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Effects of Restaurant Loss Prevention on Increasing Revenue - A Case Study

Prevention

It's like waiting for the other shoe to drop. Even with the rising fuel and commodity prices, restaurants, from fine dining to fast food, have been holding off on raising menu prices because of intense pressure from consumers to keep prices down. On top of that, restaurant customers have been trained to take advantage and wait for deals. It has caused restaurant owners to think creatively with dollar menus, smaller portions and lower priced ingredients. The other shoe may be the latest FDA commodity price forecast of beef to rise 9 percent and chicken by 5 percent. This on the heels of double digit increases for many food items last year. Other food items expected to rise due to adverse growing and production issues are peanuts and cocoa/coffee. So what else can be done to curb prices, yet maintain revenue?

Preventing and Mitigating Losses

Preventing and mitigating losses may be part of the answer. Implementing comprehensive loss prevention programs have shown dramatic effect in finding and plugging the profit drains. Measuring the effect has always come under scrutiny. There are many tales of mysterious losses from poor controls, employees stealing great sums of cash and/or product, robbery, vendor scams, frauds, and serious and high number of accidents and insurance costs. But what does it cost in terms of profitability?

Validating Loss Prevention Programs

Many years ago I worked for a progressive loss prevention executive. It was assumed that loss prevention policies and processes were instrumental in preventing and mitigating losses that were everyday challenges in the restaurants. But, how could the impact of compliance with a comprehensive loss program be validated? A case study was in order and several loss prevention representatives in the company were called to action in one particular district within the company.

The Case Study

Three locations were selected by the Operations group. The first was an outstanding performing restaurant run by good, conscientious managers. The location maintained excellent performance in cash loss, food cost, worker's comp accidents, and turnover. The second location was described as average in all the same categories. The third location was at the bottom in most of the categories. Cash losses and food cost were extremely high, as were turnover rates of the crew and managers. Accident rates for both employees and customers were very high and comparable sales were plunging.

Team Assignments

The loss prevention team went to work unannounced at each location simultaneously with the following assignments:

• Surveillance of late night closing procedures • Confirm closing inventory counts • Surveillance on the opening procedures for compliance • Review cash management and inventory records • Count and distribute all cash tills • Inspect the safe and count contents • Observe all sales transactions at front counter and drive through • Process all cash pick-ups • Control back door keys and safe • Observe trash removal • Observe and confirm inventory delivery • Confirm making change for cashiers • Process all cash components; i.e. price reductions, voids, refunds, coupons, employee meals, etc. • Observe all stock handling • Escort bank run to drop deposit • Count all closing tills and deposit • Observe and confirm closing inventory counts • Count the ending safe • Overview of cash/inventory policy and procedure violations

The following day the results and findings of loss prevention policies and procedures were discussed with the management with action items for correction and follow up. All sales and activity reports were reviewed and compared with those on the same day of the week for the previous month to ascertain any significant changes.

Results

Location #1 - The location was obviously well run and the employees were engaged and knowledgable of security and safety related policies. A few minor infractions were observed and corrected.

Revenue increased 1%.

Location #2 - A few significant violations were noted. Employees left the building together at closing and keys to the back door were not controlled. There were a few notable violations of cash and inventory handling and cashier performance review was inconsistent.

Revenue increased 6%

Location #3 - Serious infractions of policy occurred including opening the location without a manager present, major cash handling and inventory procedures, lack of key control, no review or disciplinary actions on poor cashier performance, and fictitious inventory counts. Cleanliness of the location, improper uniforms, unsafe footwear, and food safety were other issues that needed to be addressed immediately. Five scheduled employees scheduled for the late afternoon and evening shifts failed to show for work after being notified that a team of Loss Prevention representatives were monitoring store activity.

Revenue increased 11%.

These results are no guarantee but can attest to possible increase of sales performance and profit when policies and procedures are closely monitored and reinforced. Compliance of a comprehensive loss prevention program does not require the invasion of a security team. Well defined rules that are established and followed up sets the way of work for the team. A fair and consistent progressive discipline program effectively promotes good performance. Employees trained in proper cash and inventory handling, robbery prevention and how to control food cost will contribute to profitability and team security and safety. The first location run by good managers who engaged their team with goals and expectations had the edge on achieving excellent results with their disciplined everyday operations. Even with the Loss Prevention team monitoring their every move, no one was nervous or had to think what the rule or policy was for any particular situation. They went about their tasks naturally in providing the customer with an excellent experience, along with having security, safety and loss control top of mind. THAT is how they ran a successful and profitable business.

Although more business is most desirable, sales growth and profit can be achieved without adding another customer to your current count. The application of loss prevention strategies into everyday business processes has proven to be effective in countermanding the uncontrollable rising costs of running a business. Establish the controls, train your people on expectations and hold them accountable. Reward them when their performance and the business improve. Mitigate those mysterious losses and it may not be so disconcerting waiting for that other shoe to drop.

For more information on loss prevention and making your restaurant work environment safer and more secure, visit www.LossBusters.com. Follow us on Twitter @LossBusters