In Canada, employee theft costs business owners dearly. This year, the Canadian retail industry lost $3.6 billion at the hands of their employees, according to the Retail Council of Canada.

But retail isn’t the only industry incurring losses. The food and beverage alcohol industry loses a whopping
20 per cent, per business, per year, according to some industry estimates.

Sadly, licensees often write these losses into their cost. This inevitable loss is called “shrinkage.”

Theft’s many forms

A large part of “shrinkage” is considered theft. But “theft” can be an uncomfortable term to throw around, especially when it’s aimed at the people operators hand-select for a job. For that reason, it’s unlikely bar and restaurant owners confront problems unless they catch their employees stealing money from the register.

“Everybody knows it happens,” says John Sawyer, owner of Atlantic Hospitality & Technologies in
Fredericton, N.B., “but nobody wants to rock the boat.”

“Theft,” as the word’s used here, can take many forms in this business.

From the obvious stealing from the cash register to taking product home, pouring extra drinks, or intentionally over-pouring to get a better tip.

All forms result in lost revenue and lost profits for owners and make up the bulk of so-called “shrinkage.”
George Jinargyros of beverage inventory management company Bevinco says it’s common for bartenders to over-pour a drink for a regular customer in plain sight, so the customer is more generous with the bartender when they’re tipping.

“That’s borderline theft, because you’re using the product of the restaurant owner for your own benefit, and diverting money away from the operator,” he says.

For instance, anyone who goes into a bar has a tolerance – a number of drinks they can have in a night. And for argument’s sake, this customer has a six-drink tolerance. But if they’re over-poured on three drinks and instead of getting a single, they’re getting a double, suddenly they’ve had their six drinks. So the owner’s not losing at cost but at retail, because now that customer’s not going to have six drinks or at least not pay for six drinks. He’s going to pay for three.

That’s not to say good customers shouldn’t get a free drink here and there. Jinargyros recommends keeping track of the complimentary drinks and requiring approval from the manager. If you don’t give employees the license to decide, you can account for the warranted freebies.

The most common form theft takes, according to Jinargyros, is when an employee pours an extra drink, doesn’t ring it in and ends up pocketing the cash.

Nightclubs are particularly susceptible to this kind of theft because of the volume going through the bar, dark lighting, distractions and often younger employees, says Jinargyros.

Sawyer says that while employee theft is very common, most of it isn’t intentional, and instead, the product of mismanagement.

It’s one thing to have employees knowingly steal. It’s another to have them unknowingly contribute to shrinkage.

Employee policies

Sawyer says small independents need to get on board with what larger chain establishments have been doing for years – creating employee manuals with the business’s policies on employee theft clearly laid out.

This can help combat unintentional theft. For instance, a client of Sawyer’s noticed she was missing 27 cans of orange soda pop one week. She questioned a new kitchen employee who she noticed was fond of orange soda and found out he’d been drinking the pop and even taking it home. His response was that he was told he could have free pop, but the manager hadn’t specified to him it was fountain pop.

An employee policy could have prevented this problem. What saved her was she did consistent weekly inventory and caught and corrected the problem before it bit into her profits.

Inventory

Often not enough attention is paid to this important task. Not only must inventory be done thoroughly, but on a consistent basis in order to know how much money a business is making and where the problems are, says Sawyer.

“The process can be done manually, but I don’t know too many bar owners who would feel confident enough in their own numbers to start accusing their staff,” says Jinargyros.

One option is investing in a point-of-sale system that breaks down which types of alcohol are being served in each drink. POS systems, like Restaurant Manager, which Sawyer sells, can be integrated with inventory management systems.

An inventory system can be purchased and set up for as little as $5,000 and if used consistently, could
save upwards of $100,000, Sawyer says.

Next, consider who’s doing your inventory. Jinargyros suggest owners should be taking inventory themselves. But not many like to do it because it’s tedious work so they get their managers to do it.

“That’s like trusting the fox to guard the henhouse,” says Jinargyros. Employees who do not have a vested interest in the business are more likely to miscount or shift numbers favourably, adds Sawyer.

Independent audits

Another option available to bar and restaurant owners is independent audits.

Operators can arrange for a third party to come into an establishment on a weekly basis and assess where the problems are coming from by weighing bottles and analyzing the numbers. Each visit costs about $225. From there, staff will be notified of the system.

“Once staff are confronted about the problem by a third party and they know and can see how accurately we measure inventory each week, that’s when these places start seeing results,” says Jinargyros, noting his company can bring 20 per cent losses down to five per cent.

Staff

It’s important to know who you’re hiring. In the retail industry, employers are taking criminal background checks more seriously.

In the foodservice industry, employers may not be so lucky. “My clients tell me that it’s just not an option anymore,” says Sawyer. “They’ve got people working in the back that they wouldn’t have even let through the front door five years ago. It’s just too hard to find help.”

Talking to staff about these problems can be difficult. And when operators enforce these rules, like cameras or audits, some staff may choose to work in venues with less structure in place.

It is very important to remember that these staff are the people on the front line. And it’s a mistake to accuse or entrap employees, or make them pay for shortages.

“If you’re making them pay for two bottles of beer they’re short at the end of their shift, in their minds, they’re going to get those two bottles back, one way or another,” says Sawyer. “They’ll take it back somehow. It creates an ‘us against them’ mentality and that team environment goes out the window.”

With uncertain economic times ahead, every last penny counts. But don’t forget, if you’re hurting, and your business is hurting, so too are your staff.

So it’s time to be upfront about shrinkage, and start recognizing what businesses can do to shrink
their losses.