In response to soaring input costs and consumer strain, food producers nationwide are downsizing their product packaging, a phenomenon referred to as shrinkflation, to maintain affordability. This practice, aimed at avoiding direct price hikes, has become increasingly common as companies grapple with economic challenges.
Inflation is on the rise. Consumers are feeling the pressure of price increases on everything from food and gas to furniture and automobiles. Faced with rising costs and margin pressures, CPG manufacturers and retailers have been forced to increase prices. A recent survey showed 49% of consumers plan to switch to lower-priced brands due to inflation concerns. With prices expected to rise throughout 2022 and shoppers more price-conscious than they were before the pandemic, this switch to lower priced brands and private labels will likely continue. CPG manufacturers and national brands are responding by reducing package sizes to hide price increases from the average consumer.
It’s a practice known as “shrinkflation,” where items remain the same price while the package size gets smaller. Some changes are so small they don’t affect packaging, aside from updating the printed quantity or weight. For example, Frito-Lay’s reducing regular bags of Dorito’s from 9.75 oz to 9.25 oz was probably indistinguishable to the average consumer. But when Tillamook ice cream was one of the last brands to downsize to a 48-ounce container (down from 56-ounce), the change was obvious. The price stayed the same, but now consumers are paying 15% more per ounce.
Shrinking containers are just about everywhere, from boxes of cereal to cookies to candy or food. It turns out that while people tend to remember prices, they don’t really pay attention to sizes. It’s not uncommon for these reductions to represent up to a 30% price increase. But with ingredients, manufacturing, freight, and labour costs rising, most manufacturers have little choice. Consumer price sensitivity is expected to increase this year, so it makes sense for suppliers to reduce sizes to keep the per-package prices stable. Some retailers, such as dollar stores, are pushing CPG companies to maintain specific price points despite rising costs, and the only way to do this is with smaller packages.
These changes not only impact consumer prices, but they also have a direct impact on merchandising plans for CPG suppliers and retailers alike. Less ice cream per package means smaller packages, and smaller packages mean existing space plans and planograms won’t work anymore. All the ice cream sections need a reset to better optimize store space based on the new product dimensions. With the size of packaged goods shrinking throughout the entire store, resetting shelves can be a nearly insurmountable task without the right technology.
According to the National Regulator for Compulsory Specifications (NRCS), as long as product labelling accurately reflects changes in size, shrinkflation is permissible.
Looking ahead, experts anticipate continued instances of shrinkflation as companies navigate ongoing economic challenges. With input costs on the rise, companies may resort to strategies such as ingredient substitutions to maintain competitive pricing. However, some analysts suggest that while shrinkflation may persist in the short term, relief could be on the horizon for consumers as inflationary pressures ease. Nonetheless, consumers should remain vigilant as the market adapts to evolving economic conditions.