Convenience Store Loss Prevention - The Complete Guide

Last Updated on: 06 May 2019

Average Read Time: 13 min 58 sec

How do you avoid, and prevent theft or shrinkage in your convenience store or gas station?

Is the thief a cutomer, or are they working for you?

In this guide, we will cover everything you need to know about loss prevention as well as some tips on how you can identify and prevent theft.

What is Loss Prevention & Shrinkage

Thief stealing merchandise from a convenience store

Loss Prevention on average costs stores 2% of their yearly revenue - it matters.

  • Loss Prevention: a collection of policies or procedures a business puts in place to help prevent theft and loss of goods.
  • Shrinkage: any preventable loss in a business’ cost caused by theft, damage, or any other human action.

Loss prevention tactics can be thought of as a strategy to prevent shrinkage, and preserve profits in a business. These tactics, policies, and procedures are essential to avoiding retail losses.

The NRF Estimates that nearly $47 billion in annual retail sales are lost to inventory shrinkage. That $47 billion translates to around 2% of the annual revenue for all of retail. For reference, convenience stores had $242.2 billion in yearly revenue from inside sales in 2018. If we include fuel sales, that’s $654.3 billion - again 2018 data from NACS SOI. for some stations who have yet to get their act together, we have personally seen it as high as 10% of sales.

The truth is if we rank sources of shrinkage for convenience stores in the US, the order is:

  1. Dishonest Employee Theft (45%)
  2. Shoplifting (36%)
  3. Administrative and non-crime loss (13%)
  4. Vendor/Supplier Fraud (6% - we plan to write a post on this soon)

Not just that, but the US has some of the most dishonest employees working at convenience stores compared to the rest of the world, 45% of shrinkage comes from employees vs. only 28% in the rest of the world according to the Global Retail Theft Barometer. Having strategies to deal with this shrinkage and theft issue is paramount to survival in our cut-throat market.

The most effective way to curb and prevent shrinkage is first to step back and create a plan for how to deal with it.

Creating a Loss Prevention/Anti-Theft Plan

Team grouping up to talk about and generate ideas for loss prevention strategies in convenience stores or gas stations

You need to talk about Loss Prevention with everyone at your Convenience Store

Let’s start by noting, a plan is more than the sum of its tactics. You can’t just decide to place cameras behind your register and call it a day. A plan requires careful consideration at many levels and may require considerable changes to the way you currently operate your business.

A proper loss prevention plan takes communication across your entire organization to help prevent and avoid shrinkage. The Harvard Business Review published an article from the leaders in retail loss prevention. The article goes into detail about the tactics that can be used to help prevent losses. Though, some of the most important highlights that are particularly relevant to convenience store owners include:

  • Embedding loss prevention strategies at all levels of your organization
  • Using evidence-based management tactics
  • Talking about shrinkage at your company
  • Empowering your employees, while also holding them accountable for their work

Here is an example from our businesses on how we implement these strategies:

During new employees initial hiring and training (after extensive background checks and looking into their history). We clearly explain to them that their shifts are:

  • Analyzed relative to their peers for variations
  • Audited with the point of sale through our software to jump to any suspicious events on the camera footage
  • Auto-reconciled with a person double-checking the software report every day

This set’s the bar right away that we aren’t fresh in the business and are aware of what games employees play.

However, we don’t want them feeling marginalized. So we immediately follow up and explain that cashiers are fully responsible for their shifts. We also give them flexibility in other regards throughout their time working with us. The takeaway is that the point of sale is not a place for flexibility.

Your store will need not just embrace the idea of reducing shrinkage from the top down, but will also need to plan from the ground up how to accurately track progress and prevent theft from occurring.

Types of Theft at Convenience Stores

We like to categorize theft at convenience stores into two groups:

  • Theft at the register
  • Theft away from the register.

Theft can be thought of most succinctly in these two buckets. However, things get a little more complicated when it comes from theft by employees vs. theft from cutomers. This variation is why it’s essential to think of theft coming not just from the register, but also away from it.

An employee might be in cahoots with a cutomer to commit theft for example. Employees may also use one of the various other methods away from the register to create a loss.

Your strategy needs to focus on the action first, and where it occurs, rather than who is doing it. Focussing on the action will make it easier to envision, create, and implement strategies that go a long way towards preventing loss at your business.

Planning for Shrinkage At the Register

Gas Station owner planning out steps thieves could take to steal from their business and forming a plan to combat it

You need to incorporate the way thieves think in your loss prevention plan to effectively curb shrinkage.

Theft at the register can be complicated depending on how savvy your employee might be at concealing illegal activity.

If the employee has been committing theft for years, they might have a few tricks up their sleeve that only an experienced store manager or owner would be able to recognize. We’ll try to cover some of these. However, because human ingenuity is vast and unpredictable, this list is by no means exhaustive. Just as how thieves are always changing their theft strategies, you need to be continuously evolving your loss prevention strategies.

During ring up is the most vulnerable and at-risk activity when it comes to shrinkage at a convenience store. There are a variety of methods for theft to work at the register while merchandise is still manually entered or scanned. The fact that there are many ways for employees to steal while appearing perfectly normal means that a traditional camera system won’t necessarily be able to catch all types of suspicious activity. Besides, there are many cases in which a cashier is also working with a cutomer to create a loss, making it harder to catch the employee through the camera alone.

No Sales

The indicator you’ll need to monitor most at the register will be ‘No Sale’ transactions. ‘No Sales’ are where your cashier opens the drawer without a sale. If done discreetly, a cashier can pocket money while making it appear as though a transaction has occurred. A typical ‘No-Sale’ theft looks like this:

  • The cashier first fully rings up the transaction
  • The cutomer goes to pay in cash
  • The cashier presses ‘No Sale’ instead of ‘Cash,’ cash drawer/till opens
  • The cashier collects money and places it in the drawer
  • The cutomer walks away
  • The cashier takes the cash received and places it into their pocket (or waits until a slow hour or closing to bulk collect transactions)

The problem with detecting this method is that the cashier is not short on paper for the shift. They will balance.

Abuse of the ‘No Sale’ event mostly happens with cash payments since cash is easy to pocket, unlike credit card transactions.

However, we have seen this sort of abuse with Credit Card transactions as well. The difference is the cashier batches up the transactions values to generate a buffer for loss later on when they do decide to steal a more significant amount of cash.

We had this happen at one of our stores once. An employee stole by generating overages with credit card transactions using No Sale and then countered his overage by pocketing the cash transactions. This countering of overages and shortage had him balance in terms of his till, but stole over $2000 in one week with us. We caught this when we did a camera and credit card audit. We saw credit card transactions occurring at times ‘No Sales’ had happened and found the theft on camera.

The act of countering we just mentioned is also why overages are just as bad, if not worse than a shortage. An overage in shifts could imply employees were using this countering strategy and made a mistake with their math that day. That mistake is what caused them to be over instead of on target. There are few legitimate reasons for overages outside of a cashier forgetting to ring-up a transaction, which is a rarity to start with.

Manual Ring Ups

Another method of theft at the register, and potentially the most abused, are manual ring ups. An employee might decide to ring up an item manually, like a carton of cigarettes for an amount that is very small (in many cases under $1) rather than the full amount, again allowing them to pocket the difference. Typically when this happens, it is with the non-taxable departments since it is difficult for the cashier to calculate and account for the transaction’s taxes in their heads. Some of the best ways to handle this are to:

  • Put as many products are possible into the system, the goal is to have the fewest amount of products not scannable
  • Put Minimum & Maximum manual ring-up amounts on every department
  • Use Open-Pricing (A VeriFoneยฎ only feature) for products that have variable pricing rather than manual department ring-ups. Open-Pricing makes auditing significantly easier and gives you slightly more insights into your sales.

However, even with the above, cashiers can still ring up products just outside of your target audit price. In cases like this, without careful observation, your system would show that sales occurred with little trace of loss. The only way to detect the theft at this point is by reconciling every shift with the monthly inventory. You would do this by looking at the ‘Cost of Goods Sold’ (or COGS) breakdown on your Profit & Loss Statement; we cover this later in the guide.

Safe Drops

Safe Drops are another point of sale event that you will want to monitor.

Because cashiers accumulate lot’s of hard-cash during the day, cash needs to be ‘dropped’ into a safe via a one-way drop. In cases like this, cashiers enter the amount they dropped into the POS, and the amount is later counted and reconciled. The only exception is if you have an E-Safe directly tied to your POS in which case both the POS and our software would automatically do this for you and your cashiers.

The common reasons cashiers do safe-drops are to:

  • Allow the store owner or manager to collect the money
  • So that in case of theft, there is not a large amount of money at the register.

Some stores even have particularly stringent drop policies which is why some stores put up signs saying something along the lines of “cashier only has $50 in the register”. The cashier is supposed to drop money to bring themselves back to $50 (or whatever amount management has set in place) whenever they pass that amount by a significant margin.

Safe drops are essential events to monitor since they are how you collect your money. If a cashier lies on this field, then it will throw the entire overage component off since this is what counter shortages on a reconciliation. The goal here is to make sure the cash in a drop matches the amount reported.

Pay-Outs & Pay-Ins

Another, less common, register-based theft method includes payouts and pay-ins.

These aren’t very common at larger sized franchises and operations since most purchasing is automated and ACH only. Small stores, however, utilize payouts and pay-ins commonly. Typically cash vendors are because you can get a better price if you shop around and are willing to pay cash.

When those smaller vendors deliver goods, they’ll provide an invoice to your cashier who is then supposed to get their signature/invoice before paying the money out. The payment to the vendor is called a ‘Payout’ and is entered by the cashier into the register for reconciliation.

‘Pay In’s’ occur when you have in-house accounts with people who buy stuff and then pay against a tab at the register (rather than being mailed an invoice to pay against their in-house account).

Typically a store only has a few of these, but it’s possible to have more. The cutomer pays cash against his account, and you ‘Pay-In’ towards an in-house account. Theft in these cases can occur if the cashier does not record proper amounts. It’s also possible for shrinkage if the numbers are not reconciled in the back-office, allowing cashiers to pocket differences.

Void Line’s & Void Transactions (“Voids”)

Another method of abuse during ring up is ‘Void Line.’ These can be hard to abuse, but it should still be on your radar.

Let’s say a cutomer is purchasing three things, and the cashier accidentally rings something up twice. They can void that one “line-item” instead of having to void the entire transaction out.

This method is hard to abuse because a sale still occurs, but a savvy cashier might use this as part of a “catch-up” strategy to shift losses from earlier in the shift into transactions throughout the day and conceal losses, especially if something has an unusually even price since it would be easy to accommodate for.

Void Tickets are intended for the case when a cutomer tries to pay but then doesn’t have enough money to purchase the merchandise. The cashier in these cases can void the entire sale through a Void Ticket.

The typical difference between a ‘Void Ticket’ and a ‘No Sale’ is that a ‘No Sale’ allows you to open the cash register at any time. Even when you are not in the middle of ringing up a transaction, this is for non-sale drawer needs like breaking change. Void Transaction usually doesn’t open the drawer, but will cancel the entire sale.

That one difference with the drawer is usually why cashiers more likely will abuse ‘No Sales,’ but again check what the difference is with your POS system, the danger is in whether the event opens the drawer.

While Voids are a less common theft method, the goal with transaction monitoring is to review any POS event that allows the cashier to steal. Specifically, events that would enable the cashier to touch the money in the drawer or to generate a loss for later in the day when they do steal money.

Not At the Register

Thieve stealing valuable product hidden by other employees in the trash at a convenience store

You should always have a camera focused on the trash bins at your stores

Theft not at the register can occur in a few different ways as well.

Garbage

One popular method is for an employee or a cutomer to leave an item in the trash, which an employee can then collect outside when taking out the trash.

Garbage theft is easy to thwart by using clear trash bags and having cameras placed around your store, as well as outside by the trash receptacles.

Shoplifting

Theft not at the register also includes regular shoplifting in the form of a cutomer or an employee taking items off the shelf.

Shoplifting may be difficult to prevent through the point of sale’s data & analytics alone. However, shoplifting is also increasingly not a majority of theft that occurs in convenience stores. Most stores that are worried about shoplifting & external theft are probably losing their hats on internal theft.

These methods might seem easy to stop, but you have to consider that they might stop and start abruptly and only occur a few times a year. The important thing here is having methods in place to detect shoplifting.

Foodservice Theft

While shoplifting isn’t exactly something that should be the primary focus of loss prevention at a gas station or convenience store if you operate a food service operation that changes. We typically see shoplifting happen most often with janitorial or food service staff. Foodservice theft can be massive since it is another ‘gold’ target for thieves. Everyone eats food. Not everyone smokes or gambles.

We have seen most food service theft revolve around the most expensive products. Think of products like cases of meat in the back-room or delivery area of a store. A 50-pound case of beef could cost between $150 - $500 depending on the cut, that’s a large amount of money.

The best ways to catch this are:

  • Put cameras everywhere, particularly around trash-cans, back-rooms, storage areas and delivery areas (this is also important for Vendor Theft).
  • Taking accurate inventory or all merchandise at all stages
  • P & L Reconciliation, which leads us to talk about:

P & L Reconciliation - The Final Fail-safe for Loss Prevention

Gas Station Owner looking at Profit and Loss to reconcile his purchases and find potential shrinkage

If Accurate, looking at P & L statements allows you to catch theft regardless of the strategies employees are using to steal from your store.

Your profit and loss (P & L) statement is a valuable tool that can be used to identify theft in your store. In dry business terms, your P & L statement is a financial document that summarizes the revenues, costs, and expenses incurred during a specified period, usually a fiscal quarter or year.

Your P & L document will help you see how much inventory you acquired and parted ways with during a given period. It will also allow you to see how much in sales you recorded for the corresponding stock you purchased.

Let’s take this into practice for catching theft: Say, for example, you have $10,000 of cigarettes in your inventory. You sell all of it during a month, but only take in $10,000 in sales of cigarettes. You know you don’t sell your cigarettes at cost and should be yielding a profit. You can now see that somehow you are missing ~$1,000 in earnings from theft.

Your profit and loss statement documentation, which can be automatically created using bookkeeping software like Quickbooks (which we integrate with), will be essential for any theft avoidance and prevention techniques you plan to implement in your business.

Catching Theft

Convenience Store Owner looking for theft through binoculars

While we have discussed specific strategies, you need to always be on the lookout and constantly adapting your strategy.

You as an owner or manager will not be able to identify and detect all forms of shrinkage. However, using consolidation and inventory techniques like P & L should uncover any patterns or trends in employee behavior and have a more significant impact on preventing theft and loss.

By having HD 1080p cameras recording 24-7 (our recommendation, cameras are getting relatively cheap these days, it’s an excellent investment), and using advanced camera software. You can have alarm bells in place so that you won’t need to comb through hours of camera footage to notice odd behaviors. Instead, you can identify anomalies in your counts and use camera footage to jump in time to questionable transactions or actions. Going straight to the footage will allow you to catch the event in a more effective, efficient manner while also allowing you to identify more theft.

Identifying patterns, and having cameras to collect evidence is the best technique to catch theft in your stores.

Taking detailed and accurate inventory for the lottery, cigarettes, and all products, in general, will also help to catch theft in your convenience store.

If you have a gas station, gas is commonly stolen as well, straight out of the tank and is an on-the-rise form of theft. Particularly in large cities like Miami. Having gas inventory automatically tracked through your TLS (tank level sensor) will allow you to catch this and record gas theft.

Not to mention, make your Profit & Loss, and Balance sheets both more accurate - a tremendous negotiating point when working on loans with banks.

Keeping a close eye on inventory for these items, and preventing employees from purchasing lottery tickets at your store will go a long way towards reducing shrinkage. Employees should never be allowed to buy lottery during their shift. We talk about this more in our guide to Lottery Management.

You should also avoid having two of any system (two points of sale machines, two cash drawers, two inventory systems, and so forth). It will be easier to monitor and manage one, and having two will make it easier for employees to conceal their theft between systems. You should be able to prevent and catch around 80% of shrinkage through monitoring basic store functions. That difficult final 20% can through monitoring buying vs. selling as we covered in P & L reconciliation - unfortunately, this will mean longer lead times on catching theft, but at least the problem can still be identified.

Summary

You can prevent loss by having a plan and implementing a variety of strategies across your gas stations or convenience stores like having cameras, training employees, taking inventory, and monitoring your systems. You can be sure that shrinkage & theft can be reduced, cutting loss, and increasing margins - all while giving you peace of mind and more money in your wallet.

Psssst! Since you read this post on loss prevention, you should check out our software, Petro Outlet, it’s 100% cloud-based and offers:

  • 1080p HD 24-7 Recorded camera footage accessible anywhere
  • Official full Camera integration with the VeriFone POS systems (Commander, Ruby Ci, Ruby 2, Topaz)
  • Automatic inventory deduction from the POS, whenever a product sells
  • As well as Price Book Management, Automatic Scan Data submissions, and more!
Mahdi Hussein

Mahdi Hussein is the Founder of Petro Outlet. His first memories of the convenience & gas industries were running around aisles in diapers eating candy from his father's convenience stores.

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