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Security turns a profit at Hardee's.

UNLIKE MANY INDUSTRIES THAT are compelled to rely on soft cost measures to determine the impact of loss prevention efforts, fast-food loss prevention practitioners can measure their contribution in cash. The loss prevention department at Hardee's Food Systems, Inc., has used this cash connection with an emphasis on the value-added approach examined in the Atkinson Model(1) to establish itself as a profit center. The resulting loss prevention program has increased profits, improved service, and substantially decreased crime incidents since its creation in July 1990.

Loss prevention practitioners, still ribbed with labels including "hamburger police" and "chicken cops," are earning the look and credibility of sophisticated profit centers. Security managers in the fast-food industry now contribute to policy design, loss reporting management and analysis, investigations, fraud detection, prevention technology development, capital investment recommendations, employee screening, and executive protection.

Relentless competition for increased market share and slimmer profit margins makes loss prevention a key ingredient for long-term corporate fiscal health. This is not peculiar to the food service industry, nor are the value-added services that follow.

The impact of crime. The Hallcrest Report II--Private Security Trends 1970-2000(2) noted that the economic impact of crime on business will exceed $200 billion by the year 2000. Estimates of theft in the workplace range from 1 percent to 3 percent of gross sales, depending on the industry segment. One National Institute of Justice study theorized theft in the workplace involved one in three employees, while a London House, Inc., study identified one out of two in the fast-food industry.(3)

Loss prevention practitioners emphasize that losses are grossly underreported. Most appear on profit-and-loss statements as inventory variance at cost. In fact, inventory losses may be multiplied by the factor of cost to get a true picture of losses. In the food business, a large percentage of inventory variance is the result of sales theft. Inventory cost ranges from 30 percent to 33 percent. Conservatively, a reported variance may be multiplied by three to determine the actual impact on net profit.

Recent crime data should give those in the executive suite additional pause. Violent crime was up 3 percent in 1991, according to the FBI.(4) That marks an unabated increase of 30 percent since 1987. Traumatic injury costs, driven by frequency and severity, will launch unprecedented benefits costs for the industry.

Murder ranks as the United States' tenth leading killer with 26,250 victims in 1991, a 21 percent increase since 1986. A total of 6,956 homicides were classified as "workplace related" between January 1, 1980, and December 31, 1988, according to the National Institute for Occupational Safety and Health (NIOSH).(5) Murder is the number one killer of women on the job.

The quality of the work force in the year 2000 already concerns cost corporations, even without crime considerations. Demographic shifts and the failing U.S. education system require key adjustments. The prospects of a shrinking work force are daunting.

The liability outlook for work force 2000 is equally harrowing. According to the Bureau of Justice Statistics, 3.1 million adults are presently under court supervision, 2.6 million are on probation, and 531,000 are on parole; 93 percent of those are convicted violent offenders. By 2000, one in every ninety-nine adults will have been incarcerated.(6) Negligent hiring and inadequate security litigation will skyrocket without public criminal records access by the private sector.

The solution. Food service crime prevention initiatives have been well documented since the late 1970s. The advances are remarkable because of their achievements in a sometimes hostile environment. Blend billions in accessible cash, a cocaine epidemic, and an arms race on the street and all the ingredients necessary for fraud, robbery, and violence are there.

Hardee's introduced its first formal loss prevention initiative in July 1990. Countermeasures, including stricter cash controls, disposable bank bags, witnessed money counts, and manager accountability, were introduced in the first six months of the program. A renewed vigor in pursuing criminal and civil assets recoveries has reduced net operating expenses and restored millions in lost assets.

Within months of its introduction the loss prevention department demonstrated a profit center orientation. By the end of 1992, continuous reductions in cash loss were projected at $1,047,800. Cash recoveries alone from civil and criminal restitutions (excluding loss reductions) will exceed $800,000 on a budget of $500,000. Total departmental contribution to bottom-line profit is estimated at $1.5 million with soft measures including savings. Return on funds used to prevent such losses will exceed two dollars for every one dollar spent.

Hardee's early commitment to automated loss analysis made it easy to identify the priority issues for loss prevention staff development. Violence prevention remains paramount. Armed robbers who had previously preyed on the chain with impunity are now routinely tracked and ambushed. Repeat offenders are identified through security bulletins to potential victim sites in targeted geographic areas. Suspect histories and analyses of transportation routes support the task. Software featuring mapping graphics, video capture, and scanning helps identify suspects, areas of operation, and related crime scenes to restaurants and police agencies nationwide.

Automated loss reporting is key for loss tracking, intervention, and recovery of assets. Regional loss prevention consultants who are Hardee's employees are advised of high-ticket losses. Examples of high-ticket losses include losses involving injuries and losses involving multiple bank deposits. Background checks are performed on management personnel who have access to missing funds. A database tracks all previous deposit or sales irregularities.

Suspects who have identified access to multiple losses are questioned about their access to data during the entire course of their employment with the company, not just on the basis of the last report. Hardee's also has loss prevention operators who perform support services for the loss prevention consultants. These individuals take loss reports, perform management background checks, and look for potential fabrications that are peculiar to typical losses. Policy violations, an absence of witnesses, and losses involving more than one deposit attract additional attention.

Reducing loss and cost. Loss and cost are the dreaded cholesterol and fat equivalents in a corporation's diet. Successful departments work hard to earn reputations as low cost providers. Companies reengineered to be lean machines will not support fat cost centers. Profit centers must routinely apprise their clients--in Hardee's case, senior management and restaurant management--of their fiscal status. Attainable targets must be chosen, along with a strategy for working smarter with available resources to produce superior results. Total quality cannot be a long-term goal without continuous daily improvement.(7)

In March 1991, Hardee's loss prevention department replaced a contract security guard force that cost the company $80,000 per year. Today, college students have been hired as nonbenefit employees and trained to perform automated loss reporting and other security duties, such as identifying hazards and threats and relaying them to the loss prevention communication center, at Hardee's corporate headquarters, a five-building complex in Rocky Mount, North Carolina. The students staff the loss prevention communication center, which operates around the clock.

The loss prevention operators also service one of Hardee's nearby sister companies, generating income of $40,000 per year. Hardee's has leased services to the sister company so that operation would not have to provide its own security, a beneficial arrangement for both companies.

As part of the loss prevention program, proprietary background investigations were initiated for all personnel having access to funds. In addition, all management candidates and promotees are screened. This superior proprietary background investigations service, in which inquiries are made regarding education, employment, and credit, has reduced costs and brought in top-notch new employees.

A national contract for contractors that performed criminal background checks was sent out for bids. The accepted contractor performs these investigations at an average cost of $39 per applicant, a significant reduction from the previous cost of $75 per applicant.

The loss prevention department charges operational units (individual restaurants and staff departments) $45 for each criminal background check to defray the costs on 5,000 investigations a year. The income equals $30,000 a year with additional savings--the difference between what the operational units were paying for previous service at $75 per applicant and the current $39 per applicant--estimated at $150,000. The net income and savings for the operator support staff is $100,000 per year. This savings added to the $80,000 savings from not hiring a contract guard force results in a $180,000 savings. The net yield is superior client service for less money.

Company policy following this new security service upgrade required the loss prevention director's approval for all security services and equipment. All service contracts, including security officers, armored couriers, investigations, and alarm monitoring, were reviewed for renegotiation. Standard five-year contracts were replaced with thirty-day escape clauses to elicit better service since companies with locked-in contracts might not be as responsive as those that can be legally terminated with thirty days' notice.

Security providers were required to name Hardee's as an additional insured, with minimum liability coverage of $1 million. Underinsured contractors were replaced. Alarm monitoring costs were reduced by 50 percent by bidding the account out nationally. Service costs were projected to be reduced by one-third by the end of 1992, with savings of $206,000. In most cases additional capital investment, like radio frequency (RF) for alarm systems, was added to ensure improved security despite cost reductions.

Getting smart. Some labor-intensive services were replaced with equipment. Underinsured, off-duty police officers were withdrawn in lieu of ballistic resistant materials, smart safes, CCTV, and alarm upgrades featuring RF technology. The improved physical security at one restaurant yields an additional $30,000 per year in profit due to the trade-off of cost-intensive outside services for a fixed capital investment, which is amortized over ten years. More important, the restaurant, which had been a favorite target for robbers, has remained relatively crime free.

Similar plans to be more creative with traditional services are under way. In one instance, an aggressive preventive patrol has replaced stationary security officers. Unarmed, mobile, patrol officers, outfitted with communications equipment, bullet-resistant garments, and camcorders, supplement the local police for increased deterrence and client morale at a fraction of the cost of stationary officers. Freed resources become available for additional prevention investment in restaurants, prioritized by ongoing crime analysis.

Smart safes--safes that have onboard computers that require a personal identification number (PIN)--promise new avenues of security for restaurants. The safes verify access and provide an audit trail as well as allow the user to signal for an alarm. Security practitioners at Pizza Hut, Kentucky Fried Chicken, Long John Silver's, and Little Caesar's anticipated the impact of access control on cash handling businesses before practical technology was available. They pioneered the use of time-lock safes to limit the accessibility to cash.

The input of these and other practitioners produced safes that no longer feature combination dials. These programmable strongboxes require a key for access. Managers who may have previously misdialed a combination only to be brutalized during the course of a robbery by a robber interpreting the delay as a stall tactic now have better expectations for safety. The safes also deter internal theft. Audit trail, time delay, time lock, and discreet duress alarm features ensure risk and consequences for armed robbers and embezzlers.

Employee's safety in parking lots is equally enhanced by RF. RF alarm transmitters worn on a wrist or keychain allow opening, closing, and banking managers to set off alarms within 1,000 linear feet of the front door. Multiple transmitters make it impossible for restaurants personnel to be controlled by robbers without the risk of setting off an alarm to alert police.

Stores that are frequently victimized are slated for additional investment in audio and video equipment. CCTV equipment is interfaced with point of sale terminals, and these areas are routinely monitored.

Team prevention. Automated loss reporting ensures the success of the profit center. Security keeps senior management informed regarding problems and solutions. Management is also kept apprised of the need for additional resources and employee assistance.

Loss prevention associates, with the support of dedicated loss analysts, follow up on court-ordered restitutions, civil promissory notes, and garnishments. The associates identify probation violators and detail all asset recovery operations on a monthly basis. Loss prevention activities are also documented through loss reporting software to provide details on litigation and sentencing.

The investigation coordinator documents all backgrounds hits--checks that result in the discovery of irregular information, usually negative. All criminal information known to the corporation is in the database. Details about a vehicle involved in a crime contribution to research on partial license tag numbers, names, and telephone numbers. Cross-indexing of reporters, victims and witnesses of crimes, workers' compensation, and public liabilities incidents often suggest common denominators that indicate fraud.

Results, improvements, and ongoing solicitations of management input are reported in Hardee's loss prevention newsletter, The Stopwatch. Security bulletins and suspect "wanted' flyers are disseminated regularly by the company's postal system and telephone voice mail."

Cost-efficiency remains key to expanded loss prevention efforts and client appreciation at Hardee's. Asset protection personnel and services are an integral part of the corporation's strategic mission. Protection of personnel, guests, and property is a nonnegotiable contribution to the customer's experience. Anything less risks spoiling the recipe.

1 Stephen Gale and Charles H. Davidson, "A Model for Security's Bottom Line," Security Management, September 1992, pp. 76-79.

2 William C. Cunningham, John J. Strauchs, and Clifford W. Van Meter, The Hallcrest Report II: Private Security Trends 1970-2000 (Stoneham, MA: Butterworth-Heinemann, 1990), p. 30.

3 John P. Clark and Richard C. Hollinger, "Theft by Employees in Work Organizations," National Institute of Justice Executive Summary (September 1983), p. iii; and Emil Monda and William Terris, "Employee Theft Study," presented at the National Food Service Security Council, June 22, 1987.

4 Uniform Crime Reports: Crime in the United States, (Washington, D.C.: FBI, U.S. Department of Justice, 1987-1991).

5 Catherine Bell and Lynn Jenkins, Homicide in U.S. Workplaces: A Strategy for Prevention and Research, (Washington, D.C.: National Institute for Occupational Safety and Health, September 1992).

6 Steven D. Dillingham, National Update, (Washington, D.C.: Bureau of Justice Statistics, July 1992), p. 12.

7 Jerry Bowles and Joshua Hammond, Beyond Quality, (New York, NY: The Putna74m Publishing Group, 1991).

Francis J. D'Addario, CPP, is director of loss prevention at Hardee's Food Systems, Inc., in Rocky Mount, North Carolina. He is chairman of the ASIS Standing Committee on Food Services and a member of the ASIS Standing Committee on Crime/Loss Prevention.
COPYRIGHT 1993 American Society for Industrial Security
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Title Annotation:Loss Prevention; Hardee's Food Systems Inc.
Author:D'Addario, Francis
Publication:Security Management
Date:Feb 1, 1993
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