Supermarket Shrink Rates Decline; Much Work Remains

Here's the good news: Shrink in supermarkets declined to a median of 1.52% of sales in 2006, from 1.69% in 2005 and 2% in 2004.

Those facts are among those in the recent edition of Food Marketing Institute's “Supermarket Security and Loss Prevention” study issued in final form several days ago. Preliminary findings were featured in a news article about shrink in SN's issue of Oct. 22.

For present purposes, let's take a closer look at some of the findings to see where progress in the battle against shrink is being won, and lost. The good news about the decline in shrink as a percentage of sales is impressive, but, at the same time, even the median 1.52% rate is roughly equal to the entire profitability of many supermarket operators. Clearly, there's more work to be done. (“Median” represents the midpoint result of a measure — half report findings above median, half below. The measure eliminates the overweighting of results with aberrational numbers that calculations of numerical “average” allow.)

To determine what needs to be done to further reduce shrink, let's see what caused the decline in shrink rates during the past three years. According to the study, which developed data on the reporting by 47 companies operating 8,893 stores, stringent preventative measures are increasingly being used. All companies responding reported extensive use of closed circuit television. Indeed, every company reported monitoring checkstands, front ends, receiving areas and the sales floor. More than 95% monitored cash offices, access points, back rooms, and health and beauty care areas. Only parking lots, at 85%, and pharmacy, at 77%, dropped below that level.

Other methods in widespread use include point-of-sale exception monitoring, locking certain products, loss-prevention training and employee hotlines. The last afford a means for employees to report problems they observe in stores. Hotlines don't spark huge employee involvement, yet issues related to loss prevention were the problem most commonly reported.

No doubt efforts such as training and hotlines are well expended since it's employee theft that presents the most serious of shrink problems. Companies attributed 39% of all shrink to that category. Other forms of theft, in descending order of detection, included shoplifting, organized retail crime, worthless checks and vendor theft. Smaller, but increasing, categories include gift-card fraud, credit-debit card fraud, counterfeit currency and robberies.

Returning to employee theft, companies detected an average incidence of 84 incidents per year. Obviously, this doesn't gauge the actual number of incidents since, presumably, most are not detected. Similarly, the dollar value of employee theft is difficult to measure since most incidents go undetected and recovery is often impossible even when it is detected. Survey respondents reported that the value of cash and merchandise recovered topped $567,000, on average, during 2006. That average, of course, is driven upward by large-company experience, so the larger the company the larger that number would be. Another way to look at it is that the median recovery rate was $362 per store. A chain of 1,000 stores, then, would have a recovery experience of $362,000 with a virtually unknown actual loss experience.