SHRINKAGE

ECR Community Shrink & OSA Working Group Meeting

OCTOBER’18

SHRINKAGE – SONAE MC | LOGIC OF CALCULATION

CONCEPT(CALCULATION)

operational losses=

wastage (known reasons + depreciation margin*)

+

shrinkage (unknown reasons)

ACCOUNTING Know and unknown reasons valued at cost price

RATIO as a percentage of reported net sales

freshincluded

*Depreciation Margin= “Loss of value” (margin) resulting from sale by depreciated label (articles with end-of-validity).

SHRINKAGE – SONAE MC | LOGIC OF CALCULATION

(…)

MARGIN(…)

PURCHASE DISCOUNTSCOMMERCIAL REVENUES(…)

• Shrinkage managementis a Sonae responsibility

• Shrinkage occurs at the store & wh and this cost contributes to store & wh results

• shrinkage compensation revenues are part of gross margin and are isolated from shrinkage

EBITDA

COMMERCIAL MARGIN

GROSS MARGIN

SHRINKAGE

(…)

(…)

OPERATIONAL SHRINKAGE

commercialmanagement

WASTAGESHRINKAGE

operationalmanagement

SHRINKAGE – SONAE MC | PARTICIPATIONS

year 2017 - fmcg includes dairy products

By Business:By kind of losses:

FMCG 20%

Fresh 71%Non Food9%

SHRINKAGE – SONAE MC | PARTICIPATIONS

year 2017

By Business Units:

7

SHRINKAGE – SONAE MC | PROCESSES/WORK TECHNIQUESShrinkage reduction is a continuous and systematic process:

• Structure dedicated / Loss Prevention Department

• Loss Prevention’s Pivot (in each store)

• Database with information by item / store / day / type of losses

8

Shrinkage reduction is a continuous and systematic process:

• Commercial and operational support / workshops (evolution results, critical suppliers /stores/items actions plan)

• Suggestion for Assortment Changes (by item/store) and “Store Pack” (by item)

• Training

SHRINKAGE – SONAE MC | PROCESSES/WORK TECHNIQUES

SHRINKAGE – SONAE MC | PROCESSES/WORK TECHNIQUESShrinkage reduction is a continuous and systematic process:

Shrinkage

Merchandise conference of warehouse to stores

Front-Office Exceptions/ Fraud monitoring (RAID FO)

Minimum weights in FO for all variable weight items

Overstocks Daily Monitoring

Flow Of Critical Stocks (End of Validity Approach)

Local/ Source Protection

Inventory PlanCheck -List (Loss Prevention) – script of good practices

ShrinkageWastage

SHRINKAGE – SONAE MC | PROCESSES/WORK TECHNIQUESINVENTORY PLAN (SHRINKAGE REDUCTION - EXAMPLE OF A PROCESS)

MAIN OBJECTIVES

Ensure constant updating of Stocks.

Measuring Operational Shrinkage levels more frequently in order to:

• Promote the implementation of preventive / corrective actions.

• Support the evaluation of the effectiveness of the actions taken.

(…)

SHRINKAGE – SONAE MC | PROCESSES/WORK TECHNIQUESCHECK -LIST (LOSS PREVENTION) – SCRIPT OF GOOD PRACTICES

(SHRINKAGE REDUCTION - EXAMPLE OF A PROCESS)

MAIN OBJECTIVES• Draw 3 times a year the "portrait" of the most volatile areas in the store operational shrinkage, in order to take

preventive / corrective measures.• Conduct benchmarks of good practice• Exploration of results and comparison with levels of Breakage.

Check-List is available to all stores through an online tool that allows you to fill in the query and evaluate the results.

Average

Sales

Rotation

Days

Rotation Kpifor item / Category

Alerts Raid Stocks:

# Alerts daily average

10% of stock store

Stock by

Item / Store

SHRINKAGE – SONAE MC | PROCESSES/WORK TECHNIQUESRAID STOCK - OVERSTOCKS DAILY MONITORING (SHRINKAGE REDUCTION - EXAMPLE OF A PROCESS)

SHRINKAGE – SONAE MC | PROCESSES/WORK TECHNIQUESRAID STOCK - OVERSTOCKS DAILY MONITORING (SHRINKAGE REDUCTION - EXAMPLE OF A PROCESS)

Raid Stocks provides relevant information about item, stocks, sales and merchandising structure.

NEW LABELS

SHRINKAGE – SONAE MC | PROCESSES/WORK TECHNIQUESFLOW OF CRITICAL STOCKS (END OF VALIDITY APPROACH)

(SHRINKAGE REDUCTION - EXAMPLE OF A PROCESS)

DEPRECIATED LABELS with differentiated communication will streamline sales, increase sales, and minimize customer waste.(depreciation pvp reduction)

Use ByFood to be consumed by the deadline mentioned above. After that date, its

consumption entails food risk.

Best BeforeFood that can be consumed after the deadline, but may not have the best quality (texture, hardness, taste, ...).

Motto: "judge for yourself"

SHRINKAGE – SONAE MC | PROCESSES/WORK TECHNIQUESLOCAL/ SOURCE PROTECTION (SHRINKAGE REDUCTION - EXAMPLE OF A PROCESS)

>> ITEMS WITH SOURCE PROTECTION (EXAMPLES): CONDOMS, MAKEUP, CAR LAMPS, BATTERIES,…

LOCAL PROTECTION

SOURCE PROTECTION

SHRINKAGE – SONAE MC | PROCESSES/WORK TECHNIQUESRAID FO – FO EXCEPTIONS/ FRAUD MONITORING (SHRINKAGE REDUCTION - EXAMPLE OF A PROCESS)

SHRINKAGE – SONAE MC | PROCESSES/WORK TECHNIQUESRAID FO – FO EXCEPTIONS/ FRAUD MONITORING (SHRINKAGE REDUCTION - EXAMPLE OF A PROCESS)

SHRINKAGE – SONAE MC | ANNUAL EVOLUTION

Since Sonae MC focused on shrinkage reduction

achieved a cumulative recovery > € 300 million

cumulative recovery> € 300 million

shrinkage %rns

THANK YOU!

LOSS PREVENTION DEPARTMENT