Can Growing Online Grocery Sales Reduce Store Shrink?

Our working group meeting focused in on the impact of online grocery operations on the store shrink performance. The key finding was that the relationship between online sales and shrink (inventory loss due to theft, spoilage, or operational errors) varied significantly depending on the store format, the online grocery operational model, and the nature of online fulfilment.

Here were five takeaways from the meeting discussion.

1. Shrink Performance Varies by Store Format

The analysis found that large-format stores, particularly those with a high proportion of first-party online sales (where the retailer both picks and delivers orders), experienced a significant reduction in shrinkage. For every 10% participation rate, unknown loss reduced by circa 8 basis points. This improvement is attributed to:

• Increased staff presence on the shop floor due to picking activities, leading to better monitoring and stock control.
• More structured picking routines that reduce inventory mismanagement.
• Enhanced availability processes that minimize stockouts and discrepancies.

In contrast, convenience stores that rely on third-party delivery services, such as Deliveroo or Uber Eats, exhibited no clear correlation between online sales and shrinkage. The inconsistency in shrink trends for these stores is likely due to:

• Smaller online sales volumes, which make it harder to measure impact.
• Store staff picking orders alongside their regular checkout duties, reducing the benefits of additional oversight.
• A newer and less optimized online fulfilment process​.

2. The Role of Process and Training

A key theme was the influence of operational processes on shrink outcomes. While increased online sales can lead to greater stock control, inefficient or rushed picking processes can counteract these benefits. Stores that prioritised speed over accuracy in online order fulfillment saw higher rates of missing items and theft risks​. Specific issues include:

• Employees bypassing standard procedures to meet fulfillment speed targets.
• High-value items being misplaced or stolen due to lax oversight.
• Delivery-related shrinkage from failed transactions, fraudulent claims, or theft in transit​.

3. Impact of Inventory Management

Online grocery operations generally require higher stock levels to meet customer demand, which can have mixed effects:

• Positive Impact: More frequent stock checks and better rotation reduce spoilage and stockouts​.
• Negative Impact: Excess stock, particularly in perishable categories, can lead to increased shrinkage if demand is overestimated​.

Interestingly, in stores where total sales decreased after introducing online fulfillment, shrinkage worsened. This suggests that a successful online model must drive incremental sales rather than merely shifting in-store purchases to digital channels​.

4. Variability in Third-Party Delivery Performance

Retailers utilising third-party delivery services saw inconsistent results. While some stores with high third-party order volumes exhibited increased shrinkage, the majority showed no significant impact. A few high-risk urban stores, such as those near universities, experienced sharp rises in shrinkage due to both high online demand and existing theft risks​.

5. Fraud and Customer Behaviour Challenges

Shrinkage related to online grocery operations is not limited to operational inefficiencies. Fraud, particularly through chargebacks and false missing item claims, emerged as a significant concern. Some customers exploit refund policies, while weak transaction verification processes enable theft by both employees and external parties​.

Conclusion

The impact of online grocery on shrink performance depends on store format, fulfillment model, and operational discipline. Large-format stores with structured first-party fulfillment benefit the most, while convenience stores and third-party models exhibit more variability. Effective shrink management in online grocery requires:

• Strong process control and training to balance speed and accuracy.
• Inventory optimisation to prevent overstocking and spoilage.
• Robust fraud detection and loss prevention mechanisms.

While online grocery expansion presents operational challenges, a well-managed system can significantly reduce shrinkage in certain store formats.