How To Minimize Grocery Shrinkage: 6 Action Items

Grocery shrinkage is a problem no one wants to talk about. Unfortunately, we have to. Retail shrinkage rates are on the rise — as are inflation and supplier costs — a perfect storm that eats into profit margins at independent grocers and supermarkets.

While shrinkage typically accounts for just 1-3% of lost sales, it soon adds up. Left unchecked, it will get worse.

If you’re not sure how to get a handle on shrinkage, you’re not alone — but you’re not helpless. In this article, we’ll cover:

• The impact of grocery shrinkage
• How to calculate shrinkage rate
• Six actions you can take to minimize shrinkage at your store

By following grocery store management best practices and using the right tools, your shrinkage worries can finally take a backseat to more important issues. 

How Big of a Problem Is Grocery Shrinkage? 

Shrink refers to any reason your inventory decreases other than sales. The most common causes of retail shrink are:

• Shoplifting and theft
• Administrative errors
• Employee theft
• Known shrinkage (e.g., voluntarily decreasing the value of products because of physical damage, spoilage, etc.) 

According to the National Retailers Federation (NRF), retail shrinkage is on the rise — up from 1.4% to 1.6% between 2021 and 2022. In 2024, retail shrink is expected to account for over $130 billion in losses. 

How To Calculate the Shrinkage Rate at Your Grocery Store

Find your business’ shrinkage rate by following these two steps.

Step 1: Calculate Shrinkage Value

First, you want to figure out how much you’ve lost. Do that by taking:

(The recorded value of the product in inventory) – (The actual value of products on your shelf)

In other words, does the inventory you should have match what you do have? You can do this in product value or total number of units.

Step 2: Calculate Shrinkage Rate

Once you know the value of your shrinkage problem, you can calculate the shrinkage rate at your store by using the following formula:

(Value of loss ÷ Total sales for the period) x 100 = % shrinkage

Many modern inventory management tools can calculate your store’s shrinkage rate automatically.

An “acceptable” shrink rate lies somewhere between 1-1.5%. That said, shrink can vary significantly by location or even department.

6 Action Items To Help Reduce Grocery Shrink

Experts don’t agree on the biggest cause of retail shrink in grocery stores. Theft is still a huge problem, but boiling shrink down to shoplifting and organized retail crime alone paints an incomplete picture. It’s important to attack grocery shrinkage from all angles. 

Here are six actions you can take to help reduce your shrink.

1. Leverage Inventory Management and Reports

It’s nearly impossible to get a handle on grocery shrinkage if you can’t see the problem clearly. When you rely on quarterly or semi-annual inventory counts, by the time you find a problem, it will be too late to do anything about it.

Instead, modern inventory management tools allow you to combat shrinkage by monitoring stock levels in real time while also reducing errors from manual inventory tracking.

Related Read: Grocery Store Inventory Management System: 5 Features [+ 5 Tips]

Implement barcode and mobile scanners to streamline your data entry and ensure items are entered into the system correctly. Barcode scanners help maintain detailed records of inventory as it moves through your store. Pair this with regular inventory audits to identify trends and recurring problems.

Shrinkage reports on your point of sale (POS) system can also give you an instant look at your inventory shrink and help identify patterns. Taking a data-driven approach to inventory management isn’t just good for reducing shrink, it can also help you maximize profits by:

• Preventing overstocking and understocking
• Streamlining vendor management and restocking
• Helping with demand forecasting
  
  

While adopting new technology can be intimidating, the benefits far outweigh the risk. Far from complicating your day-to-day, inventory management systems are easy for staff to learn and can save you time and money.

2. Implement Perishable Inventory Best Practices

For the average grocery store, food waste accounts for $40,000 in lost profits. Improperly managing perishable goods — whether it’s fruit and vegetables in your produce section, meat in the deli, or ready-to-eat meals — is a big source of shrink in grocery stores and supermarkets. 

Follow perishable food best practices, such as:

• Follow the first in, first out (FIFO) method: The first food items that arrive in your stock should be the first ones sold. This ensures that older inventory gets sold first to maintain optimal freshness.
• Track batch and expiry dates: Use your inventory management system to track the expiry dates of various items in one system so nothing falls through the cracks.
• Size displays correctly: Displaying huge stacks of produce might look nice but may not be ideal for your customers’ needs. It can also lead to large amounts of produce that are never sold. Keep the sizes of your food displays appropriate to customer demand.
• Monitor your temperatures: Perishable food must be kept at certain temperatures to maintain freshness. Check evaporators in your produce section along with seals on windows and refrigerators. 
• Donate your excess: If you can’t move inventory through sales or other means, then donate it! Donating food in good faith is legally protected from liability and is a great way to build goodwill in your community.

Perishable food is on a timer from when it arrives to when it’s sold. The more efficient you can make your stocking, inventory, and other processes, the better.

Related Read: Using a Meat Shop Inventory System To Minimize Waste: 4 Tips

3. Improve Your Self-Checkout and Labeling

Most of the time we think about theft, we think of a shoplifter covertly slipping something off the shelf into their pocket. In truth, a large amount of theft happens at self-checkout. 

To combat this, have an employee monitor self-checkout, both to watch for any suspicious activity, and to help customers having problems. After all, a frustrated customer may opt to just take an item if there’s a problem at checkout and no one is around to help them pay for it.

While it may sound farfetched, there can also be unintentional theft at self-checkout.

For example, a shopper goes to purchase an apple. They look up “apple” on the self-checkout terminal, weigh it, and pay for it. But, it was actually an organic apple and you’ve just lost money on the sale. Whether it was intentional or not, this will contribute to the shrink rate. 

There are a few ways to combat this.

Making customers manually look up items is tedious and error-prone. Instead, print custom labels using your POS system so customers can easily scan any item in the store, including different types of produce. Encourage them to scan items instead of looking them up by having a reminder pop-up appear after they hit the item lookup button.

4. Strategically Use Discounts and Promotions

Discounts and promotions are great for marketing, but they’re also an effective tool to reduce shrink. By tracking inventory on your POS system, you can see the inventory churn rate of different products and identify slow-moving items.

Related Read: Grocery Store Inventory 101: The What, Why, and How for Inventory Success

Help drive sales for slow-moving items by using discounts. Use bright signage, inviting store displays, and custom labels to make sale items stand out. This will help you move items before they expire or prevent them from taking up space in storage. 

Promotion planning should be a part of your regular inventory audits. If you discover products with a consistently low turnover rate, it may be time to change up your stock or plan a promotion to keep them moving.

Use your POS system to understand the profit margins on various items so you can offer discounts that appeal to customers without hurting your bottom line.

5. Rethink Your Store Layout

Rethinking your store layout is an effective way to drive revenue — it’s also a great way to reduce grocery shrinkage. 

First, it’s hard to keep an eye on customers or high-value items if you can’t see them. Install mirrors or camera monitors (more on that below) that are visible from checkout. Make sure high-value items are near checkout or somewhere where staff can keep an eye on them. 

There’s another way store layout contributes to shrink: confusion. If your layout is confusing and people can’t find what they need, then they’ll go somewhere else leaving those products to sit untouched. If they can’t find something in your produce sections or meat aisles, items will spoil.

Make sure you use clear and inviting signage so shoppers can find exactly what they’re looking for. 

While you can use your POS system to identify items that aren’t selling, you can also find this information the old-fashioned way. Have employees ask customers if they need help finding anything (ideally while they’re shopping, not at checkout where it’s too late). If there are certain items that come up again and again, it might be time to rethink where they’re placed.

6. Install Obvious Cameras and Anti-Theft Signs

Theft is on the rise in retail — but there’s plenty you can do to combat it. Many would-be shoplifters can be deterred by following grocery store security best practices and using the right signage and cameras. 

Install cameras near your checkout areas, aisles, and outside the store. Remember, the goal isn’t to hide cameras from customers but to make them obvious. In self-checkout or near high-value items you could even install monitors that show the camera feed so customers know they’re being recorded.

Use signage outside the store and near checkout to let shoppers know that anti-theft devices are in use. Simply having anti-theft signs may be enough to put off some shoplifters. Don’t forget to train your employees to look for signs of shoplifting and know when to call a manager or the police. 

Last, deter shoplifters with great customer service. Training employees to engage with customers creates a better shopping experience and lets shoplifters know that they’re being watched. 

Reduce Grocery Shrinkage and Increase Your Revenue With IT Retail

Some amount of shrinkage is inevitable. There are various tools to help minimize your risk and spot issues before they become worse.

IT Retail is a best-in-class solution that helps grocery stores and supermarkets streamline operations, maximize profits, and minimize shrink. We help small to mid-sized businesses reduce grocery store shrinkage with powerful features like:

• Real-time inventory tracking: Stay on top of stock levels and reduce discrepancies. 
• Custom inventory and shrinkage reports: Gain insights into your inventory trends and identify problem areas.
• Integrations with security solutions: Enhance store security with transaction monitoring and surveillance integrations.
• Employee access controls: Limit access to sensitive information and reduce internal fraud.
• Flexible discounts and promotions: Easily manage discounts to sell slow-moving inventory.
• Custom SKUs and product labels: Simplify inventory management, improve accuracy, and streamline checkout.

IT Retail also comes packed with features that improve the shopping experience, like a customizable interface, customer loyalty programs, contactless payment support, and more. 

Don’t let shrinkage eat into your profits! Schedule a demo today to learn how IT Retail helps you reduce shrinkage, improve efficiency, and elevate your grocery store operations to the next level.