High-Tech Internal Affairs

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High-Tech Internal Affairs

By Renee M. Covino

Unfortunately for a recent employee who decided to steal from E-Z Stop Food Marts Inc., the Maryville, Tenn.-based c-store retailer has one savvy information technology (IT) manager with impeccable timing.

On the very morning this dishonest employee decided to falsely void a $20 sale for sunglasses and pocket the cash, the IT whiz, who is also a computer programmer, had just installed a program he wrote linking that store's back-office computer to its point-of-sale (POS) data and DVR. Whatever the clerk keyed into the register would show up as text on the video in real time. The system also was set to alert the store supervisor by e-mail when a transaction looked "out-of-range" from the norm.

"We don't sell a lot of $20 sunglasses -- that's a high void for a c-store," said Donna Perkins, pricebook manager/ POS interface for the chain of 22 stores. So within 15 minutes of running this scheduled task, "we caught our first thief. We did not expect that," she stated. "Nobody at the store-level knew about this, even the store manager didn't know we were putting the program in place. Our programmer just did it from his house before he came to work, and by the time I got here, the store supervisor had been alerted, watched the activity, and Bam! -- fired the employee on the spot."

The "aftershocks" of advanced technology like this also proved beneficial for E-Z Stop. "You've got to love the grapevine," Perkins maintained. "The news spread quickly. It gets around that we're watching."

This "security data review program," as it is now known at E-Z Stop, has been in place since September 2007, but is just one piece of how the chain keeps its shrink so low. Perkins said the company continually looks for ways to upgrade its business intelligence to thwart thieves.

"It's no accident that our [total] shrink is under a half of a percent," said Perkins. (She later confirmed their shrink percentage is 0.47 percent of sales.) "We focus on shrink all the time. It's never not a focus. We have very good control of it, and that's because we work very hard at it."

Indeed, it is more common for convenience stores -- even those applying security technologies -- to have shrink percentages more than 1 and 2 percent of sales. Some report their goal is to get it just under 1 percent.

Theft from the inside is, by far, the largest chunk of the problem. E-Z Stop's internal shrink is approximately 75 percent of its total shrink, but other chains report their internal theft is closer to 90 percent of the total. Like E-Z Stop, Oasis Stop 'N Go stores is a staunch believer in the use of technology to take better control of its shrink situation.

"Obviously in this industry, shrink is a large issue. It's something we think about and work to reduce on a daily basis," said Patrick Lewis, partner in the chain. "We lean pretty heavily on technology to help us out, but technology is only as good as you're willing to use it."

The chain is indeed utilizing technology to achieve better shrink numbers.

"Our goals are set to have less than 1 percent shrink," he said. "Right now, we're probably within striking distance."

Loyalty Leverage
Similar to E-Z Stop, Oasis Stop 'N Go tied its video systems into its POS, but it also has another technology in play: its loyalty card program. The chain has an advanced loyalty card system developed internally, the success of which spun off into a separate business -- Kickback Reward Systems -- which now supplies the program to other c-stores as well.

Oasis Stop allows its employees to participate in the loyalty card program -- in fact, it requires them to. If the employee is honest, the program is a big plus, offering discounts and other rewards. But if there's a dishonest employee on board, the loyalty program could be a ticket out the door.

"Now, we can see data specific to each employee -- it's captured automatically," Lewis said. "We can see everything rung up by a specific employee, but we can also see their behavior as a customer. It has helped us to catch more thieves."

He explained the retailer found dishonest employees will pretty quickly use their loyalty cards on purchases that are not theirs -- if a customer isn't a member, the employee will swipe his own card on a customer's purchase to claim the points as his own.

"We know how often their card is being swiped, and there's a perfect paper trail that matches up with our video," he said. "So as they ring something up, we can look not only at the image of them doing that, but exactly what they're ringing up. The receipt is superimposed on the screen."

Maverik Inc., based in North Salt Lake City, Utah, with 190 stores, is just getting a handle on its shrink numbers.

"The most significant thing we've done with shrink lately is develop our own cost-accounting system," relayed Lynn Call, CIO for the chain. "It allows us to count everything at cost, report it at cost, and basically have a perpetual daily running inventory book where we can take snapshots and audits of any category at any time. The tools we've developed show on a daily basis what our gross profit is by category. We can look at pre-gross profit and gross profit to see the effect shrink has had."

The area where this has had a profound effect for Maverik is in foodservice -- the chain does a significant business in its deli and bakery areas.

"We have a lot of raw products, and we knew we weren't controlling that inventory," said Call. "We had no idea what was walking out of the store. We knew we had to get to the point of cost accounting. But first we had to account for all the raw products. We had to put together a recipe system."

Now, Maverik has a system that breaks every sandwich down into its raw product parts. "Yield Reports" are then produced every four weeks, showing the number of units on hand and the calculation of a gain or loss. Maverik's internal audit team then conducts quarterly audits on the different categories of concern.

"Now, we can say we had an 80 percent yield on cheese, which means 20 percent was either lost, stolen, or recorded incorrectly," Call said.

As for the bigger picture, the chain now knows it is losing $400,000 a period (every 28 days) across the chain in its foodservice categories.

"That's huge," stated Call. "We knew we'd be shocked, but it was higher than that when we first started this. We've had about 10 to 15 percent reduction of shrink in the foodservice area."

The cost accounting system doesn't exactly catch thieves, but with a better understanding of what's being lost, Maverik is now going to individual stores and asking them to account for their various Yield Reports and subsequent losses.

For the near future, Maverik will be moving away from its "home grown systems," to PDI's back-office enterprise system to get an even better control on shrink, he said.

The Low Tech Profile
"It doesn't always have to be the high-tech solutions. We've caught many people over the years with low-tech methods," maintained Patrick Lewis, partner with Oasis Stop 'N Go, based in Twin Falls, Idaho.

You can't discount the "old-fashioned stuff," agreed Donna Perkins, pricebook manager/POS interface for E-Z Stop Food Marts, Inc., based in Maryville, Tenn.

Lewis and Perkins, along with many forward-thinking retailers, have learned not to rely solely on advanced systems. They also stay grounded with low-tech strategies that simply, but effectively, weed out and discourage dishonest c-store employees.

Conduct Background Checks
It seems obvious to Lewis that retailers should "make every effort to get honest employees" right from the start, but unfortunately, not enough actually do this.

Switch to Prepay-Only Gas
In these times of high gas prices, this is a necessary tact for reducing fuel "drive-offs," which many times are carried out by friends of employees as a pre-arranged "sweetheart" plan. Of course, convenience stores should be prepared, as E-Z Stop was, that once prepay-only is in place, cash shortages and other shrink will probably go up. "They found new ways to steal from us after we went to prepay-only," Perkins admitted.

Join a Retail Study Group
This is a great low-tech way to learn and compare notes with other retailers regarding ways to combat shrink (and keep up-to-date with a host of other c-store business issues) as Quinn Ricker, director of operations for Ricker Oil Co. in Anderson, Ind., can attest to: "We would have been years behind where we are in solving our shrink issues without the study group," he said.

Plant Money
A bit sneaky perhaps, but sometimes games must be played to know whether or not you have a "good egg" manning your cash register. The "bill toss" is one such strategy that Oasis Stop 'N Go has utilized, as explained by Lewis: "Typically at the end of each shift, a cashier tries to balance out the till, and they count it out. Sometimes, when the cashier is not paying attention, a manager will throw an extra $50 into the system. So now, the till comes out to be $50 over. The cashier goes through it in their mind, 'why am I over? -- the word 'extra' sticks out for some. The honest ones won't take it. The dishonest ones will have a difficult time not taking it."

This method is typically carried out in the early weeks of a cashier's career. "We like to have the opportunity to catch them before [their criminal activity] turns into something worse," Lewis explained.

Arrange Surprise Audits
C-stores can't be naive to the fact that managers steal, too. E-Z Stop has caught many a thieving manager over the years through "surprise audits" the company periodically springs on its stores. "Our store supervisors will do spot cash audits on our managers," Perkins explained. "They'll start by showing up on the same day for awhile, say a Wednesday, and then out of nowhere, they'll show up one week on a Tuesday. We have caught a couple managers stealing random, big money that way. Once we caught one taking only $20. She had taken it that day and was going to put it back the next day, but we fired her. Store supervisors hate this scenario, but they know that if someone is capable of stealing $20, they're capable of stealing $2,000. It's not an option to steal from us."

Tout Compulsory Prosecution
This is a very simple "scare" tactic that basically broadcasts to potential criminal employees: 'We prosecute -- every time.' Oasis Stop 'N Go is very clear about its compulsory prosecution. According to Lewis, "I can't say we have court wins on everything, but the idea to our employees is, 'If you steal from us, you're going to get caught and prosecuted, and it's going to be embarrassing.' They don't just get to part ways and forget about it. We want that message to be a part of our corporate culture."

He added this also respects the chain's "good" employees. "If you allow employees to steal, and then let them go, that's devastating to the honest employees," he said. "So it's almost a service to our long-term/honest employees that we also take this route."