According to Ksenia Golovacheva's work, shrinkflation is normally done by the marketers without the consumer's knowledge. This is still legal because they provide the state required quantity of goods for the same price. However, this does not stop the consumers from using either their previous purchase experience or their instant impression of the package after the downsizing to judge the quantity packaged. The consumer's reliance on their preference is misleading. (Gupta et al 2007) Since it is clarified that the consumer's choices are meant to maximize their utility, we would expect the repackaged products to change their optimal choices. Despite the principle assumption that all market agents are highly rational, the current market etiquette shows that it is commonly acceptable to let morality influence a market agent's behavior. Given that the consumer's see the package according to their expectations, they might not respond well to sellers and their products if they feel they are being treated unfairly thus bringing on the effects of downsizing on the market. (Golovacheva 2016)
Shrinkflation is also addressed as the re-engineering of products through a decrease in their sizes and a reduction in the packet sizes while the price charged remains the same. This is the customer paying the same for less. According to this article, product re-engineering is as a result of the fast-rising cost increases in the growing grocery sector together with changes in the macroeconomic variables affecting the retail food markets. The move has been reported to be widely practiced in the year 2016.This is because the confectionery market has been responding to the higher input costs and the strength of the US dollar. The research quotes an example of the reduction in Terry's Chocolate Orange from 175g to 157g and also adjusted the retail price increase on the weighted adjusted piece of the same product. (Veljanovski 2017). This act, in a way, is chaotic since in most cases its followed by the lodging complains by the consumers of the respective products. It also affects the utility of the consumers, since they pay the same price but get a lower utility from their consumption. By firms employing this trick, they may end up losing their markets share in the industries they belong to. One reason that makes shrinkflation successful most of the times is that the consumers put much attention to the packaging of the products and their attractiveness rather than the content quantity and quality. (Grimes 1998.)
In another article written to examine the extent of product downsizing in Japan during the deflationary period, we find empirical evidence that suggests that consumers responsiveness to size and weight changes is similar to their response on price changes. (Imai 2014) This is an article with evidence of shrinkflation though it is not specific to the confectionery market. It shows that producers can manipulate the products they sell without consumer input just to maximize their gain from the activity. However, we note that products bought declined with the downsizing which implies that consumers note and are responsive to the downsize. This begs the question as to why the confectionery market in the UK would practice downsizing of products if the consumers will in the end up not buying all their products anyway.
To begin with, there was an inflation of food costs which triggered a downsizing trend as from 2012 with producers stating that the prices of ingredients had gone up. This led to the revamped products that came in tiny sizes for the same price and with promotions, special offers, and launches that contained incentives of ‘less fat content.' From a neo classical stem point that all consumers are rational, the producers can anticipate that they will make a choice of quantity versus quality and settle for quality if their preference is to eat healthily. (Azimont. et al. 2007) This puts downsizing in a positive light and actually encourages producers to keep up the act. This is also in line with most of the industry's goals of going green and reducing wastage thus it is fit to practice shrinkflation.
However, downsizing is not that good because other consumers' preference mostly is on quantity fit for the price charged. Given that a consumer is still rational, once they realize that the product has been reduced in quantity and their main goal was to get satisfaction from the quantity, they will shift to substitute products that have not been resized and that meet their utility needs. (Besier 2015) This means a firm will undergo loss of clients and eventually income if consumer preference of commodities with regards to changes is as responsive as their reaction to price elasticity.
It is justifiable for companies to shrink their products given that consumers are not rational as construed by the neoclassical economists. Behavioral economics dictate that losses and gains are relative to consumers. The price increase in a commodity is a loss whereas quantity reduction at the same price is not a loss. Consumers seem indifferent to some of the product size reduction but are pretty responsive to price increases. Hence producers would rather reduce the quantity than increase the price. This is mostly cheered on by the fact that most companies are not price or mass regulated. In fact, the Trade Metrology Act stipulates that the amount in the package should be consistent with the content of the product. For instance, the maximum restriction set on a loaf of bread is that there should not be an excess of 5% weight difference between the written weight of the product and the actual weight of the product. (Cumming and .J. et al. 2016)
Some of the companies justify that the shrinkflation is necessary because the consumer households become smaller and thus their optimal choice should be repackaged into smaller quantities to be accommodating and reduce wastage. The companies do not review the cost of purchase by the consumers even after reviewing the quantities to smaller units. The impact of Brexit on the economy led to fluctuations in the currency values. As a result, most of the retailers and consumer goods companies compensated for the loss by cutting down on packaging quantities. This, in a way, helped avoid disastrous price increases of commodities passed to the consumers of the final goods. The companies dealt internally with the rising costs of imports and inputs required in its production plan. Consumers rarely realize this since their main preference is the product itself. The companies repackage their outputs in such a way that is appealing to the consumers. In the end, most of the consumers choose the appearance of the product over the reality that it has been downsized to cater for other changes in the economy. (Gupta 2007)
On the plus side, the confectionery market has embraced shrinkflation in a positive light with the production of bars in multipacks and bags where they are divided within the multipacks into sizeable amounts. This makes the packs easier to use, and they have an increased functionality such that they come in ready-to-eat size and take-away packs. Furthermore, small packs are convenient for children. They help regulate a child's needs that often present as temptations to have a go at more confectionery products. At the same time, they help parents keep track of their children's health through the multi-bars in a pack. (Cidell 2006)
Another instance that downsizing of products has shown up is in most confectionery markets of Britain whereby Toblerone, Maltesers, Birds eye fish fingers and Tropicana Juice were among the shrunken products in the market. All this is an aftermath of Britain's exit from the United Kingdom. Maltesers reduced their packet size twice, a total of 23.1% decrease without a shift in price. Toblerone reduced their small bars in a way that leaves the consumer paying 13.4% more per gram for the £1 worth of bar. Tropicana, a company that deals with the production of fruit-based beverages, reduced their family carton from 1.75 liters to 1.61 liters without transferring the reduction effect on their pricing of the beverages. Birdseye Company, on the other hand, reduced the number of codfish fingers in a pack from 12 to 10. A common point to note is that both Tropicana and Birds eye company did not tamper with their pricing. A British Retail Consortium spokesperson stated the changing portion sizes forms part of the industry's efforts in trying to deal with the issue of obesity in its direct consumers. (Times 2016). Tropicana, for example, produces raspberry juice among another kind of juices. During tough times, it's realized that the 1 liter unit of the juice produced by the company was downsized to 850ml. Prices remained untouched even with the reduction in the packaging quantity. This is an evidence of shrinkflation practice by the company.
The UK tissue industry was facing a difficult period caused by the rising pulp prices and wild fluctuations in the value of the pound which has sent shockwaves throughout the industry. In October 2017, ACROSS, a tissue manufacturer suspended trading its sharing shares on AIM caused by rising operational and raw material costs. This as a sample represents the tissue industry as more manufacturers have resorted to production of smaller commodities while at the same time retaining the original price point. Even though most people blamed the state of affairs on the then Brexit. (Breinlich 2017) The situation was worse before, thanks to dangerous amalgam of cost inflation, the fluctuating pound and a stagnant economy. The sector was known for cyclical (depression and the recession) movements but this was not realized even after the end of Brexit referendum; situations worsened for this specific sector. (Matthew 2015
Same case scenario can be said for the confectionery market. This is because, a market this large makes up a large part of the economy and the above macroeconomic factors affect their working conditions. This calls for the use of some of the economic measures like shrinkflation by companies to mitigate the effect of the toxic combinations of factors listed above. (De Lyon 2017)
From a marketing perspective, package downsizing throws a nice hue on the products being sold in that it allows for old companies to reinvent their image and drum up sales of their products. With the downsizing, firms seem to employ new packaging and new ideas of advertisement and branding that appeal to the initial consumers but at the same time target a new group. For instance, the Coca-Cola company during them rebrand brought about the packaging of soda in 500ml plastic bottles that serve as to- go chips. It was in the same period that they introduce the zero-sugar drink that was meant to target diabetics and people with insulin-related diseases which do not allow them to take sugar in the drink. This is a move that ensures their revamped product is not rejected for the reduced quantity but is accepted even into new circles. In this scenario, the introduction of Coca-Cola zero sugar led to the company increasing their market dominance further. (Çal 2014)
A look at Nestle, a Swiss-based food manufacturer shows that the company introduced a new candy version that would not include the walnut whip they had on earlier. According to the Nestle management, it said that the new candy version came in handy for people who did not love nuts. This launch came at a time when there was a steep rise in walnut prices by around 20% in 2017 specifically in UK due to the falling value of the pound and a poor crop last year in Chile, one of the world's major producers of walnut. Nestlé also said that as from 2018 they will cut 10% of the sugar from their chocolate. Such acts by the company have raised mixed reactions from the consumers and food critics who most have concluded that the end result is the consumers getting less for their money. From the company's perspective however, such a move is an attempt to increase its profit margin in a failing market and a stagnant economy. (Nestle 2013)
Another company we can look into in the confectionery market is Mars. They produce Maltese’s sharing packs that currently weigh 93g down from 103g and a previous 125g.Mars, announced in March that this move was to aid its consumers' purchasing power. This is even after the management tried to handle the issues arising from high commodity prices. M&M, another chocolate company have reduced their family packs by 25 g and their other products Revels and Minstrels have shed about 10% weight. This is the industry's subtle means of pushing up commodity prices.
In another article, a brand called Weetabix warned that they would raise prices in the year 2017 as a result of the slump in the sterling when the UK decided to leave the European Union. The move led to fluctuations in the value of the currency and ramped up commodity prices especially globally traded ones and imported goods since these are valued in US dollars. The same article highlights another company Toblerone that we mentioned earlier on that issued a statement saying that the company faced high ingredients costs which led to them to a standpoint of choosing between raising commodity prices or changing the shape of the bars. They eventually settled on changing the shape which is different from Weetabix decision. We are presented with the idea that both companies are affected by the devaluation of the domestic currency, and they take different approaches; price change and downsizing. This means that Shrinkflation is an economical technique that can be applied to ease the pressure of costs in the industry. (Syrrakos 2017)
The shrinkflation technique is one that has been around since the 1970's, used by American companies to protect their profits in the era of stagflation. This title stands for stagnant inflation which was experienced during the great depression that hit America. This was an attempt to convince customers to be satisfied with their products, often unwittingly, with less utility for their money. (chavalittamron et al 1982.)
Toblerone, a chocolate making company, introduced big rifts between their chocolate pyramids which reduced their weight but kept the packaging intact. To the customers, they were consuming the exact commodity as the packaging was the same but they were consuming less of the commodity. (Cakir 013) In similar cases, Cadbury company reduced their crème eggs from half a dozen to a 5-pack. Other manufacturers produce candy with huge shell casings, but the actual candy on the inside is significantly less than the appearance. Investigations by different bodies found that in Tesco, one of Britain's biggest grocers, family favorites like the McVie's dark chocolate digestives had reduced in weight to 300g from the initial weight of 332g without a change in the price of the commodity. Tesco, Morrison's, Sainsbury and Asda felt they need to employ package downsizing instead of increasing prices to cover for their profitability in the case of higher commodity costs. All these were in an attempt to maintain the trust between the consumers and them, the retailers. With these examples, it's evident that firms and food processing companies use the mechanism of shrinkflation to help them with the firms' aim of profit maximization.
Other supermarkets and grocery shops such as Waitrose, Lidl, Aldi, Co-op and M&S foods also have in the way of the other employed shrinkflation in their day to day business for their respective companies. This act seemed positive to some of the food retailers such as Lidl to become one of Britain's top 7 food retailers. Lidl did overtake Waitrose. Aldi was also not left behind as their sales rose by 17.2%, making it have a market share of 7%. The grocery market in the UK was being lifted by inflation in 2017. This is attributed to the fall in the value of the pound since the Brexit vote in 2017. The major grocery markets, exactly the top two lost their market share. (Barrett 2015)
This could be attributed to the inflation and microeconomic factors that could have affected the performance of the markets differently.
An analysis of price trends in 4 years from January 2014 to 25th January 2018 for 19 products from Asda, Ocado/ Waitrose, Sainsbury, and Tesco has revealed that 18 products have been slimmed down expect the Jaffa cakes who's packaging went up by 5%. While looking at the analysis of prices per 100g vs. the price of a bar at the cashier's check out proved that 4 of the 19 products analyzed are cheaper while the rest have prices that rose sharply. This shows that the customers' panicking over the shrinkflation is not warranted since it does not affect their preference goods. The claim is evident since there was a devaluation of the domestic currency yet some of the firms opted to absorb the effect rather than transmit it to the consumers of respective products.
References
http://www.dailymail.co.uk/news/article-4394356/UK-consumers-hit-pocket-post-Brexit-shrinkflation.html#ixzz5AuzJoqtw
https://www.independent.co.uk/news/business/malteser-m-ms-minstrels-packs-smaller-shrinkflation-15-per-cent-reduction-size-a7651576.html
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