Shrink happens — every retailer knows it, and most are aware that an estimated 35% of losses associated with shrink are attributed to employee fraud. However, most retailers are surprised by the losses that are attributed to human error rather than malice.
Grocery is perhaps the sector most plagued with erroneous shrink at checkout due, in part, to the sheer volume of SKUs running across the scanner, but it is often a function of misleading promotions or unclear directives.
Consider the story of Chief Supermarket, Inc., based in Defiance, Ohio, which began rolling out a loss prevention technology last year to identify sources of shrink and minimize losses. To date, eight of the company’s 12 stores are online with the system.
Chief Supermarkets is owned by Eric Hench, whose parents opened the first location in 1951, and is headed by president and chief executive Stephanie Skylar. (Unlike most second-generation family-owned businesses, Skylar is not related to the owners.)
Skylar is passionate about growing the company through store acquisitions and reinvesting in existing stores with new technologies and remodels. She has enthusiastically embraced the implementation of the point-of-sale auditing solution — Hawkeye, from Agilence, Camden, N.J.
According to Skylar, the technology has helped the company address a number of issues. But she said the biggest advantages have been a reduction in losses — although she felt it premature to quantify it — and the insights gained when the solution identified unexpected sources of shrink.
“We started this program with the intention of capturing leaking margin,” Skylar explained. “I had read about the prevalence of employee theft, but with the [system’s] implementation, we identified several incidents immediately — even in the initial stages of training. It was unfortunate, but it opened our eyes.”
“Shrink comes from many sources,” Skylar continued, “and this program helped us understand the extent of [our]shrink. Agilence also helped us address issues that we did not have experience with, like what to do when you catch someone stealing.”
Additionally, the system has become a valuable training tool that educates associates, which has enabled them to excel at their jobs and resulted in operational improvements. For instance, the company was able to avert ongoing losses after discovering that improper weighing and scanning of produce contributed to shrink.
“We found that items were not being weighed properly; they were removed from the scanning scale too fast, which resulted in an inaccurate price,” Skylar explained. “This was first spotted at the register lanes, but thorough research showed it also extended to the deli and meat departments.”
The Agilence solution provides item-level synchronization that pulls data directly from POS systems and marries the data with real-time video surveillance. Each individually scanned item and each key punch within a transaction are perfectly matched to the corresponding video image, making it very easy to identify fraudulent activities and hidden shrink resulting from operational or systemic issues.
The technology has been deployed by grocers of all sizes, from single-store locations to mid-sized companies to very large chains. West Sacramento, Calif.-based Raley’s, which has 143 stores in its home state and Nevada, reported it had reduced shrink by more than $18 million in a single year, with much of the reduction attributed to identifying operational and systemic issues and fraud with Agilence.
“We did not realize the extent of losses occurring that were not related to fraud and that were causing substantial shrink,” stated Michael Teel, president and chief executive of Raley’s. “Agilence helped us detect several operational issues that were occurring frequently.”
In one instance, flats of bottled water were randomly scanning at the $0.69 price of a single bottle rather than the actual $5.49 cost for the full case. The chain estimated that error alone could have resulted in an $80,000 loss annually.