Increasingly online, consumers have begun to voice their displeasure over a recurring issue of shrinkflation. Shrinkflation, is a practice employed by retailers, where the size and/or quantity of a product has been reduced, while the price is kept the same or in some cases increased. Shrinkflation has primarily been seen in the food and beverage sector, where 70% of the noted cases of shrinkflation have occurred.
There are two key justifications, which explain why a retailer might engage in shrinkflation, increases in costs and meeting consumer demands.
Offsetting costs
We have seen that the rise in inflation and subsequent rise in costs have been a key driver behind shrinkflation. From the supply side, retailers are experiencing increases in pressure from all areas, with jumps in packaging, transportation, and manufacturing costs, which they have been trying to offset through shrinkflation. Interestingly, shrinkflation has been employed in tandem with other strategies such as direct increases to prices, reducing the number of promotions and lowering the discount amount of promotions all to diminish the impact of cost hikes.
Meeting consumer demand
The evolution of consumer demand has also been put forward as a justification of shrinkflation. With increases in demand for product variety partnered with high competition and prices for shelf space, retailers are arguing that the most conceivable way to meet these demands is to reduce sizing and packaging to maximise their offering and guarantee placement. This is in addition to the increase in consumer awareness of sustainability, wherein consumers are wanting to see recyclable and recycled packaging, with reports showing 55% of consumers are very concerned about the environmental impact of product packaging. This is without mentioning the growing governmental pressures, where the government looks prepared to set stricter regulations on single-use plastic packaging. To effectively respond to this change in sentiment, the packaging value chain needs to adjust. This is being done through packaging and branding redesigns and investment into recycling technologies, all which come at their own cost, which again retailers have been looking to offset through shrinkflation.
Why does it work?
The reason shrinkflation has been seen to work is due to consumers being much more sensitive to prices than to product volumes or specifications. Meaning that retailers are taking advantage of this by reducing the cost of packaging via shrinkflation and keeping the price the same to prevent the consumer from seeking alternatives. This practice is often done unbeknownst to the consumer, and so shrinkflation has been painted in a negative light as consumers are buying without being fully informed. Therefore, it is unsurprising that 90% of consumers disapprove of shrinkflation.
This goes on to beg the question – who should be footing the bill for the rise in costs/inflation?
This is more of an ethical question than a legal one. There is nothing illegal about shrinkflation, it is just often deemed dishonest. Clearly the setting of price is at the discretion of the retailer, but it is the way in which it is done that makes an impact. If companies were to announce changes to their packaging and the reasoning behind it, as well as look to revert to original size once feasible, shrinkflation might well be better received. However, is it realistic to expect retailers to announce hikes in prices/reductions in product sizes, which might push consumers to seek cheaper alternatives? Probably not. Furthermore, it raises the question of when inflation eventually cools, will retailers revert to their previous product sizes, or will they continue to seek to benefit from lower production costs per product?
If you would like to understand how to effectively tackle your food and beverage challenges, please contact Mark Boswell, Head of Food & Beverage Practice at 4C Associates at mark.boswell@4cassociates.com.
