Shrinkflation: is the tactic a necessary evil as suppliers battle to keep costs low?

From shrinking chocolate bars to half-full packets of crisps, it’s safe to say that shrinkflation has been a fairly common – although controversial – cost-cutting tactic across the food and drink sector for many years.

As suppliers look to balance increasing costs with pressure to keep prices low, customers are more familiar with the concept of shrinkflation than ever before, meaning the tactic has come under scrutiny once again. While small changes often go unnoticed, current cost-of-living pressures mean that shoppers are hyper-focused on how much product they are getting for their hard-earned cash.

Recently, data from retail marketing consultant company Assosia revealed that Tesco had cut 50g from the weight of its entire range of own-label ready meals, with a spokesperson saying the supermarket was “more committed than ever” to providing customers with great value.

While shrinkflation is by no means a new tactic, the current economic climate means we are seeing it being employed more as suppliers strive to keep costs low. What impact does this have on the market and, even more crucially, how does it affect consumers already on tight budgets?

READ MORE: Tesco secretly cuts 50g from its own-brand ready meal range 

What is shrinkflation?

Shrinkflation is a process which sees FMCG brands shrinking their products to mitigate rising production costs or market competition. Instead of increasing the price of a product, the supplier simply offers a slightly smaller package, often for the same price.

Economist Pippa Malmgren was credited for coining the term shrinkflation back in 1981.

“In its most common usage, shrinkflation is when a company reduces a product’s size while maintaining its price,” she says. “It is an increasingly common response by companies to inflation – fewer sheets per roll, fewer caplets per bottle, fewer washes per box.”

Essentially a form of hidden inflation, shrinkflation offers – from a company perspective – a stealthy yet useful way to boost or maintain profit margins without drawing too much attention from consumers. However, according to data from Retail Analysis IGD, 80% of consumers noticed examples of shrinkflation in the 12 months to May 2022.

The trend for shrinkflation goes back even further, though. In 2019, the Office for National Statistics released data showing as many as 2,529 products in UK shops had shrunk but remained at the same price between January 2012 and July 2017.

With general UK inflation soaring and analysts predicting it could hit 15% in 2023, that number is likely to be dwarfed as more FMCG companies employ this tactic in the coming months.

READ MORE: Nescafe Azera reduced by 10% due to shrinkflation

Shrinkflation in practise

There have been many examples of shrinkflation of late, with more customers noticing brands reduce the amount of food or drink they are selling.

Manufacturer and consumer goods company Unilever has shrunk many of its products recently, including Magnum multipacks, whose sticks of ice cream have been reduced from 110ml to 100ml each – while remaining the same price.

Packet sizes for other Unilever products like Pot Noodle, Marmite and Dove soap have also been trimmed.

A spokesperson for Unilever said: “We regularly review our product sizes and pricing, and we are committed to ensuring shoppers enjoy great value for money from our brands.”

“The retail price of our products is always at the sole discretion of the retailer and we, like all manufacturers, only provide a recommended retail price.”

Spread supplier Upfield made a similar move, replacing 500g tubs of Flora, Bertolli and I Can’t Believe It’s Not Butter with new 450g variants. Some of Upfield’s products remained at the same price while others rose.

A spokesperson for Upfield said that like many other food and drink businesses, they were seeing “significant commodity cost increases, including our raw ingredients”, which impacted its supply and increased manufacturing costs.

Chocolate is the most complained about ‘shrinkflation’ product in the UK, according to research from britsuperstore. The most complained about brand is Cadbury’s chocolate at 57%, followed by Mcvities Biscuits and McCoys Crisps at 46.15% and 37.5% respectively.

READ MORE: Magnum multipack suffers ‘shrinkflation’ as Unilever looks to cut costs

Does shrinkflation damage consumer trust?

Unsurprisingly, consumers are typically unimpressed when they spot examples of shrinkflation in their weekly shop.

“It feels to me, a lot more offensive to consumer trust (even if good for short-term profits) to hike up prices only to smoothen the impact of inflation, hoping most consumers don’t notice subtle changes,” said senior partner for global consultancy firm McKinsey, Yuval Atsmon.

“In most markets, we haven’t experienced inflation for so long, so no one could really tell how consumers will react over time, but it is something for CPG companies to think about, especially with all the talk about being more purpose-driven.”

Atsmon added: “I believe this is a practice which could hurt some brands in the long run when not providing any value to customers.”

Siobhan Gehin, senior partner at global retail and consumer goods strategists Roland Berger, agrees that the practise may ultimately be damaging to both suppliers and retailers.

“Price increases are at least honest; with shrinkflation, the intent is often to pass on an effective per-unit price increase in the hope that the customer won’t notice,” she says.

“This is quite a dangerous game – while it may be effective in the short-term, it is not helpful for engendering long-term brand loyalty and trust.”

David Sables, CEO of Sentinel Management Consultants, is not so convinced. He told The Grocer that reducing pack or weight size is a “perfectly legitimate marketing lever that is often very much in the interest of the consumer”.

“In many cases, the consumer would be happier to get slightly less of their favoured product than pay a bit more,” he added.

“I don’t have a problem with shrinkflation or ‘deception’ when price elasticity is fully understood and drives the decision. I do, however, dislike it when suppliers opt for pack downsizes to avoid retailer reaction to, or subsequent implementation delay of, a price increase. This is just a reflection of their inability to handle a cost price increase with the retailers.”

READ MORE: Chocolate is the UK’s most complained about ‘shrinkflation’ product

Striking a balance

Retailers and suppliers need to strike a balance between protecting margins as they look for ways to combat soaring inflation and rising production and retaining customer loyalty – all while ensuring that they do not repeat mistakes made in past recessions.

Ultimately, it seems the answer to whether consumers will be able to accept shrinkflation is solely in the hands of brands and retailers and how honest they are about why products are shrinking.

If they can strike a balance between protecting profit margins and retaining customer loyalty, they will have a winning formula.

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