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Cut Your Losses

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By Daniel P. Smith August 2014 Finance

In early August, when Bob Evans chairman and CEO Steven A. Davis takes the podium as the keynote speaker at The Restaurant Loss Prevention & Security Association annual conference in Florida, he’ll have the legacy of his asset-secure, 61-year-old brand backing him up.

Bob Evans Restaurants started as a modest eatery in 1953 and has grown to a $1.7 billion enterprise. Along the way, brand executives learned about the importance of loss prevention, and in 2010, invested in a business unit dedicated exclusively to it. The Ohio-based company commits itself to identifying, training, and creating awareness around losses that occur throughout the system, and even created an early warning index that advises when minor risks could become major issues.

Loss prevention, also known as asset protection or risk management, remains top-of-mind for operators, and the topic covers a diverse range of operational areas that influence profitability, from food safety to credit card breaches. Failure to protect against losses can erode a restaurant’s bottom line and handcuff its ability to invest in the future.

Expert methods to handle risk management include employee training, clearly articulated policies, and collaboration between various departments in the company.

At Bob Evans, director of loss prevention and security Vince Vittatoe has feverishly worked to turn “tribal knowledge” into documented standards that detail expectations and policies from store to store, person to person.

“We’ve created black-and-white standards, so everyone can understand the expectations of the company and the specific details on how things are handled,” Vittatoe says. “We need to protect the hard work [our staff] is doing and make sure that the money is getting to the bank.”

Don’t Ditch the Training Wheels

Vulnerabilities arise when employees don’t know how to handle sticky situations.

“Training is the first step, and then you retrain as necessary,” says Libby Libhart, who has spent more than 30 years in the loss-prevention field and runs LossBusters, a Florida-based restaurant and retail loss-control services agency.

Training begins with strong communication and reporting throughout the company. Since coming on board at Bob Evans in 2010, Vittatoe has streamlined communication among the chain’s internal departments and field operations. He installed training to help store-level management comprehend loss prevention; provided regular updates to the company operations booklet, including details on current scams; and created clear pathways for employees to report outliers to his loss prevention department.

Bob Evans recently modernized its incident reporting mechanisms, a move that brings discrepancies to light earlier than in years past. Previously, store-level staff would pen handwritten incident reports that were then faxed to corporate. In February, however, Bob Evans introduced incident reporting through its Intranet.

“We’re trying to get better at each point, consistently updating our policies around everything from cash handling to guest safety,” Vittatoe says. “From human resources to operations to auditing, we have the structure in place now that someone can immediately make our [loss prevention team] aware of anything that seems out of line,” Vittatoe says.

Liquor liability is another area that should be addressed through employee training.

“For all restaurants serving alcohol, one of the greatest exposures and fears is that someone will become intoxicated at one of our restaurants and cause a severe accident,” says John Gluth, senior director of risk management at Logan’s Roadhouse, a Nashville, Tennessee–based enterprise that runs 259 restaurants across 22 states.

Logan’s addresses that concern with its Beverage Operating Safety Standards, or BOSS, program, which is staff training dedicated to alcohol sales. Managers receive annual training on BOSS and are tested on the specifics of responsible alcohol service as well as signs of intoxication.

“If a severe accident was to occur because someone was over-served, the restaurant could be looking at bad publicity, criminal elements, and a civil case, all of which can deliver significant losses,” Gluth says.

Another area of concern is training employees to deal with potential conflict or threats of bodily harm. Restaurant operators must take formidable steps to prevent robbery and assault, including defining standards that outline how employees are to handle cash and lock the restaurant. Equally important is thorough preparation on how employees should react in the event of a robbery.

“You don’t want employees relying on their own instincts [in a robbery], as those instincts will generally be fight or flight,” Libhart says. “Teach them to comply and get through the situation, and spell out the expectations for what they should do during and after a robbery.”

Cash and Credit Card Vulnerabilities

The most widely publicized vulnerabilities involve payment card transactions. While achieving compliance with the PCI Security Standards is a critical step in preventing losses from credit card fraud, it is not a be-all, end-all solution.

“You must always know your systems and your vulnerabilities and address those gaps,” Gluth says. He acknowledges that one headline-grabbing cyber attack can severely hamper a brand’s reputation and sales, as was the case with Target and Neiman Marcus during the 2013 holiday season.

Given the intense black market for credit card data, restaurants must be vigilant against external as well as internal threats since both hackers and employees may seek to compromise the system. Important precautions include storing credit card info away from the restaurant’s own network and enforcing strict policies that specify how payment card transactions are handled.

Logan’s, in fact, invites an annual third-party audit of its network, and Bob Evans recently rolled out new policies regarding access to the back-office areas in its restaurants.

“Whether it’s cash, credit cards, or the information we get, we want to protect it all,” Vittatoe says.

On an every day basis, cash management is a frequent cause of losses, and should be monitored closely. From discounting and couponing to cash shortages and gift cards, operators must be vigilant about reviewing abnormal transactions and monitoring internal theft.

One area to watch is high-risk transactions, such as voids, refunds, and reopened orders, which must be audited. Compliance processes should be implemented to ensure staff follows the restaurant’s defined expectations.

Safety and Risk Management

The wide-ranging topic of safety and risk management also covers workers’ compensation and general liability, as well as food safety issues.

Restaurants are frenetic environments, and accidents are likely to happen. Items spill, kitchen workers grasp knives, and the potential for injury lingers over the entire operation.

Clearly articulated and strictly enforced policies to create a safe environment help mitigate risk and limit accidents.

Sometimes the solution is quite simple. For instance, Logan’s Roadhouse reduced its slip-and-fall claims by augmenting quarterly training on floor cleaning with a laminated poster in each kitchen that reiterates safety expectations, combining images and text to provide workers with specific instructions on proper floor cleaning.

Often restaurants establish an employee footwear program that mandates slip-prevention shoes, and many diligently enforce policies around the use of personal protection equipment, such as masks, aprons, and cutting gloves, to promote a safer work environment.

Food safety, an ever-evolving issue, continues to capture attention from operators and guests alike. One food safety misstep can devastate a restaurant’s sales as well as its public reputation.

Logan’s has incorporated strong policies with its vendors and store employees to ensure food is not compromised. In addition to ongoing food safety training at its restaurants, Logan’s also invests in regular third-party audits of its food safety programs.

“This issue is of vital importance,” Gluth says of food safety, as are any issues pertaining to the health and well- being of guests and employees.