Risk Management and Tax Issues for Grocery Retailers
Back in 2018, we published a checklist to help you get a sense of how competitive your grocery business is today and steps you can take to stay ahead of change. As we enter 2019, we’re supplementing that list with four additional issues that hang over nearly every grocery retailer. The sooner you can address these issues, the greater the benefit you can see on your bottom line.
How Grocery Retailers Can Adapt and Compete
Take stock of your merchandising, operations, finance, and succession strategies. Read the article
It’s 5 p.m. on a busy night. The aisles are teeming with shoppers and the checkout lines are full. Everything is going great until your registers and POS systems suddenly go dark. Restless customers begin to wonder what’s going on, lines get longer, ice cream starts to melt in shopping carts. Then comes an email demanding that a ransom must be paid to get your systems back online.
Are you ready for a scenario like this? Who is your first call? Do you have a plan? Will insurance cover loses? Will customers ever trust your systems enough to swipe their payment cards again? This is a very simple but prime example of what can go wrong when you fall victim to retail cybercrime. With the large number of transactions and volumes of customer data running through stores, retailers of all types are prime targets.
Not only can a breach negatively impact a store financially, it can also ruin a solid reputation in the marketplace. At the very least, you should commit resources to ensure that you’re protected from these attacks and your hardware and related software systems are in compliance with payment card industry standards.
Evaluate your insurance coverage needs
Early in a new year is a great time to review your insurance policies related to the numerous types of risk in a retail environment. Take time to assess the types and number of claims over the past 12 months. Find out if coverages are adequate, if common risks are covered, and determine if there are any gaps. Then use this information to identify trends or common areas where you can be proactive about getting the coverage that your business really needs.
Take control of shrink
Every grocery store has (and will always have) shrink — breakage, theft, and loss. The question is, how bad is it? While shrink may never be 100 percent eliminated, it can be mitigated with the right mindset, training, enforcement, and accountability.
Shrink control programs generally don’t require an enormous amount of funds or resources to implement. Unfortunately, it is estimated that less than 40 percent of independent retailers have a solid program. If your operation is experiencing a downward trend in cash flow, has large discrepancies between expected inventory and actual inventory, or if it seems like there are some material gaps between expected profit and actual profit, it is time to act. Take time to find the sources of shrink and then implement training and strong controls to reduce the impact it has on your stores.
Take full advantage of tax reform
Retailers were expected to benefit greatly from comprehensive tax reform. By now, you should have been able to quantify the impact that the new laws have had on your business and moved to take full advantage of their benefits.
Added tax savings should have allowed for additional investment in stores, technology, and human resources. As you look ahead, tax planning should not be limited to an annual process, since just about anything retailers do these days has a tax consequence. It is important that retailers continually evaluate potential opportunities to take full advantage of tax-saving strategies and credits such as the Work Opportunity Tax Credit (WOTC) and New Markets Tax Credit (NMTC).
In addition, even with the “retail glitch” on qualified improvement property (QIP), there are still opportunities to take advantage of Section 179 expensing and 100 percent bonus depreciation on other qualifying fixed asset purchases. Plan to meet frequently with your tax advisor to stay updated on new developments and how they might impact your retail operation.
How we can help
So many areas demand a retailer’s attention that it is hard to choose which is the most urgent. Is it customer service, employee training, merchandising, succession, cost control, risk management, or promotions? CLA’s grocery retail industry professionals can help you evaluate your business and explore your unique opportunities. Our customized operational and financial strategies can help you stay relevant and competitive.