Shrinkflation Uncovered: Myths, Realities, and Consumer Impact

The pandemic has brought turbulent times to the global grocery industry. Not one country has been exempt from the food inflationary wars. This is despite what was reported by the Canadian media and MPs who have made it sound as if food inflation has been a “Made in Canada” problem only. The average $100 basket in Canada in 2019 cost Canadians $124 in 2024. Yet, in the US that figure is $133. [1]

With the food inflationary wars comes the terms Greedflation and Shrinkflation. Many believe retailers hiked food prices to increase their profit levels – Greedflation. Despite these charges, no evidence has been found in the UK, US, or Canada to substantiate these claims. Shrinkflation is a different subject matter. Many examples that cannot be disputed. Yet, manufacturers hike prices or cut product size as a last resort.

What is the Definition of Shrinkflation?

“Shrinkflation is a subtle yet significant strategy where companies reduce the size or quantity of a product while keeping the price the same, or even make price points slightly higher”. [2] This form of price inflation often goes unnoticed by consumers if the changes happen gradually over time.

Is Shrinkflation Illegal?

Though shrinkflation may not break any specific laws, it does tread a fine line when it comes to ethics. While there are no legal requirements to disclose subtle size reductions, failing to inform consumers can be viewed as misleading and a deceptive form of marketing.

President Biden’s State of the Union Address, 2024

In his State of the Union address this year, President Biden called out Snickers in which he said “You get charged the same amount and you got about, I don’t know, 10% fewer Snickers in it.” [3] What he forgot to mention, the price of cocoa had recorded a significant rise in price from February 2023. Their corresponding year-on-year increases were 147% and 120% on the futures markets in London and New York, in March 2024. [4]

The New Normal Brands Face Today

Unlike the public sector, businesses face competition on a global basis. Since the pandemic, manufacturers have faced increased labour, supply chain, raw material, packaging, and transportation costs, just to name a few. In Canada, in which the majority of food consumed is imported, the weakness of the Canadian dollar, and the carbon tax play a significant factor in escalating food prices. These factors do not include the efforts for brands to become more sustainable, which adds to their costs.

Shrinkflation – The Myths!

Businesses do not make decisions to increase retail or reduce product size lightly. It takes on greater credence when you consider that 97.9% of all businesses in Canada are small businesses, including those classified as micro business. [5] As noted by 2 CPG giants:

“We understand the economic pressures that consumers continue to face and any changes to our product size is a last resort for our business”. Mondelez International

Shrinkflation – The Realities!

Faced with today’s economic climate, businesses have 3 strategies to ponder:

1. Pass on the Full Cost to the Consumer: Not a strategy to ponder given the competition, and rising food prices (45%) represent Canadians’ top concern heading into 2025. [7]
2. Reduce Product Size: Resizing products to maintain price points is the best strategy moving forward to help maintain retail. Manufacturers have also contributed to the reduction in size in their attempt to meet calorie-intake Mondelez undertook this strategy in 2019 in the UK and Ireland markets to tackle child obesity.
3. Business Declare Bankruptcy: The last resort, specifically for small business owners. When this happens we all must take responsibility for their decision.

Brands are Taking Corrective Action

Certain brands are taking corrective action as shoppers have the power to show their displeasure with their wallets. In response, Frito Lay in the US is putting more chips in some of the bags for snack brands Lay’s, Doritos, Tostitos, and Ruffles. The CPG company is calling them “bonus bags” and they will contain 20% more chips for the same price as a standard bag, but only in select locations. [8] To further mitigate the negative impact of shrinkflation, some food brands are emphasizing the quality of their ingredients. This approach resonates with more than half of UK consumers, who would rather have a small amount of premium chocolate rather than a larger amount of regular chocolate.[9]

What are Consumer Attitudes Towards Shrinkflation?

While certain consumers are willing to abandon a purchase altogether when faced with ?a smaller product, many others understand the flight business is encountering and are accepting reduced product size. For instance:

1. In the UK, 50% of consumers would rather see their favourite chocolate bar get smaller than the price of the bar increase.
2. In Canada, over four in ten consumers (>40%) are open to smaller portions if it helps keep prices under control.[10]

How Can Brands Navigate Shrinkflation?

Here are 3 strategies brands can implement to maintain consumers’ trust when encountering shrinkflation:[11]

1. Communication and Trust: Clear and effective communication. Brands should be transparent about the reasons behind their decision to shrink product sizes.
2. Empathetic Support: During economic turndowns, brands can create empathetic messaging campaigns to help bolster trust and loyalty among consumers.
3. Demonstrate Additional Value: Brands should focus on highlighting the additional value they provide beyond just the product size. For example, how their packaging is better for the environment.

I leave you with this: Shrinkflation is Rampant Across the Public Sector.

For instance:

1. 2003 Ontario Budget: The Government in power eliminated physiotherapy from the Ontario Health Insurance Plan and simultaneously introduced a health care premium tax.
2. Canada Post: Seeking to put a hold on your mail while on vacation will cost residents $25. This was once a free service.
3. City of Mississauga: In 2023, they discontinued the pick up of grass cuttings, yet increased taxes by a whopping 14.5% over the next 2 years.

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References:

[1] Consumer Outlook, From Cautious to Conscious Consumer, A View into the Canadian Consumer, Nielsen IQ, November 2024

[2] Understand Shrinkflation and Effective Marketing Strategies for your Brand, www.mintel.com, October 2024

[3] Biden Calls Out Shrinkflation as Part of a Broader Strategy to Reframe How Voters View the Economy, www.apnews.com, March 2024

[4] Cocoa Market Report for February 2024, www.icco.org, March 2024

[5] Small Business Statistics in Canada, www.madeinca.ca, November 2024

[6] Shrinkflation: Are Brands Losing Customers in this Covert Effort to Cut Costs, www.foodnavigator.com, March 2024

[7] Consumer Outlook, From Cautious to Conscious Consumer, A View into the Canadian Consumer, Nielsen IQ, November 2024

[8] Trend; Is Shrinkflation on its Way Out, www.strategyonline.com, November 2024

[9] Understand Shrinkflation and Effective Marketing Strategies for your Brand, www.mintel.com, October 2024

[10] Understand Shrinkflation and Effective Marketing Strategies for your Brand, www.mintel.com, October 2024

[11] Understand Shrinkflation and Effective Marketing Strategies for your Brand, www.mintel.com, October 2024