How To Reduce Shrinkage: 5 Expert Tips for Grocery Stores

How much money is your store losing to shrinkage? The average grocery store loses about 2.7 percent of all retail sales to shrinkage each year. 

Let's face it — shrinkage is the retail world's equivalent of a leak in a boat. The reasons are diverse, from damaged goods to theft, but the result is the same: lost revenue and lower profit margins. The grocery store game is challenging, and with already notoriously low profit margins industry-wide, you need to keep every last dollar in your till. So, how can you reduce shrinkage for your store?

This post walks you through the basics of grocery store shrink. We’ll cover the main causes of retail shrinkage, then discuss five strategies you can use to reduce shrinkage in your store. 

How To Reduce Shrinkage: The Main Causes of Retail Shrinkage 

Before we explore how you can reduce shrinkage in your store, let’s rewind and ask ourselves a critical question: What are some of the leading causes of retail shrinkage in grocery stores? 

Retail shrinkage refers to inventory losses stemming from theft, damage, spoilage, or administrative errors. These losses hit your bottom line and your profits, so identifying and stopping the main shrinkage causes is crucial for grocery stores.

Related Read: 8 Inventory KPIs Every Grocery Store Owner Should Track

Top sources of shrinkage include:

• Operational Errors: Accidents and errors like incorrect pricing or scans can lead to undercharging at the register. These losses are particularly tricky because, without careful auditing, they are invisible. 
• Shoplifting: Shoplifting is one of the most commonly considered types of shrinkage. Shoplifting occurs when customers steal merchandise from your store. Self-checkout terminals can increase your chances of falling prey to shoplifters, unless you put strict security measures in place. 
• Return Fraud: Return fraud occurs when customers intentionally return stolen goods for credit, exchange items purchased elsewhere, or otherwise take advantage of your store’s return policies. Strict return approval procedures are needed to mitigate these challenges. 
• Employee Theft: Internal theft from dishonest employees can also cause shrinkage. Employees may steal goods, provide unauthorized discounts, or commit other types of fraud. Tight POS controls and oversight are essential to avoid employee theft. 
• Organized Retail Crime: Organized retail theft involves coordinated large-scale theft for black market resale. Implementing strong security measures and technologies can help you thwart these efforts. 
• Spoilage: Finally, grocery stores carry a lot of perishable stock. As a result, spoilage is another primary concern for grocers related to shrinkage. You can use inventory management tools to help optimize your stock and minimize food waste in your store. 

Left unchecked, shrinkage drains revenue and kills your profit margins. You need to take solid action to prevent shrinkage if you want to keep your store in the black. With this in mind, let’s dive into our list of expert tips for how grocery stores can prevent and minimize shrinkage. 

1. Continuously Track Inventory

Our first expert tip for reducing shrinkage is to closely monitor your inventory levels. Rather than relying on sporadic annual or quarterly inventory counts, grocery stores should aim to track merchandise continuously with real-time inventory management tools. Regular cycle counts of a portion of inventory each week or month provide more visibility into your store’s operations, and help you quickly catch problem areas. Spot-check high-shrink areas like expensive products and perishable items frequently.

Reviewing inventory tracking procedures with staff can reveal gaps or lazy practices that allow loss. Look for ways to improve documentation like adding timestamps, photos, and exact locations. The more granular the data, the easier it is to identify discrepancies.

Advanced inventory management technology enables real-time monitoring of stock levels across locations. You may also want to explore an inventory management or point of sale (POS) tool that offers automated reordering or low-stock notifications based on par levels. These systems help minimize waste and prevent stockouts.  

2. Install Visible Security Measures 

Installing grocery store security measures isn’t as much an expert tip as it is an obvious suggestion. However, the “expert” part of this tip is in the word “visible.” Instead of installing unobtrusive sensors or hidden cameras, you should install security measures that are easily visible to customers and employees. 

Security cameras, especially with monitors visible to customers, make people think twice about trying to slip that product into their pocket or purse without paying. Strategically placed mirrors eliminate blind spots and help your staff keep an eye on customers while they’re in the store. If someone tries leaving without paying, anti-theft tags on high-value items trigger alarms.

You may also choose to place signs around your store to remind customers of surveillance and diligent prosecution of shoplifters. Keep back rooms, loading docks, and warehouse gates locked and fenced off from the public. The more visible your security measures, the less likely a customer will attempt to shoplift from your store. 

3. Implement a Logical Return Policy 

One of the most common causes of shrinkage is return fraud — which means that one of the best ways to guard against shrinkage is to implement and enforce a strict, logical return policy in your store. 

Create a clear policy and train your staff to enforce it consistently. Some common return policies require receipts and tags, 30-day return timeframes, and offering only store credit rather than cash for all returns. 

Train cashiers to carefully inspect returned items for tampering and deny any that appear used, damaged, or suspicious. Ensure employees ask for ID and manager approval for big-ticket refunds on any expensive or uncommon returns. Putting strict measures like these in place helps you filter out fraudulent returns and minimize shrinkage in this area. 

4. Develop Strong Hiring Processes 

Another common cause of inventory loss is internal or employee theft. As a result, our fourth expert tip for reducing shrinkage in your grocery store is developing strong hiring practices. You need more than warm bodies running your registers and stocking your shelves; you need dedicated, enthusiastic staff you can trust. 

Check references thoroughly and perform criminal background checks to screen for red flags during the hiring process. Ask pointed questions during interviews to gauge your applicants’ honesty and reliability. Upon hiring, you should also set clear expectations about security protocols and zero tolerance for theft. 

This diligent hiring process may take more time and effort upfront, but that effort will pay off in the long run in the form of capable, trustworthy employees.

5. Implement Advanced Inventory Tools 

Finally, if you want to minimize shrinkage and keep a tighter grip on your store’s operations, you need to implement advanced inventory management tools and processes. A modern point of sale and inventory management system gives you the stock visibility you need to minimize shrinkage in your store. 

Point of sale systems, like IT Retail, can help you track your inventory in real time, down to the SKU level, giving you immediate access to any discrepancies between system counts and on-hand inventory. 

Features specific to grocery stores help curb self-checkout loss and perishable spoilage. For example, self-checkout kiosk scales and security doors help mitigate self-checkout theft.

Tight controls on discounts and returns prevent "sweethearting," or losses due to employees offering unapproved discounts. Detailed reporting provides audit trails and helps you pinpoint sources of loss for prevention.

How To Reduce Shrinkage the Easy Way 

If you are wondering how to reduce shrinkage in your store, you need to create a culture of vigilance that stretches from inventory management to staff oversight. While security cameras and employee training can help your case, strong inventory and point of sale technology are critical for long-term protection. 

Enter: IT Retail.

IT Retail’s robust point of sale solution equips grocery store owners like you with built-in shrinkage reduction capabilities. Precise inventory tracking provides real-time visibility into your shelf stock, backstock, and stock being purchased. The best part? Any discrepancies can be flagged immediately, rather than monthly or quarterly.

While no system is entirely shrink-proof, having a POS designed to minimize loss empowers you to strengthen your loss-prevention efforts. IT Retail's grocery-focused solution combines deep inventory insights with security features, enabling a proactive and strategic approach to curb theft.

See for yourself how the right technology fosters a culture of accountability, while protecting your bottom line. Schedule a demo of IT Retail and see how you can simplify your shrinkage prevention efforts today.