Touch points, shrink top list of cash-management concerns; tech adoption still sluggish.
When was the last time “counting cash” topped the list of qualities a store manager should have? That’s the question at the heart of a CSP survey done recently to assess where retailers stand with safes and security technology. “Inefficiencies in cash management” emerged as the leading concern in this area, with counting, recounting, reconciling discrepancies and making bank deposits among the many trouble spots.
“Reducing touch points reduces cash short and over,” says Ed McGunn, president of Corporate Safe Specialists (CSS), Posen Ill., pointing out that technology can often cut the frequency an employee has to handle cash. “That [adds] to the bottom line.”
CSS commissioned the CSP study, which was done this past spring and involved 186 respondents, the majority of which (73%) operated one to nine stores. Eleven percent operated 50 or more, while 6% percent ran 200 or more locations.
Despite high-tech “smart” safes and partnered solutions between banks and armored-car services, respondents still focused on cash management as their Achilles’ heel.
Many outside the study agree. “When we ask our clients what attributes or skill sets are most important when they’re looking to hire a manager … not once have they said, ‘Counting cash accurately,’ ” says Michael McSpadden, vice president and group head of product development for Garda Cash Logistics, Montreal. “But we find a store manager can spend two to four hours counting cash, preparing a deposit and taking it to the bank when they could be making sure the coffee is fresh and the bathrooms clean.”
Retailers Dan Burke and Frank Cogliano of Cincinnati-based United Dairy Farmers (UDF) were also skeptical at first. “But we saw much improvement with our cash variation,” Burke says. “We expected some, but my goodness, the resulting improvement was far better than anticipated.”
Other key findings in the study include:
- A growing problem? About a quarter of respondents believe inefficient cash handling has grown as a concern in the past year.
- Shrink still an issue. About 30% of respondents focused on shrink as a problem that is on the rise.
- Counterfeit bills. Showing up a distant third among safe and security-related issues is identifying counterfeit bills.
- Simple measures. Respondents rely on simple, low-tech measures with regards to cash management, with one of the most prevalent being low amounts of cash in registers.
- High use of business-rated safes and drop safes. These options were more likely the go-to strategy over the option of smart safes or more expansive closedloop solutions.
Though 78% of respondents considered smart safes “very effective” for handling and managing cash, only 21% had them, with an additional but meager 13% intending to adopt such safes.
Cost is still an inhibitor, says McGunn of CSS. A rule of thumb, he says, is that a smart safe can cost up to six times the investment of a typical, business-rated (or standard quality) safe. In addition, retailers often look past cash management when reviewing capital investment in favor of profit-making options. “It’s the difference between making a cooler more efficient or improving beer sales,” McGunn says.
For Burke, vice president of retail stores, and Cogliano, senior vice president of the 140-store UDF chain, the cash-management journey took some time. They started with an initial two-store test in 2001, but at that point, results were unclear. Two years later, another round of testing made installing the full smart safe with armored-car service an obvious solution.
“The first time, it was a huge expense and within our group there was some resistance,” Burke says. “The second time, there was less resistance and less speculation. The numbers were better, but between our first and second test, a ton of articles had come out on people who had done this within the industry. So our results were … more clear.” The Garda cash-management solution that UDF chose makes sense in 92 of its stores today.
Cashiers now take cash from customers, and the cash goes into the register and then into the safe without managers touching it. Armor-car messengers then pick up deposits and provide fresh cash and coins for the start of shifts. Savings comes from reducing work hours, because managers no longer have to count cash, reconcile errors if a shortage occurred or go to the bank for deposits or change. With those managers now on the sales floor, the chain could reduce clerk hours and attain considerable savings. Banking-related costs also dropped. For instance, they no longer had to bother with deposit envelopes (physical paper envelopes that clerks and managers used for bank-deposit cash), which amounted to a savings of $10,000 per year per store.
The company had also estimated a minimum and maximum improvement in cash variation. In this case, these variations would come from shrink, miscounted cash or, in rare but critical occasions, a lost bank deposit. With the new system having far exceeded the maximum estimates, Burke says, “I’d never want to go back to the cash variation number we were using before.”
Cogliano agrees: “One of the things that we always try to do is look for ways to improve customer service. It eliminates a lot of the issues we had in the past where our manger had to leave the store to make a deposit. Counting of cash took a lot of time. A lot of people would tell you it isn’t a problem ... but it’s an efficient way of doing business, and customer service improves.”
“And any time a person spends $1 in your store, you want to make sure it gets in the register and gets to the bank,” Burke says.
Though the opportunity for automated efficiencies has been around for a few years, the adoption rate for the industry may be as little as 5% for smart safes and even less for armored-car services, according to Ed Grondahl, executive vice president of Tidel Engineering, Carrollton, Texas. On one hand, he has seen large c-store chains with less than 10% adoption rate for armored car, while a couple of oil-company chains with over 1,000 sites are going all in. “When you peel that onion back, you’ve got franchisees and then you have corporate stores,” Grondahl says. While corporate stores may opt for the complete solution, “you’ve got to call on every franchisee, and so the adoption rate is slower.”
In many cases, retailers are handling cash in the same way their parents— and even their grandparents—did, says McSpadden of Garda. That means cash from customer to clerk to drawer or a till, and then at some point either the clerk or a manager puts it into a safe. Then the manager takes the cash out and into a back room to balance the figures and prepare a deposit.
“At that point,” McSpadden says, “people have touched the cash two or three times as it goes through the process, inclusive of paperwork and balancing the money to the POS [point-of-sale].” There are, obviously, more transparent solutions:
Safes with capabilities ranging from the acceptance of loose coins to dual drawers that separate beginning- and end-of-shift cash.
Smart safes that offer shift reports and real-time data as clerks load bills via a built-in cash acceptor.
Armored-car services with bank partnerships can give same-day credit for those bills, as if the store safe were an extension of the bank’s own vault (sometimes called “provisional credit”).
Barriers to Change
Quick-serve restaurants (QSRs) are further ahead with adoption compared to c-stores, as are other countries, Grondahl of Tidel says. At least at the corporate level, QSR adoption is “extremely high.” Likewise, for businesses in countries such as Mexico or South Africa, armored-car adoption is 100%. Of course, issues such as education and crime level play a part in these statistics, so c-stores may very well be on a natural course. Here are several compelling reasons why the c-store adoption rate is lower than other channels:
- Interest rates. One of the values of being automatically credited for money a clerk loads into a safe is savings on float. However, according to Grondahl, interest rates domestically are 0.25% vs. countries such as New Zealand, which is 4%; or Australia, which is 4.75%. “It’s going to be a long time before interest rates will make a difference here,” he says.
- Education and understanding ROI. The idea of provisional credit is difficult to grasp for many, as are the return-oninvestment models that ultimately justify the expense of a smart safe or the larger solution of provisional credit.
- Actual cost. As McGunn says, a “6x” formula for smart safes vs. less sophisticated ones is a consideration, as is the cost of an armored-car service. But McSpadden and others would suggest that costs are probably less than what retailers imagine. Without getting into specifics due to the wide range of client types and scale, he says that cost models can prove out for operations big and small.
- Lower crime rates. While stores in higher-crime areas may be natural fits for armored-car services, retailers feel most neighborhoods don’t require that level of security. Grondahl says countries such as Mexico and South Africa, where crime is much higher, require armored cars.
- Naturally slower rate. For some chains, moving to higher levels of technology happens at a slower rate as education and the state of legacy equipment evolves, says McGunn of CSS.
- Integration. McGunn says the industry has yet to overcome integration issues as retailers seek to have safes tie into POS devices, further closing the data loop. But he points out that efforts by NACS, with its Petroleum Convenience Alliance for Technology Standards (PCATS) entity, have been moving the industry along.
- Service availability. For many retailers, the option of provisional credit was limited in that now only a few armoredcar services have the proper ties to banks. Grondahl says that may be changing. A company called Fiserv, Brookfield, Wis., is developing an option for any armored-car provider to establish the proper ties to banks, he says.
- Fear of change. For many retailers, the biggest obstacle is resistance to change, according to John Rhoads, senior director for CompuSafe, Brinks Co., Coppell, Texas. “You can make ROI work from the dollars and cents, but are you operationally ready to make a change in an organization that’s engrained in doing it a certain way?” he says. “For a larger organization, you have a staff that can drive that initiative. Once they pull the trigger, they’re quick to move. What we have seen across the industry, especially at the independent level, is a delayed adoption rate.” The relationship between a retailer and cash is “very intimate” at the independent level, says McGunn: “It’s the difference between paying a beer vendor or having to ask them to wait until you sell more gas.” But successful cash management is also key to growth, especially for independents wanting to open additional units, McGunn says. “If you spend most of your free time going from store to store to deliver coins, pick up deposits and count out shifts, it’s a life that’s not satisfying,” he says.
As the issues surrounding cash management evolve, larger technology trends such as mobile payment will play into the equation. And while a competing payment method to cash, mobile payment presents retailers with the larger issue of “reducing the cost of each transaction,” says McGunn. If the introduction of plastic payment decades ago was any lesson, cash is not going away. But with emerging payment types such as tapping a cellphone on a contactless device, retailers must consider the costs of handling money.
“The entire [payment] segment is being looked at and improved through technology,” he says, “whether it’s debit, credit or mobile-payment apps.”
At some point, cash is going to have to compete with those forms on a financial level. If retailers don’t resolve the issue, then they may need to take away a payment option, which can prove costly in terms of customer patronage and satisfaction. “Consumers want choices,” McGunn says. “[Retailers] will give them choices, but at the same time, they have to make those choices as efficient as possible.”
Looking beyond current cash-management standards, technology is emerging to eradicate even more holes in the system.
One of those abilities is with cash forecasting. Soon, devices will be able to calculate how many $1, $5, $10 and $20 bills each shift will need at the start, McGunn says. Such an option would reduce the cost of carrying too much cash, as well as make transactions faster because breaking a roll of quarters in front of a waiting customer will no longer be necessary.
Don’t miscalculate the importance of that roll of quarters, McGunn says. Not only is opening them a consumption of time, but it’s also $10 sitting around in the open. “It’s about continuous improvement,” he says. “How do we increase cash flow and recognize discrepancies sooner? You’re always tightening up that process.”
Piece by Piece
Often, retailers will handle cash management and shrink issues piecemeal, purchasing new equipment based on what already exists on site and solutions that retailers see at other stores.
Lee Erickson, president of VRX Company, Maryville, Tenn., has a solution that with simple patch cords can electronically imprint a receipt onto video (shown in photo above), thereby tying that receipt to the action going on during that purchase. It helps provide evidence when an employee tries to steal by ringing up a void or no sale.
Many of his customers are retailers who have seen the device working at a friend’s store. The device is also used largely as a tie-in with Verifone Ruby registers, many of which adapt to the upgrade quite readily.