What is shrink?
The proper definition in an easy concise explanation is this: The loss of product inventory. Shrink falls into two categories—operation management issues and theft. When shrink occurs in a supermarket, it differs from the retailers based on grocery items expiring.
What are the Basics?
Supermarket shrinkage is usually higher than all retailers. A spring 2013 study by the University of Florida showed a 2.5 percent supermarket shrinkage rate [Tweet that], which was more than double than the 1.1 percent rate for all retailers. The major issues with shrink is the lack of education and understanding to implement the necessary process to manage and control the losses that directly impact profit.
What are the Operational Factors?
According to the 2012 shrink study by The Retail Control Group, operational factors contributed to around 2/3 of all retail shrink. Poorly executed ordering, often resulting from improper pre-order inventory counts, was the leading operational cause at 22 percent of all operational shrinkage. Poor production planning accounted for 17 percent of operational shrink, while cashier errors caused another 14 percent. Inventory receiving and handling and damaged goods were other top factors included in shrink.
Products that have reached their expiration date or gone beyond agreed temperature parameters and are no longer safe to sell to consumers or staff is also considered shrink. Examples would include fresh meat and vegetables, fish, ready-made meals, frozen foods, dairy produce, bread, and flowers.
In a study done by The Association of Food, Beverage, and Consumer Products Companies, Food Marketing Institute, and Deloitte, it was found that for all unsaleable products across multiple areas of retail supermarkets, expired products made up 19% of all unsaleable grocery items and 17% for all retailers unsold items in 2008 [Tweet this].
What are the Theft Factors?
Shoplifting accounted for 36 percent of all theft-related shrinkage. Whether retail or supermarkets, shoplifting does occur, however, food products both hot and cold provide more difficulty to conceal than general merchandise. Cashiers account for 31 percent of theft and general employees another 25 percent. Vendor theft accounts for the remaining 8 percent of theft-related shrink.
Final Thoughts on Strategy
One of the ways to increase revenue and gross profit is to reduce shrink. Starting with paper shrink, correcting ordering and receiving processes while maintaining an integrity driven inventory count, can help minimize losses from inventory problems. Minimizing damaged products by handling products carefully will add to the reduction of losses. Implementing an asset protection or loss prevention program can help to minimize theft.
The best ways to minimize theft is through great customer service. Protect yourself by conducting thorough background checks when hiring employees. Lastly, train and compensate appropriately while maintain positive working conditions to reduce internal theft by your employees.