Shrinkage is a major problem for grocery stores. It eats into profits and makes thin margins thinner. But what if there was a way for grocers to reduce shrinkage and improve their bottom line?
Imagine you own a small local grocery store. You've been in business for years and built up a loyal customer base. But lately, your shrinkage rates are out of control. You're losing money every month, struggling to manage your inventory, and you don't know what to do.
You’ve tried to reduce shrinkage, but the problem keeps getting worse! You're starting to get desperate. You don't know how long you can keep your store open if you keep losing money.
You know that shrinkage is a fact of life. What you don’t know is that there are innovative ways to reduce shrinkage you may not have considered.
In this article, we’ll share five proven methods to reduce shrinkage in grocery stores. We'll show you how the right point of sale (POS) system can play an essential role in preventing shrinkage by enabling you to track your inventory in real time and identify potential problems before they happen.
We're confident these tactics will help you save money and improve your business. Let’s dive in!
Grocery Store Shrinkage: An Overview
First things first — what is shrinkage? Simply put, it’s the loss of inventory due to theft, damaged goods, or errors in stocking and recording items. When inventory goes missing, your store loses money.
It’s a major headache for grocery stores. It costs the industry billions of dollars each year. According to the 2022 National Retail Security Survey, retail shrink accounted for a whopping $94.5 billion in losses in 2021, up from $90.8 billion in 2020.
There’s also a growing concern about organized retail crime (ORC). It's not just a single shoplifter stealing a candy bar; this is more of a coordinated effort by groups of criminals. Considering the financial impact of shrinkage and the increasing threat of ORC, implementing loss prevention strategies is one of the best things you can do for your grocery store.
Investing in security methods like surveillance cameras, training employees to detect suspicious activity, and implementing inventory management systems to help reduce errors in stocking and recording items are just a few of the strategies we'll discuss in this article.
But first, what are the primary causes of shrinkage?
Primary Causes of Shrink In a Grocery Store
- Employee theft: Unfortunately, employee theft is common. Taking cash from the register, swiping inventory, and stealing gift cards are common issues, but also time — from taking longer breaks to “buddy punching” — it’s difficult to manage employee theft.
- Shoplifting: Individuals or groups who sneak items out of the store without paying.
- Administrative errors: Mistakes happen. But they can be costly. Errors in pricing, inventory counts, and mislabeled products can lead to shrinkage. These slip-ups can cause overstocking or understocking, resulting in store losses.
- Vendor fraud or error: Suppliers sometimes overcharge for products or deliver less than was agreed upon.
- Damage and spoilage: Damage to products in shipping or storage and the spoilage of perishable items can cause shrinkage.
- Unsellable product returns: Customers will return products, and if you want to provide excellent customer service, it’s best to let them (in line with your returns policies). Not every return will be in good condition and won’t be returned to the shelves.
We have our primary causes; let’s explore how you can reduce shrinkage!
1. Reduce Employee Theft
Employee theft is the most common cause of shrinkage, accounting for an estimated 44 percent of all losses. Tackling employee theft is one of the best ways to reduce shrinkage. And there are various methods to use.
Pre-employment screening: Run background checks as part of the interview process. This might include verifying employment history and checking references. You can even run a criminal background check if you see any flags.
Loss prevention programs: You should set clear policies about theft and let employees know the consequences. An essential part of this is maintaining open lines of communication for employees to report suspicious activities.
Cash management systems: All of your cash registers should have locked drawers. You’ll also want to set up a system for regular cash drops and monitor cash handling to keep everyone accountable.
Employee training: Educating employees on proper procedures can go a long way. Educate them on what to look out for, how to spot suspicious behavior, and how to follow the correct procedures. Include role-playing to engage employees — nobody wants to watch a grainy video from 1990.
Regular audits: Routine audits help keep track of inventory, cash, and other assets. You’ll better identify discrepancies, and if employees know you run regular audits, they’re less likely to steal.
Spot checks: Having a spot check policy keeps everyone on their toes. As long as you communicate that it’s part of your anti-theft procedure, you can conduct spot checks on employees, cash registers, and inventory.
Monitor activity: Technology is your friend! You can use surveillance cameras and software that tracks computer usage. But your point of sale system is also a big help.
It can integrate with other business tools, like surveillance cameras, accounting software, and employee time-tracking systems. Some POS systems even allow you to require employees to log in with unique identification codes or biometrics, like a fingerprint, to access the cash register.
2. Prevent Shoplifting
Shoplifting is another major cause of shrinkage, accounting for an estimated 30 percent of all losses. How can you prevent it?
The way you design your store plays a role. You want to minimize blind spots and ensure employees and security guards have a clear line of sight to as many areas as possible. It’s much easier to spot sneaky behavior. Security guards also monitor store activity, respond to incidents, and provide a sense of security for employees and customers.
Consider putting high-value items near the checkout area, and station your security hub near the front of the store. Together, these strategies make it harder for shoplifters to swipe high-value items and casually leave your store.
It's essential to keep an eye on self-checkout lanes too. Ensure customers don't "accidentally" forget to scan items in these areas by having employees nearby or using security cameras. You can also place security cameras near entrances, exits, and high-value item displays.
Other methods:
- Loss prevention tags trigger alarms if you don't remove them before leaving the store, making it harder for shoplifters to sneak away.
- Offering rewards for shoplifter tips will encourage employees and customers to report suspicious activity. In addition to helping catch shoplifters, it creates a sense of community responsibility.
3. Decrease Administrative Errors
Administrative errors, such as incorrect pricing and overstocking, also lead to shrinkage. From incorrect pricing to inventory miscounts — mistakes are avoidable.
The right inventory management software can make all the difference. A robust POS system can prevent shrinkage by automating specific tasks. For example, a barcode scanner connected to your POS can help ensure the correct price is charged for each item. Automated inventory management systems can:
- Track stock levels in real time
- Provide low stock notifications
- Create purchase offers
- Monitor expiration dates
And more!
Related: How Do Grocery Stores Manage Inventory? 4 Core Ways To Be Successful
An easy-to-use POS system plus effective employee training can make all the difference. When employees know the proper procedures — how to handle inventory, pricing, and other tasks — they’re less likely to make mistakes.
Finally, keep vendors in check! Hold them accountable for any errors or discrepancies in deliveries. Train your staff to carefully inspect deliveries, compare them against purchase orders, and address any issues directly with suppliers.
4. Cut Down on Food Spoilage
Food spoilage accounts for an estimated 20 percent of shrinkage losses. Cutting down on food spoilage involves putting systems in place.
- Storing food correctly: Follow each product type's recommended storage temperature and humidity levels. Separate perishables from non-perishables and keep storage areas clean.
- Proper handling: Train employees to handle products properly to minimize spoilage and damage. This includes reminders to wash their hands, wear gloves, and use the right tools.
- First in, first out (FIFO): Use or sell items in the order they were received. This helps ensure older products are used or bought before newer ones.
- Proactive discounts: Offer discounts on products that are nearing expiration. Customers love a discount, and you cut down on spoilage. You might also discount items to rock-bottom prices if they expire that day.
- Markdown strategies: Similar to proactive discounts, if you have perishable items you need to move quickly, you can introduce temporary price reductions, bundle offers, or special promotions.
Finally, monitor trends with your POS system. Your POS system collects a wealth of data on sales transactions, including which products are selling well, how quickly they sell, and at what times they're most popular.
Look for patterns and adjust your inventory accordingly. Often, certain types of produce spoil before they sell, so consider keeping less in stock, ordering less frequently, or finding a supplier with a shorter delivery time.
5. Improve Your Receiving Process
The products you receive should be in good condition and ready for customers. When products arrive, double-check the delivery against your purchase order. Are there any discrepancies? You can confirm you have the correct items and quantities and avoid future issues.
Don’t accept the delivery until you inspect the products for any damages. Ignoring this step might lead to you discovering damages later when it’s too late to take action. Also, take this opportunity to check expiration dates. Are they fresh and safe for consumption? The last thing you want is to be left with unsellable items.
Your POS system can help manage inventory, deliveries, and, in the broader sense, vendors. You can keep all of your vendor information in one place, including contact details, payment terms, and delivery schedules. You can also maintain an up-to-date catalog of the products they offer.
Some POS systems let you set up automated reordering. Set up reorder points and order quantities for each product and automatically generate purchase orders when stock levels reach a certain threshold. You'll always have the right amount of inventory.
You can also:
- Track deliveries to ensure they arrive on time and in the correct quantities. You can then identify any discrepancies between your purchase orders and actual deliveries.
- Monitor vendor performance, including metrics, such as on-time delivery rates, accuracy of orders, and responsiveness to issues.
- Analyze the costs associated with each vendor, such as shipping fees and price discounts. You can use this information to negotiate pricing and terms.
Shrink-Proof Your Grocery Store Today
You’ll never eliminate 100 percent of shrinkage. Still, implementing a comprehensive loss prevention program and using technology to monitor inventory can reduce shrinkage in your grocery store and improve your bottom line.
When you invest in a robust POS solution, you’re setting your store and employees up for success.
Markt POS offers a POS system that can help grocery stores reduce shrinkage. The system includes real-time inventory tracking, enhanced self-checkout security features, and employee management.
To learn more about how Markt POS can help you reduce shrinkage, schedule a demo today.
