Day Old: How to Shrink Inventory Shrinkage

Determining the right amount of product needed for maximum sales and minimum waste is a balancing act. Consumer whims, trends and seasonality can derail grocers’ efforts to plan ahead. 

First, managers have to accept that some shrink is inevitable. But what’s the right amount? “As a rough guideline, shrink should be more than the 2 to 3 percent that some stores try to achieve, but less than double digits,” says Ryan Toll, senior director of fresh food at Acosta Sales & Marketing in Detroit. “If you’re not shrinking, you just don’t have enough on the shelves.” 

The good news is that opportunities to reduce shrink exist at every step of a product’s journey—from ordering to checkout. 

1. Hack Tracking 

"Tracking is not, and never had been, the answer. That is the ‘monitoring’ distraction big data and analytics has caused. Retailers need to understand the human practices side of the equation and invest in training to create better understandings of how to preempt shrink and waste loss. There are business intelligence solutions that integrate expert analytics and best operational business practices. People plus technology is the solution,” says Larry Miller, president of  Smart Retail Solutions, a Scottsdale, Arizona, consultancy.

2. Revamp Inventorying 

“Take your on-hand inventory while actually looking at the cooler and freezer, not from your office or the break room,” says Mike Kienzlen, president of Retail Profit Solutions. “You may need to wear a coat, but this will improve order accuracy, which is a top contributor of shrink.”

3. Up the Department’s Ordering Smarts

Ordering too much can lead to waste. Not ordering enough can result in missed sales. Take into account production planning, stock on-hand, orders in progress and projected sales.

4. Code the Coolers

When storing pre-portioned cookie dough, thaw-and-sell cakes, par-baked breads and other inventoried items, store the freshest product in back and clearly date boxes so older products are rotated out first. Similarly, shelved breads, packaged cookies and cakes should be displayed on a first-in first-out basis. When stocking shelves, make sure labels on bread wrappers and cookie, muffin and cake boxes are uniform and that universal product codes are flat so checkout scanners can record data properly. 

5. Create Grand Displays

Large displays of a single item are attractive and send a message of freshness and quality. “Stores tend to worry about shrink by itself, and they cannot ‘save their way’ to profitability,” says Steve Anvik, a fresh food bakery consultant with 30 years of experience as a bakery category manager, most recently with Meijer stores. Here’s where to start: Experiment with a signature or high-volume item in each category. Anvik recommends preparing three to five times more than normal production. For example, if an in-store bakery makes 50 dozen chocolate chip cookies on a typical weekend, it should bake 250 dozen and build an appealing display tied to an event or season, such as back-to-school. If the bakery sells 200 dozen, its profit boost will more than offset the shrink of the unsold 50 packages. “It’s easy to fall into the habit of making the same amount every day,” he says. “This will help you gain confidence in a new approach.” 

6. Slice and Dice

If whole pies are slow to move, cut and package them into slices, which tend to sell more quickly. “We can recoup part of the cost of a $13.99 pie if we sell some slices at $2.99,” says Jennifer Clark-Dahm, director of coffee bars and bakery merchandising at Dorothy Lane Market in Dayton, Ohio. The store turns about-to-expire bread into croutons; unsold croissants are sliced and baked with butter, sugar and cinnamon, then repackaged as cinnamon crunchies—a customer favorite, says Clark-Dahm. If six or more of an item are almost out-of-date, Clark-Dahm reduces the price and sets out samples to get them to move. “We want to play offense, not defense, with our highly perishable items,” she says.

7. Launch LTOs 

While variety is important, too many items can clutter shelves or create waste. Instead of adding more stock-keeping units, take advantage of limited-time offers—think bread of the week, cake of the month or cookie of the season—to expand flavors and add interest. One catch: “You need to take time to properly develop something special and support it with a quality display,” Toll says. “The expectation is that you will execute that product well.” 

8. Team Up 

Communicate shrink reduction strategy and department procedures with the team. Coach staff to be proactive and recognize team members when goals are met. Clark-Dahm says waste message hits home when she frames losses in terms of dollars and cents. “I want our people to develop an awareness of the business and think of it as their own,” she says.