The fmcg sector has neglected the growing problem of shrinkage. It's time they started to act, says a new study. Julian Hunt reports If you had 18bn euros to spend, what would you buy? Colin Peacock, Gillette's customer development director, has a few good ideas. How about 76 super jumbos? Or Luxembourg? Or, if you were looking to start a football team, 600 players of the quality of Celtic's Henrik Larsson? The stuff of pure fantasy, of course, but Peacock uses these examples as a way of showing how bad the problem of stock loss has become for Europe's fmcg industry ­ because 18bn euros is the amount of money being haemorrhaged by retailers and manufacturers every year. Stock loss ­ also known as shrinkage ­ is caused by a combination of process failures (such as product going beyond its sell by date), supplier fraud, internal theft and external theft. And a new report, launched last week by Peacock at the ECR Europe conference, shows that retailers are suffering the most from this problem. Last year, they lost 13.4bn euros (not including the 2.14bn euros spent on measures to tackle shrinkage). That equates to 1.75% of turnover. Put another way: retail profits could be 29% higher if companies reduced losses due to shrinkage by 50%. The research shows that all points in the retail supply chain are vulnerable ­ 6.1bn euros of stock disappeared last year even before it made it to a store. Despite such horrific losses, the report claims the issue remains "shrouded in ignorance and hearsay". It adds: "Most retail companies do not know where, how or when the majority of their losses occurred. Manufacturers boast only a slightly better record, although even they cannot account for more than 40% of their losses. Retailers were unable to explain how 7.9bn euros of stock was lost, while manufacturers were unable to pinpoint how 1.9bn euros of their products disappeared." The authors of the shocking report ­ commissioned by the ECR Europe shrinkage project group, which Peacock co-chairs ­ says that finding solutions to shrinkage should transcend departmental and company boundaries and this is simply not happening. "For the most part retailers see stock loss as the exclusive responsibility of the security and audit departments, and store management, while manufacturers tend to put the onus on the logistics team to deal with this problem. Few other departments are involved. The picture is even gloomier when inter-company co-operation is considered. For retailers, the current climate is characterised by an emphasis on reactive collaboration with security providers and police. Relatively few pointed to work with individual manufacturers or their representative organisations. Manufacturers were even more isolated." On a positive note, companies that set up a dedicated security or loss prevention department suffer lower losses than those that did not ­ 27% lower in the case of retail. And for retailers with a dedicated audited department, the losses were 39% lower. "Having the opportunity to report directly to the board significantly improved the performance of these specialist teams," the report adds. There are many benefits associated with reducing stock loss, says Peacock. For a start, consumers would find fewer out of stocks, more open merchandising of higher value items and greater choice.And that would benefit both retailers and manufacturers. The complexities of the grocery supply chain, the absence of reliable data and the lack of co-operation both within and between companies mean it is proving difficult to come up with solutions that will allow companies to reap these benefits. The ECR shrinkage team offers a "road map" that it says will help firms to rethink the way they tackle this problem, from drawing up a strategic plan to evaluating results. And its report identifies the three major areas where companies can improve their behaviour, namely: collaboration, information management and the use of security and audit personnel. Peacock admits there are no easy answers in the report. But he hopes its publication will ­ if nothing else ­ serve as a wake up call to the industry. If it fails to heed the warning, the problem of shrinkage will only get worse. And that may mean somebody, somewhere, could soon have enough cash to buy their own football team. {{FEAT. COVER }}

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