Managing a c-store’s “cost of goods” is a critical part of ensuring the operation’s profitability and viability. On the sales and revenue side, lots of attention is paid to the merchandise mix, ongoing promotions, store layout and similar issues. But when it comes to sheer profitability, the Cost of Goods line on the P&L can be the most important factor over which we have any control.
Three Key Factors
When the Cost of Goods (Food Cost) is over budget relative to sales, the problem is often described in retail shorthand as “shrink.” There are three main factors that cause inventory shrink, and, in general, few really want to talk about them.
Shoplifting is the first factor and the one we deal with most often. It can be reduced with good store design and staff training. It’s also the easiest one to address. If you catch someone in the act, you kick them out. “Problem solved!!!”
In fact, shoplifting is less important than the other factors. Internal Theft (by employees) and Delivery Shorts account for 80 percent of typical losses.
Both are caused by people who are often like “family.” We see them almost every day, know them by name and think of them as co-workers and “partners.” Theft here is more difficult to deal with.
Here are a few tactics that have helped me address these other factors over the years:
Take your time while hiring and “do your homework.” It’s common to spend less than an hour hiring a clerk, even as he or she will be entrusted with an inventory worth thousands.
Do spot cash audits at various times in the middle of shifts as standard policy.
Keep close track of voided sales and credits. Compare the rate of voids by different employees and investigate significant variances in the rate of voids.
Keep a daily inventory of high internal theft items. Usually these will be items that are easily sold on the street or to others. Make sure whomever does those inventories rotates, to minimize the possibility of collusion.
Look for signs of “counting” in the register area. (Example: I recently caught a clerk with a dime, a nickel and three pennies sitting on the register top. An immediate cash audit showed the drawer was over by $18.00.)
Don’t assume cameras solve the problem. They are only helpful if you monitor them regularly.
Always count delivered goods (DSD’s) in an area away from where they are stocked. Don’t perform the count until the full case load is in and in one place.
Don’t delegate receiving counts to drivers. (I have seen many fast talking drivers: “2, 4, 6, 10, 12, 14,” etc.)
Pay attention to how returns or credits are handled. If a driver offers them to clerks to take home, it’s a bad sign! I’ve yet to find a company that does not require returned items to come back for audit.
Always watch for shorts. C-stores often buy broken cases or items “by the each.” This makes counting more difficult. A delivery person with 100 weekly stops and who shorts each customer of three items worth $2.50 each has taken the equivalent of $39,000 at the end of a year.
Spiros Vergatos Is assistant director of campus dining at Vanderbilt University. He has been active in c-store management for almost 40 years.