Warehouses stocked with beer, wine, and spirits have always been at risk of theft. But as distribution operations have grown larger and more complex over the past several years because of consolidation and the growing number of SKUs, the risk may be increasing.
“The biggest challenge is really just the volume,” says Michael Epstein, the COO and principal of the Horizon Beverage Group, a distributor based in Norton, Massachusetts. His company carries more than 8,500 SKUs in its warehouse, which is over 500,000 square feet and can have more than 1 million cases in inventory during its busiest season. “The number of SKUs, the amount of inventory, the number of trucks rolling every day,” he says. “[It’s] just a lot of product on the move, all the time. And when that’s occurring, it can be very hard to keep your eyes on everything.”
To manage expanding inventories, many large distributors have turned to automated systems, which can be both a benefit and an Achilles’ heel when it comes to combating theft. While it’s possible to track product more accurately with automation, an employee who is familiar with the systems in place—and has the wrong intentions—can find ways to exploit them.
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That’s all too easy to do in a frenetic work environment. According to longtime security expert Barry Brandman, the president of Danbee Investigations, based in Fair Lawn, New Jersey, the chaos inherent in alcohol distribution makes it more susceptible to theft than many other industries. “If you live inside these companies, like we do,” he says, “you see it’s a very run-and-gun, hectic, fast-paced environment they work in and it’s very stressful. No one’s going to stop what they’re doing and look around. You don’t see people walking around and smelling the roses.”
The extent of the theft that typically plagues distributors varies widely—from a few cases of product to losses mounting to hundreds of thousands of dollars. Seasonal hires may succumb to the temptation of working in a building stocked with rack after rack of beer, wine, or spirits. Neighborhood kids might just be looking to make off with a few cases to party with. And then there are inside jobs by veteran company executives or route drivers who collude with warehouse pickers to divert product.
There are also more costs to consider. “It’s bigger than just the dollar value [of the stolen products],” says Epstein. “If theft is left unchecked and unaddressed, it breeds a toxic culture in your building. People begin to think that rules don’t apply. You lose discipline. You lose professionalism. That makes a warehouse much harder to manage.”
A Variety of Culprits
If there’s a common thread to the crimes alcohol distributors can expect to see over the course of their careers, it’s that they will often not disappoint in their ability to surprise even the most jaded industry veterans. Mike Wilson, a control and compliance manager for Columbia Distributing, based in Portland, Oregon, has been with the company for 28 years. He recalls the time half-drunk bottles of MD 20/20 (a ready-to-drink fruit-infused wine that retails for around $3.99 for a 750-milliliter bottle) began to turn up around the warehouse. Though the thief was never caught, Wilson did have a strong suspicion about who was responsible. He emphasizes that premium products aren’t the only ones at risk of theft in a distribution environment. “One can never assume theft will only happen on perceived valuable items,” says Wilson. “Value is a self-held notion.”
Lance Matthews, the director of the warehouse at Powers Distributing, based in Orion, Michigan, echoes that view. “You’d think somebody would want something that’s really expensive,” he says. “But [often] it’s the items that are moved quite a bit. It’s convenience. The chances of a Russian Imperial Stout six-pack being readily accessible is low, but a Miller Lite? We sell thousands of them.”
Epstein recalls the time a bottle of Heineken slid out from under the coat of a day laborer waiting for his ride and smashed on the ground in front of them. “I’m looking at him and I’m like, ‘Really? You’re never going to come back here for what? A warm bottle of Heineken? If you’d asked me, I probably would have given you a case of Heineken.’”
Things sometimes get more dramatic. When caseloads of products went missing from Horizon trucks parked overnight in the company’s yard, police began overnight surveillance. The culprits were finally caught: local college kids, one of whom had worked a summer job at Horizon the year before and was familiar with the picking team’s break schedule. He knew just when to strike. “I recall Bombay Sapphire being one of the items,” Epstein says. “I think once they ended up with a few cases of boxed Chablis. That must have been a great disappointment to a bunch of college liquor thieves.”
Other schemes can be more sophisticated. Brandman investigated one case in which an employee figured out how to print duplicate labels to get extra cases loaded onto trucks. “He slapped them onto cases of product, got them past the checkers, and they were loaded onto the drivers’ trucks that he was working in collusion with,” he says. “They were doing this between three and four times a week.” One of Brandman’s undercover operatives eventually exposed the scheme.
The employee was using this method to overload product with a wholesale cost of between $400 and $1,800 per week. The drivers he was colluding with would sell the extra product either to customers on their route who were willing to pay cash for a substantial discount or to retailers off their route. The warehouseman who was printing the extra labels later explained that the drivers he was overloading would essentially give him a shopping list each day of the product they knew would sell quickly—and for top dollar.
“In other cases in [the alcohol] industry,” Brandman says, “it’s not unusual for us to detect overloading, either by printing extra labels or other methods, that has exceeded $10,000 to $20,000 per month. For one of our clients, a major wine distributor, we apprehended four of their drivers and 15 retail wine and liquor stores that were actively buying their stolen products for more than three years. The wine distributor’s CFO, after reading the confession statement we obtained, estimated that their [total] loss exceeded $720,000.”
Brandman adds that this type of theft looks exactly like standard operating procedure. “There are no special bells and whistles that go off,” he says. “And this is not like what you see in the movies, where somebody tiptoes out a side door. This is theft that takes place within the system. And it looks and smells just like everyday activity, which [makes it] so hard for it to be differentiated without having some kind of inside intel.”
Ways to Combat Theft
Brandman is a big fan of using undercover operatives in a warehouse to sniff out perpetrators. He says Danbee has had operatives in place at some clients’ premises for more than 20 years. “We have undercover operatives working in every capacity you can imagine,” he says. “Driver’s helpers, receivers, selectors, loaders. I have people that have retired with me who only worked for one client their entire tenure with my company.”
Undercover operatives can cost $5,000 to $6,000 a month, Brandman says, but all it takes is breaking up one theft ring to make it worth the cost. A Danbee undercover investigator at a wine distributor recently broke up a ring involving a warehouse manager and two selectors. The investigator became suspicious when he overheard the warehouse manager instruct one of the selectors to place two extra cases of very expensive wine that were not on the shipping manifest onto a company truck. The undercover operative recorded 18 additional occurrences. Danbee’s surveillance team eventually exposed five retailers who were purchasing the cases of wine for cash. “Judging from their cycle count shortages over the last year,” Brandman says, “we expect [the company’s] profits to now increase by more than $30,000 a month.”
Another effective tool is the anonymous tip line. Often, it’s fellow employees who are the first to report some type of illicit activity. “It’s a simple, easy, low-cost solution,” says Brandman. “And if you get one call per year, the program pays for itself 10 times over.” An anonymous tip line can cost approximately $2,000 a year to operate.
Having a visual record of everything that occurs in a warehouse can also prove invaluable when it comes to cracking a case. Today’s cameras are more useful than ever, recording crisp, high-resolution digital imagery. And the thousands of hours these cameras record can be quickly scanned on a computer. “One of the arrows we’ve put into our quiver when it comes to helping companies in this industry,” says Brandman, “has been better utilization of digital video technology.” He adds that such video surveillance systems can cost anywhere from $15,000 to $200,000, depending on facility size, layout, required technology capabilities, and surveillance objectives.
As mentioned earlier, automated warehouse inventory systems arm distributors with more information about where SKUs are at any given time. Label scans and photos track cases from their storage location to the delivery truck. All this can help quickly identify when something is amiss.
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“For me,” says Columbia Distributing’s Wilson, “it [adds] visibility to the transaction detail, and in turn qualifies the accuracy of those transactions. Because we are a sales organization, being able to monitor the product in the warehouse and watch its flow—that’s the only way you can identify if it’s just a misplaced product or if it’s truly theft.” Wilson says that conducting regular audits to make sure employees are following inventory control procedures is a high priority at Columbia.
Spot audits on delivery routes can be a useful tool to uncover schemes being perpetrated by drivers. They can reveal whether extra product has somehow been loaded onto a truck for illegal resale. Covert surveillance on delivery drivers can also be an effective means to uncover unusual activity. Brandman says that if just one driver is caught and prosecuted for doing something illegal, that deterrent can last a long time.
Securing the perimeter of the warehouse itself should also be a priority. “What comes in needs to be well maintained,” says Wilson, “and you also have to closely watch what goes out. Our employee entrances are closely monitored, both with keycard access and cameras. And our supervisors monitor daily [whether] the doors are closed, if they’re latched—those types of things.” Brandman estimates that the cost of an intrusion detection system could range from $10,000 to $50,000, depending on the size of the facility, its layout, the technology capabilities required, and the surveillance objectives. Card access costs generally run between $1,200 to $2,000 per door, depending on the construction of the door and frame, as well as whether they will be single-sided or double-sided readers needed for a door.
Security measures like monitoring and video recording raise another issue: the risk of alienating employees. But Epstein says Horizon’s employees understand the need for such precautions. “They expect,” he says, “to be working in a somewhat more secure environment than they might in a different facility.”
Brandman underscores that warehouse crime has been around “ever since the distribution of alcohol has taken place. It’s the perfect environment for theft to happen,” he says. “There’s a lot of pressure to get the product in and get the product out.” He acknowledges, though, that only a very small percentage of employees are dishonest and steal.
“But the small percentage who do,” Brandman says, “can really cause financial chaos for these distributors and in some cases threaten their biggest customer relationships.” The key is getting ahead of theft by having well-thought-out programs in place to deter—as well as catch—the culprits.
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Andrew Kaplan is a freelance writer based in New York City. He was managing editor of Beverage World magazine for 14 years and has worked for a variety of other food and beverage-related publications, and also newspapers. Follow him on Twitter at @andrewkap.