Shrinkage is a problem that plagues businesses across many industries, from retail and logistics to food service and pharmaceuticals. US retailers lose more than $110 billion a year to losses.
Our 2024 retail and hospitality report listed stock loss (12%) as the second biggest pain point among business owners after employee turnover.
When we think of shrinkage, theft and shoplifting often come to mind first, and rightly so as they top most lists of major causes. However, businesses face another significant issue—perishable goods shrink.
A subset of shrinkage that’s often overlooked, perishable stock requires its own strategies to combat effectively. Failure to tailor your approach can result in profit loss, increased waste, and a detrimental impact on the environment.
For businesses dealing with perishable goods, reducing shrinkage isn't just about protecting the bottom line—it's also about providing customers with fresh, high-quality products while minimizing environmental impact.
In this blog, we'll explore five key strategies to help businesses reduce their own and improve operational efficiency.
If you’ve made it this far, then there’s a good chance you already know that shrink refers to the loss of inventory that isn’t due to sales.
We will be shining a light on perishable shrink which refers to the loss of perishable goods— such as food, beverages, and pharmaceuticals.
Now hold on a minute. You may think your industry doesn’t deal in perishable goods, but don’t be too hasty. Aside from the obvious (grocery retail/ grocery stores), here are a few surprising industries that do:
Hopefully, you now know if your business is susceptible to perishable shrink. Let's look at why reducing it is important.
It’s an obvious statement: the less waste you have, the more money you save. Throwing perishable goods away is no different from directly throwing money in the trash, and a 1% reduction in shrink can lead to financial benefits equivalent to a 4% increase in sales.
As society grows increasingly environmentally conscious, businesses must practice their consumers' values.
Discarding perishable goods wastes both the products and the resources involved in their production, transportation, and packaging. By reducing perishable shrink, businesses can minimize the environmentally harmful practices associated with these processes.
Minimizing perishable shrink ensures that businesses consistently provide customers with only the freshest, highest-quality products, resulting in greater customer satisfaction and a positive ripple effect: enhanced brand reputation, repeat business, and an improved customer experience.
Given that fresh produce is the second most popular grocery item people purchase, when consumers continuously experience it to be fresh - and by extension, higher quality - it will help build positive brand perception.
There are many causes of perishable shrink, and some will be unique to your industry and even your business.
We can’t cover every detail, so we'll focus on the primary causes of shrinkage in the produce department. While we’re not playing favorites, it's important to note that the estimated shrink and food loss from fresh produce in U.S. supermarkets amounts to around $15 billion annually - a figure significantly higher than any other retail subvertical (if the above wasn't enough to convince you on the importance of supermarket waste reduction!).
Let's get to it:
All produce comes with a natural shelf-life, but often this shelf-life is reduced due to improper storage conditions and poor handling practices.
Improper storage conditions, such as incorrect temperature and humidity levels, accelerate spoilage by promoting bacterial growth and mold - 2-5% of food waste in US supermarkets is due to improper refrigeration.
Poor inventory management is the main culprit for any kind of shrinkage. A failure to analyze and understand your inventory leads to over-ordering of products that fail to sell, leaving them to collect dust in the dark corners of the backroom until consumer trends offer them a second chance at life.
Perishable goods aren’t afforded this luxury. If they don’t sell by a certain date, they’re deemed as waste. There’s no room for error. That’s why it’s so important for businesses to optimize their inventory management and avoid financial loss.
Theft is a major cause of shrinkage across all industries. In retail, customer shoplifting (37%), and external theft (28.5%) are the two leading causes of shrinkage.
In some ways, perishable goods are more susceptible to theft because they’re often displayed in high-traffic and easily accessible areas such as produce sections and refrigerated aisles. Their small size and quick turnover make them difficult to detect, and although low in value, the cost adds up over time.
We’re here to help you reduce perishable shrink. But if theft is also a problem for you, then check out some helpful strategies.
Perishable shrink caused by damage during transportation occurs when goods are mishandled or exposed to unfavorable conditions, such as temperature fluctuations, rough handling, or improper packaging.
Although not synonymous, perishable often means fragile, and products - including fruit & veg - are susceptible to bruising, spoilage, and contamination.
The U.S. food industry loses approximately $1 billion per year due to damage during transportation.
From the moment produce hits the store, it’s your staff who ‘interact’ with it the most. They’re responsible for its handling, storage, and rotation. They also play a part in reducing theft and managing your inventory.
As mentioned, perishable goods require a level of care other goods don’t, and so it follows that workers need to possess the knowledge to handle your inventory appropriately.
Surprisingly, this is often not the case. Employee training is a pain point for most industries, with 59% of employees claiming to have received no formal training whatsoever. And of those who do, only 34% are satisfied with the training they receive.
Don’t underestimate the value of your workforce.
There’s a good chance you already utilize an inventory management tool. The question is: is it tailored to your needs?
There are lots of software out there that offer the same basic features such as stock alerts, inventory reporting, and order management. And these absolutely have their place.
But perishable goods require attention to detail that other goods don’t, and to reduce your perishable shrink, you need a perishable inventory management software.
Katana’s cloud inventory software gives businesses the chance to take a live look at their inventory for optimized management. With features including batch or lot number tracking, expiration and best-before tracking, and product recall processes, businesses are offered complete visibility and control over their perishable items.
There’s also Blueridge, who offer additional features including fresh produce forecast and daily demand profiles.
These are just two of many perishable inventory management softwares on the market – the best inventory management software for you will match your unique business needs, including your budget and current technology setup. Don’t hesitate to shop around!
Managing your supplier is one of the best ways to ensure you’re getting the freshest ingredients. Those who can deliver the freshest produce in the shortest amount of time offer you the best chance of making sales and reducing your perishable shrink.
Local suppliers are best positioned to achieve exactly this, and while their items may be more expensive, consider the overall savings on transportation and money lost due to spoilage.
Furthermore, don’t be afraid to diversify your supply chain. Relying on one business to supply all your goods comes with its risk. It never hurts to have a plan B.
We also recommend keeping in touch with your suppliers to identify any issues that may crop up in the future. After all, your success is dependent on them.
Addressing a particular issue often requires someone with a specialized skill set. For most businesses, inventory management falls under the remit of the store manager or the highest-ranking member while on shift. This may work, but managers already have a lot on their plate and they’re likely unable to optimize all business areas.
For something as important as managing perishable inventory, we recommend hiring an inventory manager. This is someone whose sole responsibility is to oversee and optimize your stock levels. They’ll have an in-depth understanding of your inventory and will know how to make the most out of the software you utilize.
Now I know what you’re thinking: why go through the costly process of adding another team member when I can use the staff I already have? It’s a valid question, and for some of you it may not make financial sense to do this.
However, for others, poor inventory management may cost you more than hiring an inventory manager. An inventory manager will not only save you money over time but also ensure your customers receive the freshest produce, leading to higher sales and a better overall experience.
But how do you ensure your new hire will help? Easy, and this brings us to our next point!
The reality is that none of these strategies can succeed without an optimized workforce in place. When considering how to reduce shrink in a produce department, an obvious answer lies in those who handle the produce in-store most day-to-day – your staff.
Consider this: your software’s effectiveness depends on how well it’s used by your team. Hiring new talent is only valuable if they’re properly trained and upskilled from the start. And since your staff directly handles the produce, they are best equipped to offer valuable feedback to managers in-store, or your suppliers. The best investment you can make is in those who are responsible for your success.
Reduce perishable shrinkage by training your team on proper storage conditions, identifying theft, and highlighting the actual cost of errors or poor practice. For example, labeling organic food as conventional may seem like a small, insignificant mistake. Yet organic food is significantly more expensive, and these errors add up over time.
So, how best to train your workforce? If you’re dealing in perishable stock, it’s a good chance you employ a dispersed workforce that’s constantly on the move and working a variety of shift patterns. In other words, problematic to train.
But it doesn’t have to be. By embedding training into their workflow, you keep your workers on the shop floor while optimizing their training through bite-sized learning. All they need is a smartphone or handheld device that allows them to access training when and where they need it most.
What’s more, this type of learning is incredibly effective in improving knowledge retention and increasing levels of employee and training engagement.
But don’t just take it from us. Let's hear from a real business:
The US-based retail chain Pet Supermarket was looking for a training solution that would help them minimize stock lost to shrinkage.
With the goal of optimizing their training material, they partnered with us here at eduMe to roll out standardized, consumable, social media-style training that appealed to their Gen-Z majority workforce.
Alongside delivering training that better aligned with their workforce’s needs (brief, and fun to complete), their workforce were able to access this training via their mobile devices, and without having to create or log into an account. Removing this layer of digital friction was critical to ensuring there were as few barriers to access as possible.
After reducing the number of steps to access training, Pet Supermarket further improved accessibility by embedding bite-sized microlearning into their HCM Workday – a software their employees were using frequently. The company extended entry points to training beyond just Workday, additionally providing contextual access via QR codes affixed to equipment around the workplace.
By making training available through both ‘high traffic’, well-accessed locations such as Workday and supporting in-the-moment learning needs via scannable QR codes, Pet Supermarket successfully increased employees’ exposure to – and engagement with – more engaging inventory management training.
The result? $1 million saved on perishable shrink.
‘eduMe is extremely well positioned to fill the needs for training in today’s world’
-Theresa Micheli, Senior Manager Store Operations, Pet Supermarket
eduMe is the digital solution of choice for your frontline workforce. By offering training that’s accessible, customizable, and engaging, we empower workers with relevant training material, and take control of their own learning.
Get in touch with us today to find out how we can help. Not ready to chat? No problem, watch a walkthrough instead.