Perish the Thought

Dave Wilkinson remembers how he calculated shrink in the old days.

“We didn’t,” says the president and CEO of Highland, Ind.-based grocery chain Strack & Van Til, which also operates stores under the names of Ultra Foods and Town & Country Markets.
When Wilkinson started with the full-service grocery in 1975, it had three stores and no systems in place to track associate error, theft, over-ordering or lost inventory due to spoilage. But as the grocery grew, inventory evolved to the point that shrinkage had to be accounted for.

Managers grouped all products together and estimated shrink, but they had no clue as to the specific shrink percentages for oranges, onions, bananas or other perishable items. “We had more of the scatter effect approach,” Wilkinson says.

Fast forward to 2009, when the economy was collapsing and increased competition posed a growing threat to Strack & Van Til. The grocery needed to squeeze a little more profit out of its oranges.

Wilkinson consulted with the Retail Control Group, whose founder Larry Miller created ShrinkTrax and the National Shrink Survey. Miller offered a pre-audit of a store. “We didn’t tell our managers they were coming,” Wilkinson says. “They showed us some things that opened our eyes.”

Starting with the fact that managers were overbuying. “They would carry the same item for four days into the following week, and the only thing it was doing was just aging,” Wilkinson says.

Miller says he’s never walked into a retail situation without opening eyes, as he did with Strack & Van Til. He believes all retail executives want to get more profit out of stores, but they don’t know where their shrink is coming from. “Is it caused by bad inventory control? Is it caused by shoplifting and theft?” he says. “They don’t know.”

And all stores are not the same, so improving shrink takes a precise approach. “One store may have great back door receiving … One store may have great backroom receiving discipline at the store, but the sheer blueprint organization of its backroom is leading to an inefficient, shrink-causing, profit-reducing condition,” Miller says. “We have to look at every store uniquely. That’s what our audit’s about. We determine where the problems are.”

The boring basics
The Retail Control Group conducted a detailed audit, watching store workers and managers every day, observing behaviors and habits. They checked shoplifting, employee theft controls and door locks.

“I call that the boring basics,” Miller says. “What we’re looking at is, what are all the profit-producing conditions in the store and how much money are they leaving on the table?”

Once a retailer buys in, the Retail Control Group develops a plan to cut shrink and improve profits. “This works in every retail segment, but the reason it’s so important in groceries or convenience stores is [because] the perishables are so prominent,” Miller says.

Strack & Van Til implemented the Retail Control Group’s Total Store Manager program in early 2010. The program was designed around six core store operating control practices, the development of comprehensive store standards and disciplined implementation coordinated by the Retail Control Group.

According to both companies, the Total Store Manager program helped reduce inventory by $1.8 million, produce department shrink by 27 percent and deli shrink by 18 percent. Meat gross margins increased 8 percent, and produce and deli gross margins each increased 2 percent.

Wilkinson says store managers and district managers embraced the program and were excited about training workshops. Stores are cleaner, cash flow impact is excellent, grosses are strong and store teams are focused and determined, he says.

One particular area that has improved is employee morale. “Everybody started working together better,” he says. “They’re spending time on the sales floor addressing customers’ needs and merchandising.”

The back room is also well organized now, and managers are not chained to a desk wondering when they need to order peaches. “We’ve certainly helped develop a better culture for shrink control,” Wilkinson says. “We just put a tremendous amount of emphasis on tracking and monitoring.”

Wilkinson says Strack & Van Til’s produce is much fresher now.

“When that consumer gets it into her home, it lasts longer,” he says. “We get the benefit of knowing that the customer is buying a fresher product. In the past, we heard, ‘Well, the product looked great in the store. As soon as I take it home it breaks down in a day or two,’ which can be pretty frustrating. So that has definitely improved.”

The program even helped with dry grocery, Wilkinson says.

“We do a lot of forward buys on deals to take advantage of the savings and keep things a longer time,” he says. “By controlling what managers bought, whether it’s three, 30 or 60 days, we are able to greatly reduce inventory and improve cash flow.”