Tobacco Documents Online

Pilferage Presentation. Core Presentation.

Abstract

This RJR document, Pilferage in Perspective, offers instructions on how to talk retailers out of the "knee jerk reaction" of moving cigarettes out of reach of customers in response to cigarette theft ("pilferage"). The document demonstrates how retailers can, in most cases, make more money if they allow their cigarettes to be stolen, as long as they continue accepting "display payments" paid by the cigarette company. The tobacco companies pay "display payments" (also known variously as slotting or merchandising fees) to retailers as in incentive to locate cigarettes in specific places in their stores, usually where they are easy to pick up.

The Food Marketing Institute (FMI) in Washington, D.C. (which represents the interests of grocery stores nationwide) in 1997 produced a Security and Loss Prevention study (which reported shoplifting data from 11,816 grocery outlets nationwide) showed that cigarettes accounted for 41% of items shoplifted, more than any other item. A quote from this survey makes evident retailers' longstanding awareness of this problem: “As in previous years, cigarettes were overall the item most frequently taken by shoplifters.” "Previous years referred to the ten years they had been conducting the survey until that point.

This RJR document uses equations in several places to demonstrate how the tobacco company's merchandising fees will more than offset retailers' loss from theft. RJR estimates theft rates for cigarette range from 1% to 6% of gross sales.

Note the example at the end of the document which cites the average "Winn Dixie" grocery store which sells 450 cartons of cigarette each month. The document demonstrates that if the store owner accepts a 6% theft rate--but continues to accept RJR's merchandising fees (amounting to $33,000 per year)--he or she will come out ahead. A 6% loss on 450 cartons of cigarettes equals an average of 5,400 cigarettes stolen each week--almost 290,000 cigarettes a year--from a single grocery store. This document demonstrates not only that such a theft rate is acceptable to RJR, but also that RJR offsets this loss to the retailer.

This document can be valuable at public hearings for laws to eliminate self-service cigarette displays, since it demonstrates how merchandising agreements between cigarette companies and retailers can encourage shoplifting of cigarettes

Fields

Notes

This document was first posted on Doc-Alert in August 1999. The URLs of the document images have been updated in this posting.

Quotes

MOVING FROM SELF-SERVICE TO NON-SELF-SERVICE CARTON MERCHANDISING TO CONTROL PILFERAGE SHOULD BE CONSIDERED ONLY AS A LAST RESORT:

-- DISPLAY PAYMENT LOSS -- SALES LOSS -- CUSTOMER INCONVENIENCE -- CLERK LABOR REQUIRED PILFERAGE MAY/MAY NOT BE REDUCED

Objective

--Maximize net profit --Reduce pilferage to acceptable level

One (1) Decision:

How should I merchandise cigarettes?

Two (2) Key Factors in the Decision:

--Net profit --Customer convenience

Three (3) Merchandising options:

--Self Service --Controlled Self Service --Non-Self Service

Store manager accountable for "inventory shortage" control. --Cigarette pilferage results in "kneejerk" reaction -- move cigarettes to a non-self-serivce area to keep inventory shortage within acceptable limits.

RISK OF MAKING A WRONG DECISION:

--Lost Sales --Lost Profits --Customer Inconvenience (customer dissatisfaction, possible lost sales for other products).

What I know:

Profit:

--Self service has highest sales of all merchandising options --Self service has highest display payments --Non-self service has not payment from competitors and minimal payments from RJR --Non-self service will require additional labor time (above self-service) to issue cigarettes to to ring transaction

[From Page 33]:

SUMMARY

The average Winn-Dixie selling 450 cartons of cigarettes per week will generate the following projections in gross profit...including shelf contract monies $33,000.

Assuming 2.90% pilferage and merchandising cartons from self-service end cap locations: $28,046

Assuming zero pilferage and merchandising cartons from non-self-service projecting loss in shelf contract monies: $28,000

POINT: Shelf contract monies offset 2.90% of pilferage BEFORE any consideration is applied to loss in profit going to non-self-service.

Assuming 6% pilferage and merchandising cartons from self-service end cap locations: $22,751

Compared to:

Assuming zero pilferage and merchandising cartons from non-self-service locations and projecting the following loss in gross profit due to non-slef-service:

20% - $22,478 25% - $21,097 30% - $19,716

Company

R.J. Reynolds

Author

Presumed corporate author, R.J. Reynolds

Recipient

Presumed corporate recipient, R.J. Reynolds

Region

United States

Type

GRAPHICS

REPORT

Named Person

RJR - R.J. Reynolds Tobacco Company

Peoples Drug

Winn Dixie - Supermarket chain common in S. of USA

Subject

theft

shoplifting

promotions

promotional payments