How Wholesales Can Guard Against Employee Theft

Employee theft is a problem that can afflict any wholesaler. It’s not easy to spot, and the losses, financial and in other areas, can add up quickly.

So warns Barry Brandman, president of Danbee Investigations. For more than three decades his company has worked with wholesalers, uncovering more than $22 million in illegal activities committed by company insiders – many of who were long-term, “trusted” employees.

Brandman has spoken at NBWA conferences on this subject, in which he remains a leading expert. We recently spoke with Brandman about how employee theft affects companies — and how they can hope to curtail it.

Beverage Wholesaler: How rampant is employee theft?

Barry Brandman, president of Danbee Investigations.

Barry Brandman: Wholesalers don’t like to talk about it to outsiders, but they all have the same issues.

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BW: Why is theft so common?

BB: Why? Because you’re dealing with a highly desirable commodity. Whether beer, wine or spirits, alcoholic products keep their value better on the secondary market versus other goods. Many goods, you sell them on the secondary market for 10-to-15% of their original price. With alcohol, you can still get as much as 50-60% of their original value.

And a wholesaler’s operation really is a thief’s paradise.

BW: What makes wholesalers so susceptible to theft?

BB: First of all, they’re operating in a building with two to three shifts. The second and third shifts are typically not as tight as the first. And these are run-and-gun operations. Most of the focus at these businesses is about getting product in, stored, and then out. No one’s really thinking about theft.

Another part of the problem is that most thefts in wholesaler operations look exactly like standard operational procedure. They’re hard to spot. How can you tell the difference between 216 versus 210 cases loaded onto the back of a truck? That looks exactly like everyday activity.

BW: Let’s talk about driver thefts. What are the big issues there?

BB: Distributors like to see that their drivers take care of the same customers over and over along their routes. Distributors know that their retailer customers don’t want to see new guys all the time coming in with the deliveries. Customers like to develop rapport with their drivers. While most drivers are honest, unfortunately, a small percentage is not, and they take advantage of the trust placed in them by their distributor employers and their retailer customers.

Some drivers who commit theft are really slick about when they visit a customer. They will learn what times during the day that their customers are the most preoccupied. They’ll know what times they can go in when the customers cannot thoroughly check what’s going on out back.

These drivers will take back product, even sometimes cherry-picking products that have already been delivered. Or they’ll give a customer 12 cases instead of 15 they ordered and will be invoiced for. The drivers will then take these products and sell them for cash. Sometimes they’ll even sell these products to other customers, discounting by around 35% for customers who ‘love a special’.

BW: How dangerous is this kind of theft for wholesalers?

BB: Let me tell you a story. I was describing this whole scenario to one wholesaler CEO. This wholesaler said, ‘If my people are stealing from me, then it’s my problem. But if my customer gets screwed, then it’s their problem, because they do not run a tight building’. So this wholesaler was not as worried about figuring out who his dishonest drivers were.

Three years later, this CEO got contacted by their biggest retailer, who had put a freeze on all the receivables due to that wholesaler. The retailer wanted to have a serious conversation with the wholesaler, and said that they were bringing in outside counsel, because some of the wholesaler’s staff could get indicted. The wholesaler contacted me and asked if I could attend the meeting with him.

We showed up, along with the wholesaler’s VP of Operations and head of transportation. They had had a great relationship this the retailer customer for 24 years. But when we walked into the room, there were six people on the other side of the table, and they were all dead serious. They didn’t even want to shake the wholesaler CEO’s hand.

The retailer said, ‘We know that some of your drivers are screwing us on a regular basis. Are you aware of it?’ The wholesaler said, ‘no’. The retailer said, ‘Our GP is off in a bunch of our stores for the past year and a half. So we decided to put covert cameras in our receiving areas. What we found is that your driver has been short-delivering us almost every day’.

The wholesaler CEO said he was very embarrassed. ‘You don’t even have to show me the video’, he said. ‘Tell me how much is your shortage, and I’ll cut you a check and will terminate the driver and look to have him arrested’.

The retailer said, ‘No. We figured out how much our GP is off, and that’s the reimbursement number we expect for that driver. But you have eight other drivers. We’re working on the assumption that they’re also screwing us, unless you can prove otherwise. So we expect a reimbursement for each and every one of them.’

Altogether, the number they quoted for reimbursement was over $800,000. The retailer said that unless the wholesaler paid it, they would deduct it from what they owed him, and then take him to court so everybody in the industry would know what had happened. That would ruin the wholesaler’s reputation.

On the way back, after the meeting, the CEO turned to me and said, ‘please don’t say I told you so’, which I didn’t. Considering what he was now dealing with I didn’t want him to feel worse than he already did.

The fact is, just because theft takes place at a customer’s location does not absolve you. Driver theft can erode profitability, destroy trust and ruin reputations.

BW: What about warehouse theft?

BB: That can run the range from individual pilferage to collusion theft. With individual pilferage, you can have employees washing down their Big Mac in the warehouse with a $1,500 wine. With two or three people doing that each day, it adds up real fast.

With collusion theft, you’ll have employees deliberately arranging with drivers to get extra product onto their vehicles. It’s so methodical. We had one group, they were really shrewd. They didn’t steal large quantities of the same product on a regular basis. Instead, they varied what they were taking, to make it look more like a glitch in the warehouse software. And they stole cheap product sometimes, too, to mix it up.

In this case, several inside selectors and loaders were working with the drivers. They were even provided with shopping lists of desired items from customers who were buying the stolen product on discount. These selectors and loaders would text drivers about which products would be deliberately overloaded, and where exactly they could find them on their trucks. Then the drivers would call customers the morning of the delivery to see exactly what quantity the customers wanted and negotiate the cash deal before making their illicit deliveries.

This overloading scam happens frequently in this industry. Oftentimes it’s driven by the employees, but in some cases it’s the retailers who initiate these deals out of their desire to significantly increase their profit margins.

Collusion theft is so difficult to stop because it looks to be standard procedure.

Collusion theft is so difficult to stop because it looks to be standard procedure.

BW: What are some strategies that wholesalers can use to prevent these thefts?

BB: The wholesalers we work with seem to find one of three services that we provide to be meaningful in that regard.

The first is that we put undercover investigators inside their company. We have a large contingent of undercover operatives. They look, walk and talk like any other employee, except that they’re highly trained in intelligence gathering. And that intelligence goes directly to C-level executives on a regular basis in the form of highly confidential reports.

It’s not like in Hollywood with undercover operatives. They’re much more methodical, taking the time to build up relationships. And they report on more than just theft. They can report about on-the-job consumption, or substance abuse. Expensive drugs mean that employees must steal to subsidize their habits. Operatives can also report on poor supervision, violations of company policies and safeguards, or morale problems.

About 75% of the companies that we work with in this way keep our operative inside their company for eight to ten years. Sometimes that even extends to 15 years or more. These operatives are providing an MRI of the wholesaler’s operations: the unvarnished truth that CEO’s can’t get from any other perspective: that of an insider.

The second thing we do is setup hotline programs. A company needs a hotline program that’s 100% risk free for employees to actually report what’s really happening. If it’s not risk free, then it won’t work; employees will be too concerned with whistleblower syndrome.

Ours is an outsourced program, meaning that concerned workers feel more comfortable calling in problems because they will never have to speak with someone who will recognize their voice. And we never ask callers for their names. We assign each one a code number.

The third frequently asked for service by beer, wine and spirits wholesalers are vulnerability assessments. These will identify a business’s asset protection weaknesses, and then remedy those areas of risk with safeguards that are specifically designed to protect their bottom line.

A lot of these companies have multiple locations. That’s exposing yourself to the potential for greater loss. We’ve found that there’s an inverse relationship between growth and control. The more you grow, the more signs there are of problems.

Companies can be proactive to mitigate the risk and put in better controls that are proven to help deal with these problems. That’s how you are successful in business, because you never do see theft coming, and you’re never going to be made whole again, even if you have theft insurance.

The smarter move is to be proactive rather than reactive in this industry.

This interview was edited and condensed for publication.

Kyle Swartz is editor of Beverage Wholesaler. Reach him at kswartz@epgmediallc.com or on Twitter @kswartzz. Read his recent piece Here’s What Consumers Are Buying from Drizly During the CoronaCrisis.

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