Shrinkflation occurs when manufacturers adjust the amount of material in their product and sell it for the same price. If it’s a well-known brand, instances of shrinkflation can cause public outrage because it is seen as a stealthy or “sneaky” way of reducing value for money.
It’s a controversial way to cut costs, but I would argue that shrinkflation is a better alternative to a reduction in quality.
Procurement professionals should have some empathy for suppliers who have been forced to go down this route … particularly during the current wave of government-imposed tariffs.
Shrinkflation Examples
Examples include:
- Less chocolate in a “redesigned” chocolate bar
- Smaller soda bottles with less soda
- Fewer sheets of paper on a toilet roll
- Fewer chips (and more air) in a packet of crisps
- Less alcohol in a can of beer …
… yet the price per unit remains the same.
Why Does Shrinkflation Happen?
Manufacturers reduce the number or amount of materials in their products as a way to maintain margins without raising prices. They may do so in response to cost pressures in their own supply chains, like the rising costs of ingredients, rising labor costs, or inflation over time.
Shrinkflation can occur in services as well as products. For example, a corporate training company may shorten their training sessions by an hour yet charge the same fee.
If you, as a procurement professional, are frustrated by this practice, keep in mind that some of the faults may lie with your refusal to accept price rises. This can put suppliers in a situation where they need to cut costs in order to stay in business, leading to a smaller product.
How Higher Tariffs are Leading to Food Shrinkflation
Higher tariffs are driving up the cost of key imported ingredients and packaging materials.
Many food manufacturers, for example, are now in a position where they have to:
- Raise prices: This strategy risks placing further financial stress on end-consumers who are already struggling with the cost of living.
- Reduce portion sizes: Reducing the amount of material in a product and selling it for the same price.
- Reformulate ingredients: For example, a cereal company might reduce costs by reducing the amount of high-value ingredients such as fruit and nuts and replacing them with lower-cost fillers like oats. Another technique is to swap out an ingredient – say, a high-quality vegetable oil – with a lower-cost alternative.
- Redesign packaging: This could involve designing smarter packaging using different materials, corrugated options or other techniques to reduce weight, and reduce the cost of manufacturing and shipping.
On this point, some companies are changing their packaging in direct response to tariffs on specific materials.
For example, Coca-Cola plans to sell more of its products in plastic bottles due to the 25% tariff on steel and aluminum, which risks driving up the cost of its most iconic product – the can of Coke.
A Better Alternative Than a Quality Compromise
Yes, shrinkflation is annoying. But it’s infinitely preferable to suppliers cutting costs by reducing product or service quality.
This is typically done by substituting ingredients for lower-quality alternatives, or outsourcing manufacturing processes to a low-cost environment with a subsequent drop in quality. Lowering quality inevitably leads to dissatisfied customers and subsequent brand damage.
Strategies for Dealing with Shrinkflation
Here are some strategies for dealing with shrinkflation in your supply chain.
1. Step Into Your Suppliers’ Shoes
Take a moment to understand the pressures faced by your suppliers. Just like you, they have to make difficult decisions in response to rising ingredient prices and materials costs and are often left with no alternative but to raise prices, shrink products, or lower quality.
2. Be Willing to Pay More Over Time
You may pride yourself on being a hard-line negotiator who fiercely protects your organization by refusing to accept supplier price rises, but this approach may end up being more harmful to your organization because you are forcing suppliers to cut costs.
This, in turn, will lead to product shrinkage or quality reduction.
3. Work With Suppliers to Find Other Ways to Reduce Costs
If your organization cannot afford to pay more for a product or service, consider partnering with suppliers to help them find alternative ways to keep costs down.
One of the best approaches is to reduce the costs of packaging while leaving the product itself unchanged. Suppliers may also be able to cut costs through process improvements, efficiency gains, and automation.
4. Be Honest About Shrinkflation
Much of the brand damage associated with shrinkflation comes from the “sneaky” nature of the change, and brands being “caught” by consumer groups.
If shrinkflation is necessary, be honest with the end-consumer by communicating that the decision to reduce the product size was necessary to maintain quality standards without raising prices.
Are you experiencing frustration caused by shrinkflation? A group purchasing organization may be able to introduce you to new suppliers who can help keep costs down. Reach out to learn more.
