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Case Study: Grocers' battle against theft waged in-house

Video cameras, locks, electronic tags and POS software are common safeguards

By Lisa Duchene
December 01, 2006

An employee of a Southeast grocery chain used to pack fresh meat and seafood from the supermarket into a plastic tote and toss the whole thing in the dumpster. After work, he'd retrieve the merchandise and sell it to nearby restaurants.

When he was finally prosecuted, the stolen goods totaled well over $5,000, says Bill Alford, then the chain's loss prevention manager. Alford, now a Food Marketing Institute consultant and president of International Lighthouse Group in Charlotte, N.C., advises retailers on how to minimize loss from theft.

No one knows exactly how much seafood is lost to theft in the retail channel. But it could add up to hundreds of millions of dollars.

Grocers in 2005 lost an average of 1.69 percent of their company's overall sales to shoplifting, vendor theft, employee theft of money and merchandise and worthless checks or credit/debit card fraud, compared to 2 percent the prior year, according to an FMI report, "Supermarket Security and Loss Prevention 2006." The report focused on loss from theft or fraud and did not include data on loss due to spoilage. Retailers measure loss in one of two ways, either by measuring the retail value of lost merchandise or the supermarket's cost of lost merchandise. Overall, grocers reported that their theft-related losses, typically caught by inventory tracking, are the same as or lower than in 2004.

However, the grocery-loss-prevention managers surveyed for the report estimate loss from their meat and seafood departments at 3.7 percent of department sales. With annual retail seafood sales, totaling about $16 billion, indeed disappears, the annual loss tallies around $592 million.

Grocers are becoming increasingly sophisticated in theft prevention. About one-quarter now use some type of biometric system that scans and matches a shopper's fingerprint to the bank, driver's license and fingerprint information on file, providing more secure check-cashing and payment for groceries.

Seafood retailers use a variety of safeguards to combat theft: surveillance cameras, electronic tags on product packages, employee-tip hotlines, POS software and employee screening. Some lock their freezers and coolers or lock their most expensive seafood products like lobster tails and crab legs in cages inside the coolers.

Meat and seafood are susceptible to theft, says Alford, because of their relatively high value. Dry grocery items in 2005 had a shrink rate of 0.7 percent of department sales, the lowest rate among the grocery departments, while bakery departments had the highest rate at 8.3 percent of department sales. For the typical grocery store, the total value of stolen dry grocery items is far higher than stolen bakery items, but the percentage is lower because dry grocery sales are so much higher than bakery sales, often the store department with the lowest sales, says Alford. Meat and over-the-counter medicines are the most frequently stolen products, followed by health and beauty care items, baby formula and razor blades, according to the FMI report.

Theft of seafood products in the retail channel is a big problem, says Jim Wallace, VP of perishables procurement for C&S Wholesale Grocers in South Hatfield, Mass. "Shrimp and things like that disappear all the time. [Theft] is a significant problem."

Distributors like C&S have safeguards in place to prevent loss, but retailers and suppliers can never prevent it completely, says Wallace.

At retail, shoplifters and dishonest employees steal product. Shoplifters may grab a bag of frozen shrimp on impulse and sneak it into a pocketbook or down their pants (yes, it happens). Or, they may be part of an organized operation, shoplifting with specific customers in mind. The latter likely arrive at the store knowing exactly what they want - perhaps frozen salmon, mahimahi or shrimp. They stow it in a cooler in the car and take it to a bar or restaurant where they sell it for pennies on the dollar, says Alford.

Fresh product is somewhat protected from shoplifters because it's typically behind glass and must be requested.

"People are less likely to conceal and steal the product because they have to make a face-to-face contact," says Alford.

For fresh seafood, the greatest loss threat is dishonest employees who take product. Or, they may generate an incorrect, lower-cost price tag by under-weighing product or punching in the code for a lesser-value product, says Alford. They also may collude with a cashier to ring up an item of lesser value than the product they actually take.

That's why the most important measures retailers can take are to stay on top of their seafood sales figures, make sure cashiers are ringing accurately and compare front-end figures with department numbers to verify accuracy, Alford says. POS exception monitoring software is one tool that allows the store to analyze POS data in various ways to find patterns that may be due to theft. It can be used, for example, to flag all seafood purchases for $1 to $2. Since very little seafood costs $1 to $2, repeated transactions for those amounts are automatically suspicious, says Alford.

It's also wise to lock coolers and freezers, he adds.

At the Potash Bros. Supermart in Chicago, Seafood Buyer/Manager Donnell Yancey runs the seafood department solo. The store went through about five fish guys in two years, all of whom were caught stealing product, says Yancey. In some cases, video cameras caught employees eating product they didn't pay for.

In addition to the cameras, Potash Bros. affixes Metro Systems' square electronic tags to packaged products like shrimp. Unless the tags are deactivated when they pass through the checkout, an alarm will sound as they are carried out of the store.

But even with the cameras and tags, "you can't catch it all," says Yancey.

All 27 Haggen's and Tops stores in Washington and Oregon are equipped with surveillance cameras in back rooms, on the sales floor and at entrances and exits, says Russ Casteel, the chain's seafood merchandiser. There are virtually no private employee areas, he says.

When it comes to preventing theft, smaller stores may have a bit of an advantage over large chains. At Casey's Market in Western Springs, Ill., all employees must pass by the desk of store Manager Joe Lane in order to leave. In 17 years, he's caught only one employee stealing.

To prevent the company from being a victim of theft in the delivery link of the supply chain, a designated receiver at the store verifies the counts, packs and weights of shipments before signing for them.

Retailers must make sure they have procedures in place for direct-store deliveries, says Alford.

"When those controls are in place, the loss in the supply chain is very, very minimal."

SFlb Contributing Editor Lisa Duchene lives in Bellefonte, Pa.


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