What is Loss Prevention?
Loss Prevention is the set of strategies, policies, procedures, and practices designed to reduce or eliminate losses in your restaurant from theft, fraud, accidents, waste, and other preventable causes. In the restaurant context, loss prevention includes preventing employee theft (cash, inventory, credit card fraud), customer theft (walkouts, credit card fraud), vendor fraud, food waste, over-portioning, inventory shrinkage, property damage, liability accidents, and operational inefficiencies that cost money.
Loss prevention combines physical security measures (cameras, safes, locks, access controls), procedural controls (cash handling procedures, inventory tracking, separation of duties), employee training, technology (POS systems with loss prevention features, inventory management software), and regular audits and reviews. Effective loss prevention programs save restaurants significant money while also reducing insurance claims.
What You Need to Know
The Scope of Preventable Losses:
Loss prevention addresses multiple areas of risk including:
- Employee theft (cash, inventory, credit card fraud)
- Customer theft (walkouts, credit card fraud)
- Vendor fraud
- Food waste and over-portioning
- Inventory shrinkage
- Property damage
- Liability accidents
- Operational inefficiencies
Key Loss Prevention Measures:
Effective programs combine:
- Physical security measures (cameras, safes, locks, access controls)
- Procedural controls (cash handling procedures, inventory tracking, separation of duties)
- Employee training
- Technology (POS systems with loss prevention features, inventory management software)
- Regular audits and reviews
Why It Matters for Restaurant Owners
Restaurant industry studies consistently show that restaurants lose 4-10% of revenue to theft, fraud, and waste, which means if you do $1 million in annual sales, you could be losing $40,000 to $100,000 per year to preventable losses.
Employee Theft:
Employee theft alone accounts for billions in annual losses across the industry, with common schemes including:
- Pocketing cash
- Giving unauthorized discounts or free food
- Stealing inventory
- Credit card fraud
- Time theft
Other Sources of Loss:
Customer walkouts, fake credit card chargebacks, and dine-and-dash incidents add to the losses. Food waste from over-portioning, spoilage, and poor inventory management can cost tens of thousands annually.
The Insurance Connection:
From an insurance perspective, strong loss prevention programs are essential because they reduce both the frequency and severity of claims, which leads to lower premiums and better renewal terms. Insurers look favorably on restaurants with security cameras, documented cash handling procedures, regular inventory audits, and comprehensive employee training programs.
Critical Coverage Gap:
Additionally, many types of losses aren’t even covered by insurance—employee theft is only covered if you have employee dishonesty coverage, and that coverage requires you to prove the theft, identify the employee, and cooperate with prosecution.
Essential Loss Prevention Practices:
Implementing systematic loss prevention measures both protects your bottom line and demonstrates to insurers that you’re a lower-risk operation:
- Surveillance systems
- POS controls
- Regular surprise cash counts
- Tight inventory management
- Employee background checks
- Clear disciplinary policies