Shrinkage – stock that goes missing after it leaves the production line – is costing European supermarkets more than £24 billion a year, equivalent to £465 million per week and accounting for 2.41 per cent of market sales.
This is the key conclusion of a second survey on stock loss in the fast-moving consumer goods (FMCG) sector in Europe. The survey, published by ECR Europe, covers retailers and manufacturers throughout 18 European countries, with combined sales of £137.2 billion, including the recent new member countries of the European Union. Participants were asked about the extent, nature and impact of shrinkage; methods of recording shrinkage; responding to the problem; and working with others.
What they say
"We first published a report into shrinkage in 2001" said Adrian Beck, of the University of Leicester, author of the report. "This played a pivotal role, not only in raising awareness of the size of the problem but also in highlighting the potential contribution effective stock loss control can make to the overall profitability of FMCG companies. Three years later, shrinkage still presents a problem for retailers and manufacturers and is costing the industry a fortune each year. This is an own goal for the industry, yet the majority of retailers continue to believe that the main problem is caused by external theft, despite evidence to the contrary suggesting that it is caused as much by internal theft and process failures."
One of the initiatives to come out of the 2001 report was the ECR Shrinkage Reduction Road Map. This year’s survey found that 92 per cent of those retailers who had used the Road Map found it useful or very useful. "ECR Europe has been encouraging the FMCG industry to work together," added Beck, "and this year’s survey has highlighted that those companies that cooperate with other companies in the supply chain have significantly lower levels of stock loss." Despite the size of the problem, there are simple things that can be done to address shrinkage, the report claims. ECR Europe has highlighted six proven best practices for shrinkage reduction, based on the findings of this year’s survey:
– Have a written company policy
– Develop high levels of intra-company co-operation
– Prioritise the problem
– Incentivise staff
– Conduct regular shrinkage reduction projects
– Use the ECR Europe Road Map
Survey Highlights
The cost of shrinkage is enormous, with an annual price tag for the sector as a whole of £24.17 billion. This is equivalent to £465 million per week and accounts for 2.41 per cent of market sales. Throughout Europe, stock loss accounted for 1.84 per cent of retailer sales, equating to losses of £18.49 billion a year. Most respondents estimate that the majority of their loss was unknown (51pc), with a slightly smaller proportion being estimated as known (49pc). This was a significant increase on the last survey for the extent of loss that was known. When considering all losses, retailers perceived the main threat to be from external theft (38pc), followed by process failures (27pc), internal theft (28pc) and supplier fraud (7pc). Those companies with a corporate policy had significantly lower levels of stock loss than those companies that did not, suggesting that embedding stock loss reduction may be an important component in reducing levels of shrinkage. Those companies that considered stock loss to be a high priority had lower levels of stock loss. The vast majority of companies set annual targets for stock loss and most had a policy of paying bonuses to staff. The latter was strongly correlated with lower levels of loss – incentivising key staff can be a powerful mechanism for improving a company’s capability of delivering lower levels of shrinkage. Those companies that were the most actively involved in carrying out experiments, trials and projects to tackle the stock loss problems they faced were far more likely to have significantly lower levels of stock loss. Those companies with higher levels of intra company cooperation had significantly lower levels of stock loss. In the last financial year European retailers spent £2.92 billion on efforts to reduce stock loss. This is equivalent to 0.29 per cent of sales. The survey found no evidence to suggest that technologies on their own had a significant impact on levels of stock loss.
