INTRODUCTION
Due to changes in the market force, the prices of the goods have been on the rise across the globe. The inflation rate has affected manufacturing companies, construction, and the food-processing firm and small and medium-sized enterprises. The confectionery products are developed from the sugar and high level of carbohydrates raw materials, which have also been affected. For the traders to be able to tackle inflation and retain the market share, the companies have devised strategies to reduce the cost of production and retain the market share (Naprta,2015 P.25). Some confectionaries such as chocolate can be seen as impulse purchases but are slowly becoming daily commodities for many customers (MORRIS, 2012). The impact is attributed to the distinct product variation practices like products flavour and color, packing innovations and the promotional lucrative practices. With the increased consumer empowerment, inflation has posed a big challenge to the market development. The increase in the disposable income has no direct link to increase in purchases of confectionaries due to inflation. The inflation rate in the UK of the confectionary industry has been high with a consumer Price index of 99 from 2003 to 2017 (Statista, 2017). However, the impact has not been felt hard by the shoppers because the sugar and confectionary items consist of only 1% of the entire basket of goods and services used to calculate the Consumer Price Index including the housing cost of the owner (Ochirova, 2017 P. 5). Studies also attribute chocolate purchases to 1% budget cost the total weekly budget in USA and UK by 2010 (MORRIS, 2012). A study conducted in 2014 saw customers with a large percentage of 64% approving the need of Shrinkflation with men and elderly support being the highest (Juliano, 2014). They prefer when the manufacturer decides to have a smaller quantity but with the same price rather than retaining the quantity and increasing the price.
DEALING WITH INFLATION
Different mechanisms have been put in place to deal with the increase in the prices of factors of production, which has an impact on the overall cost. Some of the development includes rebranding and packaging, using cheaper raw materials and the automation of the production process to cut the human resource wages (Naprta, 2015 p.26). Shrinkflation is described as the act of reducing the quantity of a product without changing the price of the product(Ochirova, 2017 p.2). A large number of products exceeding 2500 have been affected by the skrinkflation (The Irish News, 2018). Shrinkflation has been attributed to many factors surrounding the cost and pricing of the good in the market. The size of some confectionery products such as Toblerone has changed over time but the prices of such products remain the same (Oxera Agenda, 2017 p.1). The practice has been linked to the customer loyalty, where the buyer develops loyalty to a brand, the price is constant but rarely checks in the quantity. Some product has announced to their esteemed customers on the changes they except to instill in their products. Although there might be economic difficulties resulting from the Brexit effect, the assumption is that the potential buyers will always opt for the cheapest commodity, hence the size is insignificant. The recording of the facts from the Office of National Statistics (2017) shows that there is no much reducing of size than the increase from the year 2012 to 2017, which has the same impact to price (Ochirova, 2017 P. 5). Unlike what the media has been reporting that downsizing is the main trend, the statistics also show that the food industry has received both increase and decrease in the product size.
The confectionery industry share is commonly controlled by the brand loyalty and the place of origin of the product offered which influence the customer perception of the buying trend and the demand of the product in the market (Ramli, 2017 p. 1). Another consideration the buyers are taking when buying snacks is the taste, ingredients and health benefits. The shift has been rapid due to the health awareness being undertaken to advise the citizen on the best meals to take for protection against foodborne diseases. To maintain the competitive advantage that is associated with sale and cost of production, the companies have to come up with ways of reducing the cost of production without necessarily making a loss. The amount of the sale in the market may not reduce if the company is selling at the same price but the quantity is different. Having a lesser quantity of the original with the same price does not mean the company is fraudulent its customers. The moral behind it is that it should be done with user consent. The firm can increase the price and keep the same size of the commodity is can bring different results.
RISE OF SHRINKFLATION
In 2010, an increase in the VAT was enacted in the confectionary industry which saw many companies such as Nestle and Cadbury cut the product quantity and retain their original price to maintain their profit margins (Wood, 2010). In 2016, UK saw the huge inflation and with the combination of bad weather from the country producing cocoa, the prices of the raw materials used in chocolate and other sweetness items increase( Jackson, 2017). Manufacturers, wholesalers and retailers are struggling with the inflation and need to develop best mechanism to overcome it. Previously, the confectionaries were used for pleasure but the modern generation has shifted this goal to nutrition one.
People no longer purchase sweetness commodities to solve the craving need but use them as alternative meals especially those who do not have time to take proper meals (Rucksnacks, 2016). This has led to the pressure of developing commodities, which is based on the nutritional value rather than the sweetness impact only (Bord Bia, 2011). With the increased prices of the raw material and need for extra inclusion of the nutritious once, the cost of production goes up and the final product is extra expensive. The shift to using the products as food has led to the development of products with embedded nutritional value and price friendly. To have a sustainable product in the market, it requires the collaborative effort among the market stakeholders to be able to develop a product which meet the customer expectations, close the gap, considers the cost of the limited resources and adhere to the international and local policies and regulation standards (León-Bravo, Caniato, Caridi & Johnsen, 2017). The nutrition subject has created a new trend in the advertisement where the buyers of the product are interested in content and nutrients it increases to their health (Juliano, 2014). The traditional confectionary were based on the sweetness and the products were developed on the sugar, low nutrients, calories- dense materials which are cheap to include in the product processing as their price is lower. A study on the growth of confectionery industry indicates that the number of people taking sugary products will decrease in future due to the link of the high calories food to diabetes, obesity, and hypertension (Cwerner, 2014). The nutritionists are advocating the use of less sugar and inclusion of fruits and healthy ingredient to the snacks, although the move has remained as an exception rather than a rule (Winker et al., 2016). The government of UK is also working to reduce the sugar content in the chocolate and other sweetness product by 20%, a move which has been pushed by the Public Health Department (Daneshkhu, 2017). The move has allowed the manufacturer to restructure their products to meet the requirement. Some of the product developers argue that the reduction of the size has been as a result of agreement signing between different companies, UK Government and retailers who are pushing for commodities which have a lower concentration of calories (Neiburg, 2014).
The value of the Pound has fallen in relation to the Euro and other international currencies after the Brexit Referendum with its value remaining below €1.08 (McCormick, 2017). Inflation is high and the traders are incurring high cost in the production process. The UK usually import more than half of what it consumes in the food groceries and the fall of the pound market value has had a huge impact on the import trade(The Guardian, 2016). Some of the product manufacturers in the industry has seen competition from rising business and need to drive the new business out of a market or compete favorably making the shrinkflation an option. Unilever wanted to increase the price of Marmite but Tesco battled it out with the explanation that the company export more of its products from the country (Rayner, 2016). The move also saw Tesco removing the products of Unilever from their website on the bases that the company does not manufacture most of the product in the UK and the fall of the pound was an excuse to increase the price. Tesco had been operating with low margin and increasing prices of the products it was selling would see it deliver low returns and stiffer competitions form other retailers in the market. What followed was the change in the ingredient and taste of Marmite with the same package and same prices. Although the taste is restored and the prices of the product went up by 10%, the management of the company reports falling in the revenues where the competitors have responded to the growing inflation and weakening of the pound against international prices by either increasing the prices or by skrinkflation (Ruddick, 2017). The former trend in business in the UK was the traders having to lower their prices to have the most number of customers. The trend had led to lower price competition in the market but on contrary increased the number of imports the country is getting (McCormick, 2017. The traders have become more sophisticated by trying to hide the prices increases by reducing the size of the items hoping the shoppers will not notice the shrinkage. The term has been developed to show the reduction of the product size in as a result of the rising inflation.
THE COST OF RAW MATERIAL
The raw material, which is used in the confectionary industry, are mostly sugar, flour, cocoa, the recent inclusion of fruits, and other rich-nutritious beverages. Most of the products are imported into the country with the production of cocoa, a main ingredient of chocolate and being imported from West Africa and Indonesia. The demand for Cocoa in the market has risen and taking into consideration the current weak statues of the pound, the raw materials cost is higher and the cost of production has increased. The force of demand and supply which control the market has seen an average increase of 2% of cocoa demand around the world with The International Cocoa Organization predicting the deficit of the cocoa supply by the year 2020 (Trade fair Foundation, 2016). The industry has also been hit by the subdue revenue collecting due to the recurrent falling prices of cocoa (IBISWORLD, 2017). Cocoa has inelastic demand which means that the stability of the prices does not necessarily impact on its demand but the final cost of production (Tothmihaly, 2017). The low prices fetched in the cocoa industry is giving the farmer uncertainty of their product, which may subject the farmers to abject poverty and can do away with the farming of the crop (Tothmihaly, 2017). A possible solution for the prices volatility in the countries that produce cocoa has been diversification, which can also mean the farmers might put more effort in another field that will deliver better returns leading to the low output of cocoa in the end. The 2017 global confectionery industry is anticipated to be stronger and with huge returns in 2018 which have been linked to the development of premium dark chocolate, the natural colored candy, and the protein-enriched products. With the ever-changing market situation and the companies struggling to stay at the top of the competition ladder, the increase in the cost of production will have a huge impact on the product being developed.
The 2008 recession did not affect the confectionery industry as it did to the construction (Gibsons, 2015). The demand for food is elastic compared to the construction of manufacturing and the economy has not been linked to any recovery but the food industry is performing quite well (Gibsons, 2015). The chocolate, in particular, has been previously described as a recession-proof industry combined with the cosmetic industry in that the consumers are willing to buy the less expensive luxury goods when they are facing the economic crisis (MORRIS, 2012). The implication of cutting down the quantity may not be such a big issue to the customers considering the chocolate is a luxury good. The production of luxury goods mostly specializes in the business becoming more sustainable, saving the valuable resources and reducing the environmental impact. The law controls the packaging and the price, cost of production and forces of demand and supply control operation of industry, the profit margin, and competition.
LAW AND MORALITY
The food and packaging law in the UK requires the processor to package food in a way suitable for consumption with a mark of for food contact (GOV.UK, 2018a). The ingredients of the product should be stated in a clear, visible and easy to read and understand manner to the consumer. In case the price or an extra ingredient is incorporated, and the correct information on the manufacturing and expiry date. The skrinkflation should be indicated in case the product has new ingredient and the size is reduced. The food labeling law requires a mandatory indication of the name of the manufacturer and all conditions required in handling the package and the net worth to be indicated on the product before it is set to sold (GOV.UK, 2018b). The question of whether shrinkflation is legal does not arise from the manufacturer because the work of The Food Standard Agency is to check if the packaging requirements are meant before the product are allowed to the market (Food Standard Agency, 2010). Shrinkinflation is legal because it indicates the change in the commodity size in the package and is confirmed by the authorities before the product can be allowed to trade in the public markets.
The ethical question that arises from the changing the size of a commodity is whether the firm producing the product should inform either the customer or the customer need to read the packaging details to find the reduced quantity. In some cases, the ethical part of the business is difficult to understand especially in matters related to pricing (Guo, 2012). The regulation approves the quantity if a product to be sold and a consumer expects the allowed product in the market is safe for consumption but does not check or notice the changes in the product. Rules and regulation are put in place to protect the customers from the fraudulent activities of the businessperson. If the customer is not willing to read the packaging details and they are correct according to the regulator, the buyer cannot accuse the processor being unethical. Although it is the right of the customer to check changes on the product when purchasing, it is the moral of the company to tell the changes to customers especially when the size of the package changes. Failing to inform the changes and hiding behind the compliance with the law is a label but unethical (McCormick, 2017). Some companies have changed the packaging label by naming the new packaging size, for instance, changing the packaging item from carton to box. Crème Eggs reduced the number of eggs in a box from 5 to six and also replaced the Cadbury coating shell with a normal cocoa coating (Horton, 2017). Other companies such as Mondelez change the shape of their product to rounded chunks and reduce the net weight to 45 from 49 grammes but retained their price (Neiburg, 2014). Packaging has been linked to most of the failure if the new products in the market due to lack of time by consumers to the way the benefits and the limits that are associated with a product by trying it (Conran, 2014). Other companies such as Mars have dismissed the possibility of having an alternative of getting but the original size just because their aim of reducing the product size was driven by the need to reduce calories in their product (Neiburg, 2014). The argument behind all the downsizing of the product is to provide the customer with best prices for the goods and meet the ever-rising cost of production. If the customer requires the messaging about the changes or have a problem with a particular product packaging, the only way is to find out if the description in the packages matches the product in the paper.
The results of shrinkflation can be analysed in that it has helped major producers in the confectionary industry to bypass the impact of inflation, increase of the cost of raw material, and maintain their customer base as long as the company is able to handle all the expenses that come with the product. The business today faces a lot of cost with the cost of the advertisement being included in the final cost. The cost increases the final cost of the good and can be met by reducing the size and maintain the price. One of the disadvantages of the downsizing in the confectionary industry is that, unlike the other industries where it has no inflationary impact, it has been found it has caused 1.22 % inflation rate to these products since 2012 (Morrison, 2017). Although skrinkflation has no linked customer cut, a large slice of the product from the common market trend will push the customer away.
SUMMARY
Shrinkfration is the act of reducing the size of the item while maintaining its price. The main factors that have led to the trend are the rising cost of production, the uncertainty and the rising demand for the raw materials and the countries inflation. The confectionery industry in the UK has been affected by the falling value of the pound after the Brexit Referendum. The value of the currency has been struggling against the other major market currencies making importation into the country more costly. The cost has led manufacturers to reduce the size of the item while others have opted to increase the prices of their commodities.
The manufacturers have been forced to comply with the government call to reduce the number of calories in the snacks, which has been attributed to high level of obesity and diabetes. The move has also allowed the manufacturer to reduce the size by 20% which has reduced the size but maintained prices. The packaging and labeling of the product laws require the details of about the ingredients, quantity and date of manufacture and expiry of product to be indicated. The shoppers have the responsibility to check the quantity even if the price does not change. The processor has an ethical responsibility to tell the customers if the quantity reduces which is rarely done. The retailers have the responsibility also to protect the customers from the exploitation when the manufacturers decide to increase the price without proper reason.
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