The Brief: What is ‘shrinkflation’ and how does it affect the packaging industry?

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Introduction:

This Brief investigates what ‘shrinkflation’ means, why it happens and how it affects the packaging industry. It examines why businesses might make these reductions, how they affect consumers and the need for brands to clearly communicate these changes.

Key takeaways:

• ‘Shrinkflation’ is generally defined as when the size or quantity of a product is reduced, but the price remains the same. This can happen due to production costs and market competition.
• U.S. Packaging and Wrapping Charles Haverfield argues producers should consider the product’s overall cost and prioritize lowering costs and enhancing efficiency without impacting value or quality. However, he notes that product weight fluctuations happen often as brands carry out consumer research and modify product lines to increase sales and profitability.
• Sappi Papers highlights environmental benefits of ‘skinny packaging’ such as reduced packaging material which translates into more units per truck or shipping container, potentially reducing fuel consumption and carbon emissions in transport.
• How does shrinkflation affect consumers? A BBC article described it as ‘a permanent hit to your wallet’ and Consumer World founder Edgar Dworsky stated: ““After products are repeatedly reduced in size, the manufacturer will come out with a new, larger version of it […] and with it, shoppers pay a higher cost for the upgrade.”

Conclusion:

While businesses’ reasons behind ‘shrinkflation’ vary, considering production costs, market competition and ‘pricing power’, clear communication between brands and buyers is crucial to maintain consumer trust. As Mintel’s article on understanding shrinkflation states:

“While there are no legal requirements to disclose subtle size reductions, failing to clearly inform consumers can be viewed as misleading and a deceptive form of marketing. The key to maintaining consumer trust lies in transparency”.

In this edition of The Brief, we investigate what ‘shrinkflation’ means, why it happens and how it affects the packaging industry. Shrinkflation is generally defined as when the size or quantity of a product is reduced, but the price remains the same. We’ll look at why businesses might make these reductions, how they affect consumers and the need for brands to communicate these changes clearly.

Why does shrinkflation happen?

Financial media website Investopedia published an article outlining the reasons behind shrinkflation; mainly production costs and market competition. The outlet states that retailers often engage in shrinkflation to combat higher production costs, such as when key inputs like raw materials or labour increase in valuation and the cost to manufacture final goods rises, impacting profit margins.

Companies without strong “pricing power” may reduce the weight, volume or quantity of products to maintain healthy profits without affecting sales volumes. Investopedia adds that in a competitive industry, lifting prices could lead customers to change to another brand – but introducing small reductions in their goods sizes should enable them to boost profitability while keeping prices competitive.

Back in 2023, CEO of U.S. Packaging and Wrapping Charles Haverfield argued that brands should never resort to shrinkflation, after retailer Carrefour publicly criticized brands by putting shrinkflation price warnings on the packaging of various products. He emphasized that producers should “take a more strategic look” at the product’s overall cost and prioritize lowering costs and enhancing efficiency without impacting value or quality.

He stated:

“It is the consumer’s responsibility to check the pack before they buy, but communication with buyers from brands is key. It’s essential that if you’ve made changes to a product, you tell consumers you’ve done it.”

However, Haverfield also pointed out that product weight fluctuations do happen most of the time, as brands carry out consumer research and modify product lines to increase sales and profitability. He added that many brands “aren’t deliberately being sneaky” just because their product downsizing is now tied to inflation, it’s something most do all the time.

What are the impacts of shrinkflation on the packaging industry?

Recently, Packaging Europe’s brand director Tim Sykes considered the shrinkflation conundrum of less wasteful food portions versus increased packaging waste and carbon emissions. Referring to his hungry pet cat, he commented that she seemed to be hungrier than usual. It turned out her favourite brand had downsized its portions from 100g to 85g per pack.

This hadn’t been noticeable at first, as the price of the pack was the same as before the 15% reduction in product. The polypropylene pouches and carton secondary package appeared to be the same size - although though on closer inspection, the pouch was slightly reduced.

This impacts both the total amount of packaging generated and the ratio of packaging material to the meat and jelly inside. With implications beyond just pet food, he noted that whereas single-portion packs may be justified environmentally by their positive impact on food waste, “shrinkflation is purely driven by profit margin, and especially in staple food categories is likely to result in consumers buying more units rather than reducing their consumption.”

Another perspective on shrinkflation and its impact on packaging design comes from Sappi Papers, which published an article on the subject last year. The company debated whether ‘skinny design’ could be widely beneficial, citing an article from strategy consulting firm McKinsey that indicates there are times when smaller packaging can have benefits for business, consumers and the environment.

Sappi stated that the advantages are most obvious for businesses, offering the potential to reduce costs and grow revenue. Apparently, the environmental benefits include reduced packaging which uses less material and leaves the design smaller and lighter, translating into more units per truck or shipping container and potentially reducing fuel consumption and carbon emissions in transport.

The company added:

“One challenge for companies wishing to explore the skinny design trend – and a reason that many have yet to try it out – is that it impacts a number of different areas: design, procurement, supply chain, logistics, sales.”

How can shrinkflation affect consumers?

From the consumer perspective, in 2023 the BBC published an article claiming that shrinkflation was “a permanent hit to your wallet”, stating the problem wouldn’t go away even if the economy rebounded and inflation abated. Arguing that consumers are bearing the brunt of spiking production expenses, the article gave the example of baby formula.

If a consumer depends on baby formula and a store only stocks one option, they may end up “paying the price on the sticker and getting whatever is in the tin”. The author added that at Carrefour, Nestlé’s Guigoz infant milk formula had gone from a pack size of 900g to 830g (31.7oz to 29oz).

In addition, Edgar Dworsky, founder of Consumer World, is quoted as saying:

“After products are repeatedly reduced in size, the manufacturer will come out with a new, larger version of it, sometimes with a fanciful new name – and with it, shoppers pay a higher cost for the upgrade.”

In contrast, the article also cites Mark Stiving of Impact Pricing, who maintained that consumers tend to notice price increases more than size decreases, claiming that companies use shrinkflation to raise prices “less painfully”.

Ultimately, while businesses’ reasons behind ‘shrinkflation’ may vary, taking into consideration production costs, market competition and “pricing power”, its clear that to maintain consumer trust, clear communication between brands and buyers is crucial. As Mintel’s article on understanding shrinkflation states:

“While there are no legal requirements to disclose subtle size reductions, failing to clearly inform consumers can easily be viewed as misleading and a deceptive form of marketing. The key to maintaining consumer trust lies in transparency – if brands are honest about these changes, they can navigate the challenges of rising costs while maintaining consumer trust.”

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