CUTTING YOUR LOSSES

ROSEANNE HARPER

Managing shrink has always been a dilemma for fresh food managers.

The scenario is a familiar one. If managers display too much product, they risk losing money on the merchandise that doesn't sell. On the other hand, they can't build sales without having abundant displays.

How do fresh food retailers manage shrink? There's no one-size-fits-all solution, according to the retailers SN interviewed.

Improvements in the equipment that keep the prepared foods warm are making a difference at Food Town, a Middletown, N.J.-based chain. The retailer uses Alto Shaam's "halo heat" system, a series of strategically placed metal rods wrapped around the inside of the warming equipment.

"They keep on improving it," said Elton Reid, fresh foods director for the chain of 10 stores. "It keeps products looking good and keeps them from drying out."

Reid said he does not believe in "pumping water into products to keep them juicy," so he appreciates any enhancements to food-service equipment that enable a product to retain moisture for a longer time. The advent of combi ovens, too, has helped with that, he said.

"And now UV lighting in showcases has been brought down to a lower level so it doesn't continue to cook the food, dry it out, and turn it strange colors," he said.

Yet with all the advances, Reid said training employees to take advantage of the systems is a top priority. Only if they're paying attention all along the way will the bottom line be where it should be.

Employees seem to prefer producing all the food at the same time, he said.

"The trays are full and they feel they're done with their task," he said. "That's not good. Some new equipment can fry up 24-48 pieces of chicken in 15 or 20 minutes, so associates should be watching what's selling and frying small batches often."

Reid said overproduction sometimes happens no matter how careful managers plan, yet he stressed that what counts is how the surplus is handled by the people in the department.

"That takes some creative thinking," Reid said. "You could have a fire sale. That's the obvious, but better yet, you could demo it out. When customers taste something, they're apt to come over and buy more of it."

Keeping shrink in perspective is important, noted a veteran meat and seafood director.

"I think the biggest shrink-related problem is overcontrolling it," said Alan Warren, meat/seafood director, at Ukrop's Super Markets, Richmond, Va. "Our shrink is at a low now and we don't want it to go any lower. If it does, it means we're missing sales. The whole idea is to optimize sales and still make an acceptable gross profit."

About 95% of the meats sold at the 28-unit chain are case-ready, and that's how it's been for nearly a decade. But in the beginning, the switch to case-ready resulted in a sharp rise in shrink, Warren said.

"Managers were used to ordering primals and sub-primals, maybe 30 or 40 items. Then all of a sudden, they're ordering SKUs, a few hundred of them. But we put controls in place" that brought the situation under control.

Even with enhancements in technology and improved category management, ordering is hardly an exact science for any fresh food retailer. The weather, human error, consumer whimsy, a competitor's sale are among the variables that can lead to an oversupply of product. In fresh foods, there's only a small window to correct the situation, so it's crucial to identify the problem and act quickly, SN's sources said.

"Everybody has these things happen sometimes, but what's done about it depends entirely on the department manager and his staff," said Nick Balistreri, co-owner of Sendik's Food Markets, a four-unit independent based in Whitefish Bay, Wis.

"They have to be watchful," Balistreri said. "It's important to realize there is a problem, admit it, and then do something before it's too late, before the product has to go into the garbage."

At Sendik's, a popular solution is to convert the product into a higher-value item.

"Here's an example: For whatever reason, we were very long on cod one day," Balistreri said. "Someone remembered quickly that panko-breaded tilapia has been a big seller for us, and that the same customers who buy tilapia buy cod. So we panko-breaded the cod fillets, kept the same price, and sold it all.

"We work together here, department to department, for store sales. If the produce manager spots some potatoes with blemishes, he'll give them to the deli department for potato salad or homemade potato chips. The margin's a whole lot better there than on a bag of potatoes for 49 cents a pound."

At three-unit, upscale McCaffrey's, Langhorne, Pa., produce buyer/merchandiser Tony Mirack said he concentrates on maximizing sales volume and is prepared for the shrink that comes with it.

"I'd rather sell twice as much product and have another point of shrink," Mirack said. "We're always chasing sales and when you do that, you have to be willing to absorb a little extra shrink."

When he gets a good deal on a high-quality produce item, Mirack buys a lot of it, but immediately spotlights it in some way, perhaps by rolling a table up to the head of the aisle and creating a dramatic display of product.

The same holds true for a new or one-of-a-kind product with no sales history in the store, said Warren of Ukrop's.

"You have to take risks if you're going to be a little different. We make sure we give a unique product enough space so it doesn't get lost in the case. The shrink connected with that, we call good shrink," he said.

The product itself has to make a strong statement, Mirack agreed.

"It's all about movement, fast movement, and aim to accomplish that by wowing the customer," he said.

While Mirack emphasized that constantly eyeballing products and how they're displayed is the coup de force that keeps profits and sales up, he also gave credit to advances in technology.

"The computer helps us quickly ID the items that are causing shrink," he said. "If I see I'm selling five cases of asparagus a day and I walk out into the department and see 20 cases on display, I know there's something wrong."

He and Ukrop's Warren talked about some of the things that have helped extend shelf life of vulnerable products.

"There've been good upgrades in equipment," Mirack said. "There's a rack system that gives a great presentation without your having to put a whole lot of the product out there."

Warren, who pointed to modified atmosphere packaging as a boon to shelf life, also described some less obvious life-extending features.

"We get vitamin-E-fed beef," he said. "Not only does that add color to the meat, but it actually increases shelf life by a day."

Balistreri said he appreciates being able to monitor the temperature, on a graph with a range of temperatures, of every cooler in every department of each store from his office at Sendik's main store.

"Especially for seafood, temperature is the No. 1 concern. We try to keep everything at 33 degrees. Close to freezing without freezing it."

Balistreri also requires department managers to check their email a number of times a day. By staying in touch, managers can help each other if one is long or short on product, he said.

While meat and seafood may be the most vulnerable to temperature changes, the in-store bakery's artisan breads have probably the shortest shelf life of any fresh product.

"The bakery's shrink is really harder to control because of production," said consultant Carl Richardson, CR & Associates, Rochester, Mich. "It depends on the product, but the short shelf life of some can make the loss great. Artisan bread and store-fried doughnuts have a one-day life, for instance."

No matter how well you plan, Richardson said, radical weather changes, for one thing, can affect sales and when there's only that one day to move the product, the damage to the bottom line can be severe.

"There are a lot of people selling computer programs to control shrink, but it also requires good employees monitoring the products, very closely, after they put them out," said Richardson, a former bakery executive at Farmer Jack, Detroit, and Price Chopper, Schenectady, N.Y.

"You have to watch a loaf of bread. It's not like a head of lettuce," he said, noting it's not so obvious when bread is losing its freshness.

The bakery can draw customers and enhance a retailer's image, so bakery managers must be diligent about rotating products and creating attractive displays, Richardson said.

Production planning is an important part of managing shrink. To that end, fresh item management programs and the data they generate can be helpful, but the value of customer feedback should not be underestimated, Reid said.

"We spend hundreds of dollars on software and more on market research, but I think talking to customers is one of the best ways, in this business anyway, to control shrink," Reid said. "You want to know what customers at a particular store like, what they'll buy? What they want to see in the case tomorrow? Ask them."

Trained to Sell

Training is overlooked as a tool for reducing shrink, according to an expert on loss prevention.

"Smart ordering is a necessity, and that comes with consistent training, but once you've got the product, you have to sell it, and that takes more training," said Larry Miller, retail operations and loss prevention consultant, supermarket veteran, and founder and president of Trax Retail Solutions, Scottsdale, Ariz.

"Managers, staff need to be trained to sell to make money," Miller said.

During associate training, the need to move product quickly should be stressed, he said. Indeed, Miller suggested associates up and down the line should be made aware that some fresh foods literally shrink in value as they sit around losing moisture.

"A steak rewrapped and put out today won't weigh as much as it did yesterday," he said.

Ideally, associates should receive four to six hours of training and re-training for fresh food management twice a year, Miller said.

"Then, they need to pass the information down the line," he said. "It may mean changing the culture, but it can be done. Tell associates to smile, to talk to customers. Safeway has made changes like that in the last two years. You can see it."

When it comes to controlling shrink, some industry experts advise retailers to emphasize self-service departments. Miller disagrees.

"Connecting with customers is huge," he said. "I don't think more self-service is the answer. In fact, the service departments are the heartbeat of the store."

ROSEANNE HARPER