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What is Inventory Shrinkage?
Inventory shrinkage is a situation wherein inventory shows in ample quantity in your company records but is not actually found on the ground. It represents the discrepancy between recorded stock and physical inventory.
Main Causes of Shrinkage
- Incorrect accounting and human errors
- Employee or supplier dishonesty
- Damaged, lost, or stolen stock
- Spoilage and expiry (for perishables)
Financial Impact
The grocery business operates on notoriously thin margins. India's largest retailers operate at about 12% gross margins. Shrinkage rates of 3% or more directly reduce profitability and significantly impact the bottom line.
Pre-pandemic, typical shrinkage rates were 2-3%. However, by September 2020, e-commerce grocers experienced shrinkage of 5-15% of revenue, representing a dramatic increase in losses.
Why Understanding Shrinkage Matters
E-commerce grocers face unique challenges with variable-weight items (fresh produce) and complex multi-tiered distribution networks. Understanding your specific shrinkage sources enables better ROI calculation on automation investments and prevents scaling issues that compound losses.
Recommended Solutions
- Use standardized crates with tracking IDs for accountability
- Weigh and scan crates during transit to catch discrepancies early
- Capture SKU and actual weight during delivery preparation
- Implement delivery audit mechanisms (can eliminate up to 90% of errors)
The Bottom Line
Inventory shrinkage is a silent profit killer for e-commerce grocers. By systematically identifying causes and implementing tracking solutions, you can recover significant margin losses and scale your business profitably.