Supermarket Perimeter - February 2020 - 70

OPERATIONS

CONTROLLING
SHRINK
by Andy Nelson

TO PROPERLY UNDERSTAND
SHRINK, its scope and how to
ﬁght it, the food industry ﬁrst has
to take a broader look at the term
itself, says Larry Miller, president
of Scottsdale, Arizona-based
Smart Retail Solutions.
"The word 'shrink' actually
clouds or distracts from the
true position," he says. "The
better question to ask is, 'What
is causing my gross margin not
to be realized?' When you put
'shrink' in its own unique bucket,
its operational causation is often
missed. It loses its magnitude."
Instead of helping its customers to just reduce shrink per se,
Miller says, his team at Smart
Retail Solutions focuses on the

positive, measured results of
proﬁt optimization by preventing shrink before it happens.
Retailers need to reduce the need
for reactive behaviors by using a
combination of smart analytics
and preventative behaviors.
"Our new mantra is 'proﬁt realization through shrink mitigation,'
which takes in the entire supply
chain," he says. "What causes a
retailer to miss its gross proﬁt
margin? That takes in all the factors. Maybe it's not handled well
and it's not a quality problem or a
traceability problem."
Whether it's a commissary,
a foodservice distributor or a
supermarket, the key to reducing shrink is inventory turns

optimization, Miller says. Focus
on the inventory you truly need:
you may not need 30,000 SKUs,
25 types of sandwiches. Focus
instead, he says, on the top
sellers, the items that are in high
demand and drive your business.
And be market-speciﬁc: focus
on what customers want in this
store. That will help you turn
merchandise as quickly as you
can, thus avoiding the potential
for shrink.
"Proﬁt realization is the topic,"
Miller says. "When you do that,
then the folks in loss prevention
or asset protection become operational partners with the business
leaders, the merchants, the operators. Loss prevention no longer
stands alone or on the side as an
old-line security department."

Commissaries and central
kitchens: potential
perils of centralization
When it comes to shrink, one issue that can make commissaries,
central kitchens and other off-site

facilities particularly vulnerable
to shrink is, ironically, one of the
very things that makes them efficient and useful in the ﬁrst place.
"My concern with commissaries is that it might centralize the
quality, but it can de-personalize
it also," he says. "It can mean that
people in the store are nothing
but stocking clerks. My concern
is that companies that don't
train their store teams to create
the business as an experiential
culture and therefore don't train
people to serve people. 'We put it
out, that's what we do. If people
buy it, they buy it.'"
Dawn Gammon, a Smart Retail
Solutions partner, adds that
one potential problem with the
commissary/retailer model is that
proﬁtability can be "all about the
commissary, not what's happening in the store."
"Store teams can become
immune to losses. You don't have
the same 'shrink sensibility' as if
you were producing the product
yourself," Gammon says. "You
don't have a personal connection
to it, or ownership. It's a condition to be considered every day
in every store."
That inherent problem can
be mitigated, however, if the
commissary or central kitchen
is owned by the retailer itself,
she adds.
"If the retailer actually owns
the commissary, then it's not
a third party," she says. "Then
they're both in the boat together
for the proﬁt goals of both the
commissary and the store."

Focus your merchandising on your top sellers. Having too many SKUs can hurt proﬁtability - and lead to
higher shrink rates.
70 - FEBRUARY 2020

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"The presence of stores like
Sprouts and Lucky's has made
other supermarket operators up
their game," Miller says.
But as a whole, from the standpoint of maximizing their gross
market margins, most companies

SMART RETAIL SOLUTIONS

Industry leaders
set the bar high

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Supermarket Perimeter - February 2020

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