H-E-B SETS BROAD PLAN TO CUT LOSS FROM SHRINK

DENISE ZIMMERMAN

SAN ANTONIO -- H.E. Butt Grocery Co. here is seeking to slash shrink losses through a wide-ranging, 20-point initiative.

Chainwide rollout of cashier-monitoring software was completed last month and several other test programs under way are being evaluated.

In five Houston stores, for example, H-E-B is taking a "new twist" on electronic article surveillance technology; in a separate, two-store test, checkstand activity is filmed 24 hours a day and the customer receipt tape superimposed over the image on videotape for analysis.

Though several of the shrink-reduction measures focus on internal theft, the program also aims to trim losses due to shoplifting and store operational and productivity problems, said Don Johnsey, director of internal audit. Johnsey serves on two of 20 continuous improvement teams H-E-B established to improve operations and reduce shrink.

The cashier-monitoring software system calls attention to suspicious point-of-sale activity like a high frequency of voids or lower-than-average rings on meat. Only weeks after implementing the system, Johnsey said, three employees were dismissed for embezzlement practices.

"In one major case we uncovered so far, the losses that would have occurred had one checker's [behavior] gone undetected would have exceeded the cost of the system for 15 stores," he said.

The monitoring system, from Trax Software, Centerville,

Ohio, identified a particular cashier's high number of voids.

Johnsey projected a six- to eight-month return on investment for the system, based on the number of thefts that could be averted. One goal is to reduce by 50% shrink in health and beauty care and general merchandise.

"This is one of about 20 initiatives that we've begun in order to combat shrink," he added. "This is probably the most significant regarding theft issues, particularly internal theft.

"Interestingly enough," he added, "we found that there are a lot of productivity issues and operational issues" that were contributing to shrink.

For example, a high number of voids was attributed to two store departments' failure to remove expired products from the shelves. Customers who find a product with an out-of-date code are entitled to another product like it for free, per H-E-B's freshness guarantee policy.

"We found in one of our stores that customers were coming in just after midnight to find an item that just expired -- and wanting an item free," he said. Once the software identified the problem, the store was able to correct it.

The cashier-monitoring software is now installed chainwide.

On another front, H-E-B seeks to combat internal and customer theft through an innovative EAS system using technology that deactivates security tags as products are scanned.

"We are taking a new twist on electronic article surveillance," Johnsey said. "We didn't feel that the current systems are effective because they really only get at customer theft."

The EAS system installed in five H-E-B test stores is designed to thwart "sweethearting," when cashiers deliberately bypass the scanner.

"The system has a device in the bagwell that will sense any live tags, so if a checker fails to deactivate a tag, the sensor will detect that," he said. "It will set off a [silent] alarm that will page one of the managers to the front end, giving them a lane number."

"It's also a good training tool because the minute the checker fails to scan something, they'll know the very first time that, 'Hey, the system double-checks. I can't miss [scanning] anything.' "

The EAS system H-E-B is testing in five stores was provided by Checkpoint Systems, Thorofare, N.J. Checkpoint is also providing a surveillance system that integrates with the point-of-sale, he noted.

In two test stores, cameras are installed above each checklane, continuously filming activity, and the relevant transaction data is incorporated into the video image. Through exception monitoring, the system can hone in on unusual activity.

"If you wanted to look at every refund over $5 that occurred yesterday, you can run a program to do that and view the film of that transaction," Johnsey said.

Another key area H-E-B is targeting to reduce shrink is in the produce department. The chain is working to ensure better product identification because when cashiers are uncertain of an item price, they are more likely to err in favor of the shopper to avoid unpleasant confrontations.