9 Tips for Creating a Grocery Loss Prevention Strategy

Introduction

A comprehensive loss prevention strategy is critical to any grocery chain’s profitability.  Whether it’s fresh produce shrink, managing direct store delivery (DSD) vendors, or monitoring self-checkout, the opportunities for preventable loss pose some unique challenges in the food retail space.  

Although margins are already slim, grocers can find sustainable, long-term profitability by balancing a proactive and reactive approach to loss prevention – putting policies and processes in place to minimize opportunities for loss, while also investigating and addressing instances of loss when they do occur. 

Below are nine tips for implementing grocery loss prevention strategies. 

 

1. Minimize Perishable Food Waste

A large portion of every loss prevention strategy should be dedicated to minimizing inventory losses and protecting assets. 

Almost two-thirds of all grocery shrink is attributed to perishable and production departments, including deli/meat, bakery, seafood, dairy, and floral.  Grocery chains differentiate themselves with their commitment to high-quality, fresh food, but the shrink associated with these departments requires planning in order to minimize shrink and be profitable. 

Some ideas to include in a perishable shrink plan include: 

• Prioritize SKU (Stock Keeping Unit) expiration and rotation 
• Closely manage Inventory and Production Planning 
• Discount goods approaching expiry 
• Adjust layouts and shelf space 
• Train employees in proper food handling 
• Manage DSD vendors with back door receiving controls and audits 
  

2. Identify Instances of External Theft and Fraud

While spoilage is the leading source of shrink for grocers, theft and fraud are also concerns, and addressing them should be a part of any grocery loss prevention strategy. For grocers, ensuring convenient shopping experiences and access to merchandise on shelves has a direct impact on basket sizes and revenue. However, it also makes them more vulnerable to shoplifting and other forms of theft and fraud. A good loss prevention strategy will aim to balance customer experiences with theft controls. 

Grocers have many of the most stolen items in all retail, including the most stolen food in the world – cheese. Surprisingly, 4% of all cheese produced in any given year ends up stolen. Additional items commonly stolen from grocers include fresh meat, chocolate, alcohol, seafood, infant formula, laundry detergent, and personal care items (shaving, teeth whitening). A good working relationship between Operations, Loss Prevention, and Category Management will produce a balanced approach that maximizes sales while minimizing exposure. 

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3. Spot Internal Theft and Fraud Early

Unfortunately, there’s no denying that employee theft is a reality of all retail operations – including grocers.  Employee theft, also known as internal theft, occurs when employees steal from the organization where they’re employed.

A single dishonest associate can and often will cause more loss to the store over time than an external shoplifter. According to a 2020 Hayes International study, the average loss associated with dishonest employees was $1,219 per incident, nearly four times the value of a shoplifting incident ($310 per case).

Most employee theft occurs at the POS (Point of Sale) terminal or register and can be identified by analyzing deviations from Key Performance Indicators (KPIs) and statistical norms.  By using technology to easily identify these exceptions through data analytics and reporting, investigators can avoid having to sift through hours of transaction reports and video surveillance to spot internal theft.  

With advanced analytics, investigators can spot internal issues before they become major losses.  This allows the grocer to intervene early with coaching and counseling to stop the behavior before it escalates to a point where terminating the employee is required, reducing turnover.

Some of the most common indicators that employee theft may be occurring at the point of sale are listed here for convenience.

Common Indicators of Employee Theft

Issued & Redeemed Gift Cards

Monitor gift cards used in employee purchases, the number of gift cards issued at each location, and an overall gift card payment purchase summary.

Refunds, Exchanges, Discounts, and Price Adjustments

Set established KPIs for acceptable “normal” ranges per location for metrics like refund count, no match, credit cards with employee and non-employee activity, etc.

Price Overrides

Tracking unauthorized price overrides, users can uncover multiple different types of internal theft.

Coupons

Track transactions by employees to identify which employees have frequent coupon transactions in which no items are sold.

Line Voids and Cancels

Line voids and cancels can be the result of poor training, policy violations, or other operational issues in addition to internal theft.

Post Voids

Post Voids are usually used to correct a mistake like an incorrectly entered price and re-entered within the next transaction or two. Monitor when transactions are immediately re-entered after a post-void and when they are not, possibly indicating employee theft.

Low Dollar Transactions

Monitor transactions per employee to identify anyone with unusually high rates of low-dollar transactions that may indicate employee theft.

4. Adopt a Cross-Functional Mindset

Loss prevention teams cannot effectively reduce loss across the business if they’re the only team actively working to do so. Loss Prevention leaders are uniquely positioned between merchandising, store operations, supply chain, finance, marketing, HR, and other functions within the organization to provide data, knowledge, insight, and tools to teams throughout the business.  The entire business must adopt a loss prevention mindset into the fabric of the corporate culture to combat loss at every level of the organization. 

This requires Loss Prevention teams to collaborate with other business units to: 

• build awareness 
• extend their reach into loss beyond fraud and theft 
• and influence process and policy changes 

Each department must understand how shrink, fraud, margin erosion, and operational inefficiencies impact the success of their department and the business. This type of collaboration and knowledge sharing will improve efficiencies throughout the business and provide more cost-effective use of time, talents, services, and resources. Raising loss prevention and revenue protection awareness, engaging senior management and peers, and executing programs responsibly are all part of a sound loss prevention strategy.  

5. Establish Loss Prevention as the Go-To Source for Operational Insights

Research conducted by Agilence in partnership with the Loss Prevention Magazine found that 81% of loss prevention and/or asset protection professionals agree that their team is often or always the go-to resource for fast, accurate reports about operational issues. Providing operational insights of this nature requires the ability to measure activities across all touchpoints, including supply chain product movement, in-store activities, eCommerce, health and safety, and vendor management. 

Integrating multiple data feeds will give the loss prevention team a full view of the customer's journey and associated losses every step of the way. Sharing these insights with other stakeholders, especially peers in operations and finance roles, will go a long way in building confidence in the program, earning the team a seat at the table for decision-making and gaining buy-in for future collaborative efforts. 

 

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6. Balance Customer Experience and Loss Prevention

Retailers must balance customer experiences and loss prevention. For example, hiding inventory in locked glass cases is a great way to prevent theft, but terrible for the customer experience and can even negatively impact sales and lead to loss of customers. A strong loss prevention program is a result of coordination between Merchandising, Operations, and Loss Prevention. A result is a comprehensive approach that is minimally intrusive to the customer but provides strong inventory loss controls. 

As consumers become more accustomed to the immediacy of digital shopping, they have less and less patience with long-drawn-out checkout processes. More than ever, streamlining the checkout process is imperative for grocers, but this poses some serious concerns for loss prevention efforts. 

While self-checkout is convenient and can improve the speed of service, it is also a great place for thieves to take advantage of the lack of oversight to steal. With one in five shoppers admitting to stealing something from a self-checkout lane, it’s clear that this is an area of concern. Luckily, there are common self-checkout theft trends, scams, and schemes to be aware of. 

Likewise, controls at the point of sale can ensure that every sales reducing activity like a line void or price override is approved by a manager but will ultimately hurt the customer’s experience by slowing the speed of service. Leveraging advanced analytics to make informed decisions about manager control interventions as a compensating control can improve the speed of checkout while minimizing loss. 

7. Fine Tune Hiring, Training, and Awareness

Loss prevention programs succeed when the goal of preventing loss in all its many forms is woven into the fabric of the company culture. That begins with hiring the right people and training them well. Employees who are educated by the company on the value of loss prevention, know the controls in place to identify offenders, and understand their role in preventing loss are less likely to participate in fraud and more willing to do their part to help the business be successful.  

Make loss prevention a part of new employee orientation. Explain that the business cares about its employees and wants them to work in a safe environment. Introduce them to the tools used to identify exceptional behaviors or loss.  After orientation, make sure loss prevention stays at the front of employees’ minds. Send status reports to managers so they get regular feedback on how their department, store, or team is preventing loss. Communicate regularly, perhaps in a company-wide email praising top-performers, to remind everyone of the importance of loss prevention.  

Loss prevention must be enforced consistently for efforts to truly take hold. A well-documented policy and regular training and awareness efforts will ensure these efforts stay top of mind throughout the business. 

8. Measure Success Wholistically

Consider the real and perceived impact of organization focused on loss prevention that finds an enterprise-wide problem, quantifies the financial impact, develops a strategy to address, establishes a goal, and sets a timeline for meeting milestones and goals. Whether it be expenses, margin, sales, shrink, or other P&L categories at a high level, or more granularly, cash variances, promotion handling, price overrides, line voids, or refunds that contribute to specific P&L categories; this type of approach adds credibility to the team’s contributions.   

This approach will incorporate many of the traditional metrics to measure progress towards a goal, but the overall success metric will be the broad business impact. Shoplifting apprehensions or employee theft issues are important metrics but a small piece of the bigger picture of tangible loss prevention results measured in ROI (Return on Investment) and overall profit impact. Other metrics such as improvement in in-stock conditions, reduction in other expense lines, reductions in sales-reducing activities (SRAs), and improved customer satisfaction scores can be great components of measuring the success of a Loss Prevention program or overall strategy. 

9. Continue to Refine

As the grocery market evolves at an ever-accelerating rate the sources of profit erosion become more widely varied, loss prevention will continue to evolve its methods to detect and prevent loss. While it may seem a never-ending battle, loss prevention refines its expertise by exploring new methodologies that make it easier and quicker to find sources of loss and protect the bottom line. Provided loss prevention is part of the overall business strategy many of the potential gaps can be mitigated well in advance.  

Continue to remind everyone in the business of the goals of the loss prevention program. Be open and transparent about how the strategy is working, share the metrics, and advocate for the successes of the team. Refining the strategy should be an ongoing process over time. 

 

Find out more about loss prevention with Agilence.