By Fran Duskiewicz
About 10 years ago when I was at Nice N Easy Grocery Shoppes, we stopped our foodservice managers from doing weekly food counts. We had decided it was an unproductive waste of time that was yielding faulty data, thereby hindering our efforts to improve performance in an area of our business identified as a key to our survival.
There were two reasons for this, based on some general assessments.
The first was a comment from founder John MacDougall. “If we spent as much time figuring out how to sell this stuff as we do counting it, maybe we’d get somewhere,” he said.
The second was a series of comments from our foodservice supervision team: “These food gross margins are utter crap.”
TOO MUCH IS TOO MUCH
The problem was a good one, it turned out. Our food sales had increased to the point where we were keeping $12,000-$18,000 in foodservice inventory on hand per store, stored in various coolers and freezers. It was too much to count in very uncomfortable environments.
There were also issues with managers entering new counts on the wrong book work date, physical counts being suspiciously close to book figures, and counts being inflated or deflated by misunderstanding units on the spreadsheets.
So that our foodservice management teams had accurate, actionable data, we relied upon the most empirical data we had at hand—food sales by department and food purchases at cost by department. I wrote a simple weekly report that documented foodservice purchase margins—simply sales minus purchases, divided by sales.
Margins now were much more reasonable and not affected by unreliable physical counts. Even if they might look odd one week because of holidays or record sales, over time they leveled out and were accurate.
How accurate? When I ran the new report for the previous year, the general managers came within $7,000 of what was booked, for food sales of $15 million. Good enough to stop the counting and get us refocused on performance. To keep our CPA firm happy, our audit team performed quarterly food counts and reset our books to the new inventories. Those were used each month until new counts were done. In essence, we were converting food purchases to food cost of sales.
Here’s the unexpected upside of this change in operational accounting. These new foodservice margin reports based on food purchases turned out to be the most reliable red flag we had in our loss prevention efforts. Consider this:
A store has been a reliable 55% margin performer. Suddenly purchase margins dip to 48% and stay there. Food sales fall off a bit, too. The food DM investigates and can find no excess spoilage or increase in actual inventory.
Nothing within the food operation can be identified as a good reason for the drop in margin. Well, in most cases, the problem never was within the food operation at all. Most times, it was a thief at the POS.
A thief really doesn’t care if an item not rung in is being tracked at retail or at cost. They rely upon commonly purchased items with easy to remember grand totals. A good example might be our pre-made, ready-to-go $5 Happy Hour pizzas. Five or six of those not rung in per day can put decent bucks in someone’s pocket and a real dent in pizza margins.
To better track the number of pies, count the pizza boxes and match the number missing versus the PLUs (Price Look-Up codes) of whole pies sold. If there are more boxes missing than PLUs, you’re onto something.
Here’s something else. Old timers know that bad retail counts create more problems from supervision than sketchy foodservice margins. It was not unusual for us to see retail inventories get better while food margins fell badly.
Loss prevention has to be an effort from everyone involved in operations, store and foodservice. And accurate, timely data that everyone understands and trusts is critical to those efforts.
Unfortunately, in many companies, there is no bridge between accounting departments and operational teams. Accounting departments are not always the best sources of operational reporting and operations people don’t usually have access to or knowledge of report writing within back-office systems.
Reliance upon traditional “garbage in—garbage out” operational reporting remains, hindering operations teams and costing owners and investors untold profit dollars. And, it’s totally unnecessary.