The term shrink or shrinkage refers to loss of product inventory. In supermarkets, shrink generally falls into two categories -- operational issues and theft. Many of the factors that lead to shrinkage in supermarkets are distinct from other retailers based on the fact that grocery items often expire or perish.
Supermarket shrinkage is notoriously higher than the typical loss rates across all retail sectors. A spring 2013 study by the University of Florida showed a 2.5 percent supermarket shrinkage rate, which was more than double than the 1.1 percent rate for all retailers. Understanding the leading causes of shrink and developing proactive strategies to prevent it is a major challenge for a supermarket owner or manager.
According to the 2012 shrink study by The Retail Control Group, operational factors contributed to around two-thirds of all retail shrink. Bad ordering, often resulting from improper pre-order inventory counts, was the leading operational cause at 22 percent of all operational shrinkage. Poor production planning accounted for 17 percent of operational shrink, while cashier errors caused another 14 percent. Inventory receiving and handling and damaged goods were other top operational factors in shrink.
Shoplifting accounted for 36 percent of all theft-related shrinkage. While supermarkets do suffer from shoplifting, food products, especially those that are hot or cold, are often more difficult to conceal and steal than general merchandise. Cashiers account for 31 percent of theft and general employees another 25 percent. Vendor theft accounts for the remaining 8 percent of theft-related shrink.
Reducing shrink even by a fraction of a percent can greatly improve revenue and gross margin. Improved inventory counting, ordering and receiving processes can help minimize losses from inventory errors. Careful product handling by warehouse and in-store employees can minimize damage shrink. Additionally, retailers can lower shelf height and use more open floor designs to make it more difficult on shoplifters. Effective customer service can also impede shoplifting. Background checks and thorough interviews protect against hiring employees with a propensity to steal. Effective training, regular manager-employee interaction and fair compensation and work conditions all will help minimize employee theft.
