Shrink refers to the existing value of inventory the store technically owns but that can\u2019t be sold. Find out the principal causes of shrink and tips to reduce it.<\/p>\n\n\n\n
Shrinkage in retail and especially in grocery stores is very common and comes in many forms; internal theft and fraud, markdowns or even human errors. Those who are in the grocery store industry can testify that shrink is one of the major causes of profit loss, which makes supermarkets some of the businesses with the lowest profit margins.<\/p>\n\n\n\n
Inventory shrinkage or shrink refers to the existing value of inventory the store technically owns but that can\u2019t be sold. Many grocery store managers end up dealing with hefty losses because they are either ordering the wrong amount of products, the wrong products or facing other issues such as theft. Thankfully, there are key ways grocery stores can reduce shrink.<\/p>\n\n\n\n
Shrink or inventory shrinkage<\/strong> in a grocery store is the difference between the profits that should have been made and those that were actually made. It involves the loss of product inventory for one reason or another.<\/p>\n\n\n\n Supermarket or grocery store shrinkage is much higher than the average loss rate in retail stores. In 2013, a study conducted by the University of Florida found that supermarkets experience 2.5 per cent shrinkage against only 1.1 per cent for all retailers. In reality, shrink in grocery stores generally falls into 2 categories: operational problems and theft. However, the fact that supermarkets deal with products that can often expire or perish also influences the shrinkage rate.<\/p>\n\n\n\n In the retail industry, each store one has its own issues and root causes. But generally speaking, grocery store managers tend to see shoplifting and theft as the biggest cause of shrink<\/strong> followed by food spoilage and inadequate store operations and procedures.<\/p>\n\n\n\n To combat this shrinkage problem and set up loss prevention strategies<\/strong>, managers require an in-depth insight into the actual causes of shrinkage. To get this information, they should schedule on-site visits and spend some time there to figure out how things work (gemba walk is a great way to do this).<\/p>\n\n\n\n Shrink in a grocery store can be caused by multiple operational factors including bad ordering, bad merchandising, displaying of products<\/strong> and more. In 2012, a study by The Retail Control Group showed that these factors can cause up to two thirds of all shrinkage.<\/p>\n\n\n\n Bad ordering which results from improper inventory count is the leading operational cause, followed by poor production and cashier errors. Also, products not being properly displayed cause them to expire before they are sold to potential buyers. Adding to that, products left in the back of shelves or receiving and handling damaged goods commonly contribute to shrinkage.<\/p>\n\n\n\n Theft factors such as shoplifting, return fraud and other dishonest behavior, account for more than 30 percent of grocery stores shrinkage<\/em>. The main theft factors are shoplifting, theft by employees and vendor theft. According to the National Retail Federation, employee theft accounts for more than 40% of shrink. This behavior often results from crime of opportunity and greed rather than need. That\u2019s why it\u2019s important to set up some control measures in order to prevent it and minimize its impact on the supermarket\u2019s profit.<\/p>\n\n\n\n In regard to shoplifting, it usually targets general merchandise rather than food products or perishables because they are much harder to conceal and steal. To prevent that, some measures must be taken such as installing electronic security systems and hiring security officers.<\/p>\n\n\n\n Paperwork inaccuracies can cause huge losses. In fact, differences between physical inventory and inventory numbers in your software<\/a> can cause up to 12 percent of all shrink<\/strong>. These discrepancies come from erroneous pricing or counting, misdirected shipments or loading dock mistakes.<\/p>\n\n\n\n Moreover, the system may have difficulties showing items in high local demand or bestsellers, which is an opportunity cost that can affect your sales and margins. You can combat these administrative errors by setting up a more sophisticated and efficient computer system that does a better job monitoring, updating and analyzing inventory.<\/p>\n\n\n\n One of the dishonest behaviors that causes shrink is vendor fraud. It occurs when a vendor claims that he has shipped the order when he\/she hasn\u2019t. In a lot of cases, the vendor is not responsible for the fraud but rather the employees in charge of taking the merchandise. To make sure that this doesn\u2019t occur, train your staff so that they know exactly how to manage deliveries and pay attention to the delivery dates so that you don\u2019t have too many shipments at once.<\/p>\n\n\n\n The products that get lost in shrinkage result in a loss of revenue. Every time a product gets expired or stolen, you lose the chance to make money. It impacts your revenues and increases your costs because you generate no profit for these items. As a result, the management team has to spend a lot of time and effort focusing on solving this issue rather than on value-added business development projects.<\/p>\n\n\n\n Shrink problems that come from employee theft can impact the internal trust and culture of a business. When drastic measures are put in place to prevent it such as bag and coat checkpoints, this creates a certain barrier between managers and employees which can negatively affect the overall environment in the workplace.<\/p>\n\n\n\n If shoplifting is what\u2019s causing your shrinkage, you may warn your employees of it but it could result in a sort of hostility towards customers. And more importantly, if you choose to implement extreme security measures, this could affect your customer service and dissuade clients from coming to your store.<\/p>\n\n\n\n Reducing shrink even just a little bit can greatly improve your profit and gross margin. By implementing strategies to combat it such as better inventory counting, improved ordering processes, better staff training\u2026 you can help minimize losses from inventory shrinkage.<\/p>\n\n\n\n Here are 6 ways to reduce shrink in a grocery store:<\/p>\n\n\n\n The word Gemba is a Japanese term that means “the real place”. It refers to the place in a work environment where value is added. When we say that we are going to the Gemba (Gemba Walk<\/a>) we indicate the action of going to observe processes and asking questions in order to implement a culture of continuous improvement. Many grocery stores and other businesses leverage technology such as a gemba walk app<\/a> to find areas of improvement and optimize inventory management.<\/p>\n\n\n\n
\n\n\n\nWhat are the main causes of shrink?<\/h2>\n\n\n\n
Operational factors<\/h3>\n\n\n\n
Theft factors \u2013 Shoplifting<\/h3>\n\n\n\n
Administrative errors<\/h3>\n\n\n\n
Vendor fraud<\/h3>\n\n\n\n
\n\n\n\nThe impact of shrinkage in a grocery store<\/h2>\n\n\n\n
Lost revenue and management distraction<\/h3>\n\n\n\n
Impact on organizational trust<\/h3>\n\n\n\n
Service impact<\/h3>\n\n\n\n
\n\n\n\nHow can shrinkage be reduced?<\/h2>\n\n\n\n
1. Do a gemba walk<\/h3>\n\n\n\n