Richard Pennycook on theft and security in grocery retail

Theft impact at crisis point: is the secure store the next evolution in grocery retail?

With the number of offences related to shop theft in the UK reaching record levels, alongside tax changes from the recent budget putting upward pressure on salaries, we sat down with retail veteran and turnaround specialist Richard Pennycook to discuss the economic and social impacts. Pennycook argues that self-service in a secure store environment is the next evolution in grocery retail, investment in tech will fuel an increase in shareholder value and that shrink is increasingly on the CEO’s scorecard.

Retailers face rising headwinds

Brick and mortar retailers are facing multiple headwinds but the one item that’s catapulted itself to the top of their business agendas is shop theft and security.

That’s according to Richard Pennycook, former CEO of the Co-op and a turnaround specialist with 30 years of experience in retail at leading high street chains, now pursuing a portfolio career in three key business segments.

Pennycook holds executive roles at leading large businesses including Two Sisters Food Group, a major supplier to Marks & Spencer; has advisory roles at businesses in the retail and tech space and is the lead non-executive director at the Department for Education and co-chair of the Retail Sector Council.

Steeped in retail, it’s in this latter role where Pennycook is getting to grips with the biggest issues of the day and is working with retailers and government to tackle those concerns and create potential solutions.

Speaking ahead of a recent Retail Sector Council meeting, Pennycook revealed the second item on the agenda was the Chancellor’s budget, which has impacted the retail sector with increases in both the National Living Wage and employer NICs, leading UK retailers to warn of job cuts and higher prices due to a £7bn increase in annual costs.

Item one, however, was shop theft and security.

Theft and security take center stage

Retail theft and crime has leap frogged more traditional business concerns, including business rates, as the number one worry. That’s no surprise. The ONS has reported a record number of shop theft offences in the year to June 2024 and the Home Secretary, Yvette Cooper, has branded the crime wave an ‘epidemic’.

As a result, Government is starting to respond, partly with legislation, and pressing police forces to take this issue seriously, rather than let retailers rely on their own security, Pennycook says.

He explains, “The chief executive of Boots, who sits on the Retail Sector Council, described it really well. He said that, basically, ‘we’re seeing a breakdown of the social contract’. Some of the things that are happening to colleagues in shops, are very unpleasant”. 

The distress caused to store staff and retail teams, as a result of retail crime, is driving legislative change through a more emotional engagement today, Pennycook maintains.

“Retail CEOs are wanting to call it out. It’s the traumatic effects on people, which really engage the conversation,” Pennycook adds.

Retailers take a new collaborative approach

While the new Labour government announced plans to crack down on retail crime in the autumn budget, retailers and other stakeholders are now working more collaboratively to tackle shop theft.

According to Pennycook that’s a step change. In the early days of his retail career, issues surrounding shrink and security, were viewed as areas where retailers could win competitive advantage.

A retailer would have an edge if their shrink rate was lower than a rival’s, for instance. Similarly with security, teams would implement initiatives to deter villains from their own stores to other shops. “So it was very much seen as ‘do your own thing’. But as it’s now endemic, that’s changed. Retailers are now talking about co-operation. We’re seeing it in certain problematic areas, and I actually think that’s a really good thing,” Pennycook says.

And retailers don’t shy away from talking about theft either. “The conversation about out and out theft is something that all the retailers are having,” he adds.

Driving factors behind rising theft

Retail theft has become endemic due to multiple conditions, which have been created incrementally, Pennycook says.

Self-service checkout, which removed the barrier to some dishonest behavior since people no longer had to pass through a manned checkout, has been one feature. The carrier bag levy has been another. While retail boardrooms disliked giving away two billion single use plastic bags each year, it did at least prevent customers walking into store with their own bags. Taking away that control mechanism was a “recipe for anarchy”, Pennycook says.

Further, the financial and cost of living crises have pushed people towards behaviors, which are dubious, he adds. These range from organized theft through to customers forgetting to scan an item.

“The final piece is a social contract, and we can’t get away from that. We saw it through COVID. Unfortunately, we said to the UK’s 68 million people, it’s all right to break the rules you know? It’s okay in Number 10 to break the rules,” says Pennycook. “It’s just been this chipping away of what we used to think of was proper behavior and all that comes together in terms of providing an opportunity for  technology players like SeeChange.”

Self-checkouts: clever tech, here to stay

While self checkouts have been partially demonised – they are blamed for about 20-25% of supermarket losses, rising to 40% with mobile scan and pay solutions – and have famously been removed from some stores, the technology is here to stay and for a number of reasons, Pennycook maintains.

Firstly, productivity and labor challenges. “Retailers have got to continue to increase productivity. The budget has made it even more challenging for a high street retailer to employ people,” he says.

In this climate, self-checkout helps alleviate labor shortages and helps with line busting with reports suggesting as much as 80% of customer transactions in supermarkets might be processed through variants of self-checkout technologies; and research showing 75% of physical shoppers sometimes leave a line before it’s their turn.

Secondly, next-generation self-checkouts, such as those delivered through the SeeChange and Diebold Nixdorf partnership, encourage positive behavior through real-time nudges. Data indicates that 80% of shoppers will self-correct their mistakes when prompted.

“There’s so much good academic evidence with scenarios that have been put in place to show how you can nudge people towards the right behaviour,” Pennycook says. “The sense that there are rules or you maybe just being watched will encourage a significant proportion of shoppers to do what they kind of know is the right thing to do anyway.”

As well as making retailers more efficient and competitive, self-service puts shoppers in control and removes frustrations, Pennycook adds. “Self-service is absolutely going with the grain of how people want to run their lives, which is ‘I want to be in control’,” he says.

Prioritize customer experience

While secure self-checkout environments are here to stay, they must be intuitive and easy to use, enhancing the retail experience rather than detracting from it, Pennycook adds.

And, it’s not just about the tech, but understanding the shopper. Pennycook draws an analogy with pay at pump technology, which has been slow to take off in the UK. “If you think about what the consumer has to do to pay to fuel up their car at pump, it is no more complicated than going to a hole in the wall and getting cash out from a bank. It is absolutely as simple. And yet it hasn’t got into the psychology of the consumer that that’s a thing that they can do to save time when they go to the filling station. It’s not just about the tech. Sometimes it’s also about how you tap into what works for the consumer.

“You’ve got to make the tech really usable and user friendly. And sometimes retailers need help with that, and the consumer also needs help. Retailers don’t want the self-service experience to be clunky,” he says.

This is key, since retailers increasingly prioritize the customer experience in-store. “More and more retailers are looking for efficient solutions that reduce friction points, improve the experience for the consumer and drive greater checkout efficiency,” states Matt Redwood, VP Retail Technology Solutions, Diebold Nixdorf.

Next evolution in retail

For Pennycook, secure self-service, which boosts efficiency for retail operators and provides greater convenience for customers, is a natural evolution and has the potential to transform the supermarket landscape as packaging did in the 1960s.

“Before the packaging revolution, shoppers couldn’t help themselves. They had to be served by somebody from behind the counter. And packaging changed all of that,” he says. “So these technological innovations, these changes, which lead to huge productivity gains for the operators, also have great utility for the customer – I don’t see the move to self-service being reversed at all.”

Secure self-service is the future

As brick and mortar retailers fight for survival against digital retailers, who don’t face the same retail theft challenges, enabling technologies like computer vision combined with machine learning, makes it possible to reduce their levels of loss and win crucial basis points of margin, Pennycook says.

The budget impact, while bad for mainstream brick and mortar retailers versus digital rivals and discounters, who are more labor efficient, creates a further opportunity for new tech.

“The guys that are most impacted are those with a big brick and mortar footprint, which takes a large amount of labor to service. So they’re going to be looking for continuing productivity gains,” he concludes.