LOCKING ON TO SOURCE TAGGING

ADAM BLAIR

Retailers certainly like the concept of source tagging products as part of their loss-prevention efforts -- yet its actual use in the supermarket industry remains low. Source tagging's benefits are easy to identify. It allows retailers to cut the labor costs generated by having their own associates place electronic article surveillance-readable tags on products.

In addition, tags placed on products during the manufacturing/ packaging process are less conspicuous and more difficult for would-be shoplifters to remove. Source tagging also makes fractional tagging easier, in which only a percentage of products contain "live" tags but the system still provides a high level of loss prevention.

Source tagging's potential applications also go beyond retail-level loss prevention. Tags equipped with "smart chips" could carry information detailing exactly what they are and where they have been throughout the entire supply chain.

Despite these positive views, source tagging has not yet gained widespread acceptance in supermarkets. Some large chains carry source-tagged products in high-theft categories such as health and beauty aids, film, batteries and cosmetics.

However, most manufacturers have so far been unwilling to invest in large-scale source-tagging efforts. Costs of both the tagging systems and the tags themselves, currently ranging from 3 cents to 5 cents per tag, remain a stumbling block in generating widespread retailer acceptance.

Currently, most retailers employing EAS loss-prevention systems use their own personnel to tag products, applying tags either at the warehouse or in the store.

"We've used EAS for many a year, but we're not doing source tagging," said Nick Barilla, director of loss prevention at Giant Food, Landover, Md. "We're moving toward that goal, but currently the clerks in Giant stores do the tagging."

Barilla is a fan of EAS systems, noting that Giant has seen "a minimum 15% to 20% shrink reduction in stores where we have EAS. That's a nice figure and a good payback," said Barilla.

Barilla believes source tagging would make the chain's loss-prevention efforts even more efficient. "The big payback [from source tagging] is the labor cost savings. In addition, the tags themselves are more hidden on the package; therefore, it doesn't offer the would-be thief the opportunity to take the tag off the package. Plus, I believe it protects your merchandise better to tag at the source rather than at the store," said Barilla.

Food Lion, Salisbury, N.C., has also made a chainwide commitment to EAS systems, but continues to tag products itself rather than rely on source-tagged products, according to Tawn Nhan, Food Lion spokeswoman. "EAS systems, along with other loss-prevention measures such as closed-circuit television, have helped the chain reduce shrink," said Nhan.

"We're tagging all the stuff now in the store, and it just takes a tremendous amount of time to do this," said W.R. "Bill" MacAloney, president of Jax Markets, a five-unit retailer based in Anaheim, Calif. "A lot of times what happens is people get lazy, and unless we monitor it continuously, we find a lot of stuff just doesn't get tagged," he added.

MacAloney believes per-unit costs for receiving source-tagged products would be in the fractions-of-a-penny range, rather than adding pennies to the product's price. Within that range, "we'd be willing to pay whatever it takes to get product that's already source tagged," he said.

Labor costs can mount quickly if the retailer tags products itself, as Brown & Cole, Bellingham, Wash., a 25-store operation, discovered during a test of EAS systems approximately four years ago.

"We hired a person temporarily [to place the tags] while we went through this experiment," said Larry Mount, loss-prevention manager at Brown & Cole. "They were putting in 20 hours per week, and that was just covering the basic health and beauty aids, cigarettes and a few other items. There's a fair amount of expense."

If retailers like the concept so much, why is source tagging in the supermarket industry still relatively rare? The nature of the grocery business, with high volumes of relatively low-cost products, has kept the use of source tags as a loss-prevention device low, according to Don Vehlhaber, president and chief executive officer at LogisTech Associates, Atlanta, an industry consulting firm.

"Source tagging would provide loss-prevention benefits for supermarkets, but the two key 'drivers' that have spurred source tagging in other industries -- small lots of expensive items -- aren't present in the grocery industry," said Vehlhaber.

Another issue is the cost of the tags themselves, according to consultant Ken Fobes, president of ITStrategy, Ponte Vedra Beach, Fla.

"Source tags currently cost 3 cents to 5 cents per tag, although the costs are coming down," said Fobes. "If companies can get unit costs down to the four-tenths or three-tenths of a penny range," widespread source tagging would be more likely.

And even as retailers step up efforts to prevent products and profits walking out the door, some may wonder if source tagging provides enough bang for the buck.

"It's mostly a cost issue with retailers; they have to weigh where their losses are coming from," Fobes noted. "Retailers are tending to concentrate on internal theft vs. external theft, such as shoplifting. Source tagging and EAS don't address internal theft issues as effectively as they do external theft."

Indeed, 58% of respondents to the 1997 Security and Loss Prevention Issues Survey conducted by the Food Marketing Institute, Washington, listed "internal thefts" as their top security problem/concern. "External thefts" were listed by 48% of respondents.

In addition, retailers that have not committed to EAS systems chainwide are reluctant to seek out and spend more for source-tagged merchandise. "Only 20 of our stores, out of a total of 88, have EAS systems," said Chuck O'Bear, director of loss prevention at Raley's Supermarkets, West Sacramento, Calif. "We'd be paying an extra cost for [source-tagged] products that would only be effective in 25% of the chain."

"Source tagging would be a good deal if we had enough stores with EAS systems," said Bruce Rowsell, loss-prevention manager at Buttrey Food & Drug Stores Co., Great Falls, Mont. "But we have EAS in only four stores out of 43.

"We'd have to have more stores with EAS to justify stocking source-tagged merchandise in the warehouse," he added. "But we can't supply two different shelvings of the same item. Source tagging only makes sense if EAS is used chainwide."

Vehlhaber believes that, as with such technology as Universal Product Codes, "critical mass" is needed before the industry moves to adopt it.

"Somebody like a Wal-Mart, a Safeway or a Kroger needs to step up and say 'Source tagging is needed,' " said Vehlhaber. "When that happens, prices could go even lower; as with UPC codes, there is a high initial cost to source tagging."