation Production
13% Planning
17%
First, best in class companies are diligent in a relentless Handling Cashier
& Storage Errors
effort to “exposure.” Best in class companies demonstrate 14% 14%
strict diligence in making certain that shrink in fully exposed
and accurately tracked. In doing so, these companies
practice the belief that if we expose it and track it and can
thereby see it, we can control it to its most cost effective
degree. Hence, best in class companies insist on practicing an intense focus on accurately recording shrink loss in all
of their accounting practices. Best performing companies refuse to allow practices that “mask” shrink loss.
Second, best performing companies work diligently to assure there is clear, cross-functional and shared accountability
to achieve optimal profit by preempting operational shrink loss causes.
Finally, best in class companies assume the responsibility that the presence of accurate accounting practices begins in the
Executive Suite with determined collaboration between the President, CFO and VP of Operations. It is here that optimal
profit rather than budgeted profit becomes the mandate. From this mandate to expose all shrink, the executive team can
then understand, measure and then adjust corporate and store practices that ultimately achieve optimal profit realization.
Example
Best In Class Difference between Avg. Average Profit
Average Shrink High Shrink
Shrink and Best In Class Shrink Gain Opportunity
Store 2.7 1.72 3.45 1.80% $324, 869.89
Grocery 1.1 0.40 2.50 0.70% $42.529.94
Meat 4.1 3.20 7.50 0.90% $18,796.72
Produce 4.8 4.0 8.20 0.80% $12,151.41
Measuring Shrink
their ability to take action to control it. “Unknown” shrink accounting then becomes dependent upon a different set of
financial accounting practices.
• Inventory management helps to control shrink and improve cash flow. Companies with multi-faceted cash flow
and inventory turnover guidelines consistently report 10% lower levels of store shrink. Productive cash flow and cash
conversion begins with financial accounting and corporate
goals for Total Company Profit Optimization.
• 38% of responding companies reported that they employ Daily Tracking of Known Loss by Department as a
best in class shrink control practice. These companies report up to 17% lower shrink loss.
• UNKNOWN SHRINK LOSS is anything that creates an inventory loss, the cause of which cannot be specifically
identified. Recognizing Unknown Loss can be delayed by weeks, months, or longer, depending on how often you take
physical inventory. Only the inventory reconciliation process can identify unknown shrink, but never its cause. (For
example, a shoplifter who steals a product without being detected creates unknown shrink, as could the failure to sell
fresh meat or produce for anything less than full retail. As these losses go unrecorded this creates unknown shrink. Any
shrink loss where there is no clear explanation or record as to why the physical inventory count does not match the
store’s book inventory is Unknown Loss.
• 72% OF Best in class companies list shrink loss, by department on monthly P/L statements.
Analyst Recommendations
1. It starts at the top: Optimal shrink control and hence profit realization begins
with the goals and expectations of senior executives who are personally engaged.
2. Accurate reporting: Proper shrink loss accounting practices both at corporate and
in-store are key determinants of driving companies to best in class shrink control.
5. Training and accountability: Best in class companies train and plan for best-in-
Measuring Shrink
class company shrink control and profit maximization. They also require cross-
functional collaboration & accountability and set high expectations based on their
unique circumstances and opportunities.
• Referring the Industry Averages for shrink by department is a good guide. But, these
averages do not fit all circumstances.
• Each company must determine its best in class profit and shrink control objectives based
it its own format, pricing, standards of practice, etc.
• Companies that report shrink by department more than 20% below industry averages
either have very unusual circumstances or are allowing positive shrink or shrink masking.
Overall, survey respondents reported 47% of all shrink (combining Operational and Theft
shrink) as controllable. This represents a gross $242,374 shrink reduction opportunity
for the average responding $18M supermarket.