Presumed corporate author, R.J. Reynolds
Presumed corporate recipient, R.J. Reynolds
This document was first posted on Doc-Alert in August 1999. The URLs of the document images have been updated in this posting.
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