Changing the Loss Prevention Culture in Food Retailing

Changing the Loss Prevention Culture in Food Retailing

EDITORS NOTE:Dan Faketty is vice president of loss prevention at Harris Teeter, an upscale grocery chain with 143 stores operating in six southeastern states. Harris Teeter is based in Matthews, NC, a suburb of Charlotte.

Faketty came to Harris Teeter in 1999 from Kmart, where he was director of loss control for Super Kmart Centers. Prior to that he held several loss prevention positions with Shopko Stores Inc. a mass merchandiser based in Green Bay, WS.

Faketty is currently chairman of the loss prevention committee of the Food Marketing Institute, a trade association serving the retail food industry. He also serves on theditorial board for LossPrevention magazine.

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EDITOR: Since youve been at Harris Teeter now for three years, how has the role of loss prevention changed within the company?

FAKETTY: Culturally, the role of loss prevention has come full circle. Most grocery chains are looked upon as the department that catches people. Unfortunately, I have seen this cops-and-robbers mentality prevalent in the grocery industry and it disturbs me. As a matter of reference, we are not thought of in that light. Culturally, we are in the prevention game now, which in my opinion is where we should be.

The executives here firmly believe that our department can have an impact on our inventory shortage results through program development, implementation, and, ultimately, execution. The bottom line is that we now get a tremendous amount of support from our executive group, which is unparalleled, compared to anywhere else Ive worked.

EDITOR: Talk about your role in corporate board-of-director meetings.

FAKETTY: Once a quarter the loss prevention department presents to the Harris Teeter board of directors and audit committee the initiatives that were executing and the measured results. Its a golden opportunity to provide input to a group of executives that dont always have a clear understanding of what our department does for our organization or stores. In the quarterly presentations, Jeff Sherman [Harris Teeters chief financial officer] and Ianswer some very tough and very pointed questions about what new programs were executing and more importantly, why. Its very interesting.

EDITOR: Its more than interesting. Its very meaningful to why the culture has changed. There are many LP executives that dont get enough face-to-face time at board meetings.

FAKETTY: Thats a credit to key members of our senior staff who felt loss prevention was important enough and elevated our standing into the boardroom. It does not stop there, however. Im a firm believer that executives have to get out in stores to understand that the programs and initiatives were speaking about are actually working. What better way to do that than to visit store locations together. This gives me an opportunity to update and educate them on what were doing, and they can see it working for themselves. Our company president and senior vice president of operations are the ones that drive most of this and he wants LP to be in that spotlight.

EDITOR: In the food business, how do you deal with shrinkage?

FAKETTY: Grocery is a little different than traditional retail in that you have perishables to deal with and a lot of the perishable shrink is actually waste. Its overproduction, spoilage, or both. Industry-wide, perishable waste can be perhaps 60 percent of the entire shrink total for a chain, with the other 40 percent coming from nonperishable areas.

EDITOR: Can you tell us about some of the things that youve done from a program standpoint in both of those areas?

FAKETTY: Approximately, 30 percent of our business is done in direct store deliveries (DSD), which are serviced by the milkman, bread man, chip man. As a result, weve put programs in place to not only monitor and control these delivery drivers, but also to educate our own people on our exposure to theft. We have a comprehensive LP training program where our DSD receivers are tested and certified. Only certified receivers can check in DSD drivers. If a receiver is not on duty, we dont receive the product.

EDITOR: In your environment, what are your expectations from your loss prevention professionals? What are they focusing on daily?

FAKETTY: Their number-one objective make no mistake about itis minimize inventory shrink. So on a daily basis, theyre involved in program implementation and execution. We have implemented a lot of new loss prevention programs over the past two years, and although the vast majorities were developed corporately, they had a lot of input and involvement. Ultimately, they ensure were executing these programs in each of their stores daily.

Changing the Loss Prevention Culture in Food Retailing

For example, right now theyre involved in a proactive initiative called front-line performance, which is designed to minimize shrink on the front end. Theyre actually doing the training of all store-level cashiers through a comprehensive awareness program. Our loss prevention specialists will have completed almost 450 individual training sessions in all 143 stores by the end of this month. Thats approximately three meetings (morning, afternoon, and evening) for every store in the company. We have developed a training packet for them to ensure consistency in each store that includes a PowerPoint presentation, workbooks, and an in-house video that our cashiers see on acts of dishonesty. This video places a strong emphasis on our abilities to monitor their performance.

They also get involved in a lot of traditional loss prevention functions because they are investigators, but they have audit responsibility as well.

EDITOR: Does the audit function report to you?

FAKETTY: Yes. In our organization, we have a loss prevention auditor who reports directly to our loss prevention specialist. Both have multistore responsibility and service the same group of stores creating a team approach to loss prevention and audit. We developed the audit, which is heavily weighted in LP. As the auditors work and identify problems, they report those issues to their LP specialists. If were seeing low audit scores, we could have a potential shrink problem. As a result, the loss prevention specialists are in these stores trying to identify the cause or breakdown in controls.

EDITOR: So theres a regular cycle that you audit the stores?

FAKETTY: Yes. We audit every store on a regular basis. All the audits are scored, ranked, and posted and any failing audits are forwarded to the president of the company.

EDITOR: Is there any particular reaction the president or senior management has with a store that fails audits?

FAKETTY: You dont want to be a store with a failing score. It is taken seriously because weve been able to demonstrate that theres a direct correlation between low audit scores and high shrink. It was not always this way, but now that we have the correlation by his requestthe president wants to be personally involved. This is an example of the cultural change we spoke about earlier. When our president wanted to see failing audits, the senior vice president of operations wanted to see them, then our chief financial officer, the regional vice presidents and so on. But if a store has two consecutive failing audits, we know theres a high probability that the store is headed for trouble.

EDITOR: Are these more operational or more shrinkage audits?

FAKETTY: Theyre a combination of both. Weve been focusing on operational controls. As we roll out a loss prevention program or a financial control, it is typically designed to prevent some type of exposure to loss. As a result, we will add an audit question or two to measure our execution and find out how our stores are doing.

EDITOR: When audit reports to loss prevention, LP executives sometimes struggle with what type of individual to put on the audit side to partner up with the LP individual. Whats the makeup of your auditors?

FAKETTY: I was fortunate when I came herebecause the audit program was already in place. We rewrote the audit when I first arrived and targeted questions that we felt would impact shrink. Fortunately, we had some solid auditors already in place. The vast majority of them came from in-store controller positions. Ironically, we now use the loss prevention auditor position as a stepping stone to become a loss prevention specialist, which enables our organization to promote from within.

EDITOR: There are two schools of thought on something as basic as scoring audits. Some companies do auditsbut dont score them. You do. Tell us why you think scoring is important.

FAKETTY: Theres an old clich that says, Nobody cares unless somebody is keeping score. In my opinion, nobody really put a lot of emphasis on passing or failing until we were able to demonstrate the correlation between low scores and high shrink. After rewriting the audit and running through our first quarter, ourCFO, Jeff Sherman, did the analysis of our results. He came to me and said, Dan, all those things we were talking about are actually happening. There is a correlation between audit scores and shrink. Thats when the information was presented to the president of the company and he wanted to get involved.

EDITOR: How frequently do you take an inventory to measure shrinkage?

FAKETTY: Thats a good question because theres a big difference between traditional retail and grocery. We actually cycle all stores three times a year in nonperishable and every 30 days in perishable. However, our LP teams spend more time on the nonperishable end of the business when dealing with inventories. In fact, one of our loss prevention auditors or specialists is required to be on site during each one of the nonperishable inventories. They recap the inventory service, calculate the numbers, and piece together the inventory packet, which is forwarded into financial accounting.

EDITOR: Is the mix in the food industry different from traditional retail with the exposures from the traditional LP side, such as shoplifting and employee theft?

FAKETTY: I think on balance it may be a little bit different because we dont have the product mix that you see in either discount or specialty retail. We dont have high-ticketed fashions or power tools. We dont have a lot of electronics. In that sense, we dont seem to have the type of professional thieves you may have in a traditional discount or specialty retail setting. The opposite of that, however, is that we seem to be targeted by organized retail theft as it relates to high-ticket meat products. When I first came here, our store managers told me this was happening and I said, Yeah, yeah, yeah. I wasnt a very good listener at that time.

Now that Ive been here for a while and Ive seen what actually takes place, I have to give our store managers credit. Its a serious problem. Were dealing with it very similarly to investigating organized theft in traditional retail settings. Were identifying who the players are, were working with state and local law enforcement officials and were going to shut down any businesses that are illegally buying our meat.

EDITOR: From the food industry standpoint, do LP executives from one company to the next share this type of information, the way it is often shared in the more traditional retail?

FAKETTY: Yes. In some respects, perhaps even more so. One of the things the loss prevention group did at the Food Marketing Institute (FMI) was develop an E-Share network. This program was actually developed and now is managed by MaryAnn House, the director of loss prevention for FMI. There are hundreds of grocery chains on this E-share network. If theres a problem in any specific market, we get an E-Share note. It could be on anything from how to deal with organized retail theft scenarios to how to handle a biological threat.

Any loss prevention executive who is a member of FMI and registered with E-Share can post a question, which MaryAnn forwards to all member companies. Whats interesting about E-Share is that not only does the person posting the question get dozens of responses from other loss prevention executives, but everyone else on the network sees the question and answers as well. Its a great information and reference tool and a big help to those in our industry.

EDITOR: Tell us a little about FMI and the role that you play with FMI.

FAKETTY: The Food Marketing Institute is to grocery as the NRF and IMRA are to retail. FMI has 2,300 companies that represent 26,000 grocery stores throughout the United States and Canada with 200 that are international. Right now, I chair FMIs loss prevention committee. The biggest responsibility in that role is putting together the loss prevention conference, which will be held February 23 26 in Clearwater Beach, Florida.

Changing the Loss Prevention Culture in Food Retailing

I have also been involved, as have other committee members, in drafting recommendations on security improvements for the grocery industry as a result of 9/11. In fact, within forty-five days of that tragedy, we had a number of draft documents released to member companies that dealt with how to upgrade security in stores, distribution centers, and dairies.I also assist in updating the loss prevention survey, which seventy-two member companies responded to last year.

Most recently, I have been working with FMIs new alliance partner, Wazagua, in an attempt to get loss prevention departments throughout the country automated so we can begin to track and share information on organized retail theft.

EDITOR: Lets back up now and talk about your background and how you got into loss prevention.

FAKETTY: Im originally from a small town in Upper Michigan. I went to Northern Michigan University in Marquette and majored in criminal justice. I graduated with an associate degree in 1979 and went back to school.I graduated from their police academy in 1981. However, I couldnt find what I would describe as meaningful employment as a police officer. I guess Im one of many others in our industry who stumbled into retail loss prevention. I first took a store-level position withShopKo in Kingsford, Michigan, then moved to Green Bay, Wisconsin. As ShopKo expanded west, I was promoted to district manager in Omaha, Nebraska, and finally regional manager.

While I was a regional manager, Ben Guffey contacted me and explained that Kmart was in the process of building super centers. At that time, ShopKo operated two super centers in Ohio, which I was overseeing. So I guess that made me a qualified candidate. At that time there were less than 100 super centers in the entire country. I interviewed with Super Kmart operation executives, and they must have liked me, because Ben offered me a position as director of loss control for Super Kmart Centers, which I accepted.

EDITOR: Your experience at Kmart allowed you to utilize your expertise in mass merchandising, but also to gain very valuable experience on the food side. How do companies who have both product categories under one roof balance the different issues?

FAKETTY: I believe there are more similarities than dissimilarities. Ironically, retail today is getting more and more involved in selling food products, especially DSD. If they are not prepared to deal with direct store delivery drivers and dont have controls in place, they will get hurt.

Most companies, as a part of their contractual agreements allow DSD vendors to order and stock shelves, all in an effort to save labor. When you do that, a DSD vendor has incentive to short you product or even destroy it, often throwing it away in your own compactor, if not controlled. We had many cases like this while I was at Super Kmart, and it was a big eye opener for me. Im not saying that all DSD drivers are dishonest, but I am a firm believer in keeping honest people honest. If you have good controls in place, theyre not as likely to try to take advantage of you.

EDITOR: So, your program is truly a proactive prevention program.

FAKETTY: Thats what we strive for. Unfortunately, what I see in our industry does not always reflect that. We call ourselves loss prevention or asset protection, but if you identify what youre doing on a daily basis, you may find that youre more of a security department than you think you are.

We pride ourselves on the fact that since we rolled out our front-end initiative, our employee dishonesty cases on the front end have steadily decreased. If our inventory shrink numbers were on the rise, Id say thats a concern. But the fact that our shrink number is coming down, and the number of cases we have is coming down, that tells me that were in the prevention business.

EDITOR: You have a reputation of being one of the more progressive innovators from a technology standpoint in loss prevention. Talk a little bit about how technology is impacting loss prevention.

FAKETTY: I am flattered and have no idea where that came from, but I think the web is absolutely revolutionizing what we do today. Loss prevention professionals are either going to be a part of it, or theyre going to be on the sidelines. Were trying to embrace technology here.
For example, take something as basic as alarm systems. Most people envision these systems as an electronic tool designed to keep bad guys from getting into their buildings. While thats important, we use our alarm systems to identify internal problems.

What weve been able to do is single source with an alarm vendor, Checkpoint Security Systems, who offered a tool that allows us to use the web to do Internet monitoring of our own systems. As a result, we have real-time event status on every store in the company, on who goes in and out, what time this occurred, how long a door was held open, and whether or not a store has even set their system. Its not uncommon for our LP staff to access the Internet from their home computer or laptop.

EDITOR: Give us another example of your use of new technology.

FAKETTY: We have a web-based software tool from Trax that monitors all of our POS transactions. Were using the Internet to access that as well. With the click of a mouse, were not only getting detailed transaction data, but through data-mining processes, were getting color-coded charts that are force-ranking cashiers from best to worst by store, district, or region. This helps us identify potential theft trends, training issues, and such.

We have also completely automated our loss prevention department with web-based case management system. Shoplifting cases, associate dishonesty cases, incident tracking reports are all done on-line over the Internet.

Theres a lot of opportunity, I think, not only through web capability, but technology as a whole. I believe LP executives need to be proactive, work with their vendors, and understand how these new technologies can be cleverly applied in their business environment to achieve their desired result, whatever that may be.

EDITOR: Ive seen many loss prevention executives who merely interface with vendors from a sales standpoint, as opposed to learning from them and sharing needs and strategies. What expectations do you have with the vendors that provide you products?

FAKETTY: I consistently challenge them to make us better and more profitable. By doing this, I believe they become better providers. We share information, confidentially, with our vendors so they understand our challenges and can work with us to solve issues.

We partner with a vendor and challenge them to be more creative. I challenge the vending community all the time to learn as much about our operation as they can and, for the most part, they are always willing to do this at least the good ones. I dont know how they can come up with solutions to our problems unless they have a thorough understanding of what our culture is or how our business operates.

Changing the Loss Prevention Culture in Food Retailing

EDITOR: I also know that you are a strong proponent of training your loss prevention staff. What are you doing and how is it different from when you were first getting started?

FAKETTY: When I first came into loss prevention over 15 years ago, the training I received was roughly two days with a district manager who taught me how to pick up shoplifters. There was a manual that I was able to reference, but for the most part that was it.

We have an extensive training and certification program. It is a module-based, interactive program that is very detailed in its content to ensure associates have a solid grasp of what we want them to know in order to meet our high standards of professionalism. The training process is challenging and requires associates to demonstrate in written tests, interactive exercises, and in actual job performance, the knowledge and skills required to become part of the loss prevention team.

It is these standards that have been recognized by Northern Michigan University. As a result, associates who complete the other academic requirements for a certificate in retail loss prevention are awarded twelve semester hours of credit. Northern Michigan is in the process of creating an associate degree in loss prevention and the certificate credit will also count towards the degree.

EDITOR: Thats impressive. A lot of retailers dont provide nearly that much training for their LP professionals.

FAKETTY: Part of our company success is the emphasis on quality training and professional development at all levels throughout the corporation. I have been very fortunate that Jeff recognizes the importance of these programs and he continues to encourage our department to participate at all levels.
For the last two consecutive years, we have had Wicklander-Zulawski here for training classes, and they are scheduled back this year to conduct the advanced class. Working with our training and development department, we just completed a one-day writing workshop for our entire staff.

I mentioned the Northern Michigan program before. Our company recently offered associates an opportunity to take the retail loss prevention management course offered on-line by the criminal justice department. Our associates had to complete the semester-long course on their own time. Feedback was very positive, so we have enrolled additional people in the Legal Aspects of Retail Loss Prevention. By taking the Introduction to Criminal Justice course and completing the Harris Teeter certification program, students are eligible for a certificate in retail loss prevention.

EDITOR: Why do you put such an emphasis on training?

FAKETTY: For two reasons. As mentioned above, our organization encourages it. And second, it helps make our associates and company better. I think that organizations that are not allowing their loss prevention departments to participate in continuing education or professional development programs are simply not seeing the big picture. In the scheme of things, its not a big budget item. But the benefits and rewards to the individual and ultimately the company are tremendous.

For one thing, I believe it will cut down on your turnover. The people that receive the training know that you have a vested interest in them. It excites them. Theyll beat your door down to attend a conference. It goes a long, long way in demonstrating that you care about them. They get smarter and they come back and work twice as hard. It is a lot cheaper to train and educate someone to make good decisions than to pay out large settlements because of easily preventable errors. It is simply a very good investment while increasing employee effectiveness and developing management potential. When properly executed, it is a win-win for all concerned.

So, if youre going after capital dollars and youve got X amount, carve a portion out to train your people. As one of my former supervisors used to tell me, I havent seen a CCTV camera yet go up and tap somebody on the shoulder and say, Hey, come on back inside.

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