By Sylvain Charlebois (AIMS Senior Fellow)
Most consumers are always concerned about the cost of food. We constantly look for bargains and the food industry knows it. According to a recent survey (by Dalhousie University), almost 60% of all Canadian consumers consider price as one of the top three decision criteria when grocery shopping. Price is key, no matter what. Grocers play around with prices to keep all of us on our toes.
Pricing in the food processing sector is intricate. Ingredients, energy costs, wages and so forth can weigh heavily on food manufacturers as they try to cultivate relationships with grocers and retain market shares. For decades, to keep price points low, the shrinking package strategy has been part of the food industry. This can be seen in items such as chips, ice cream, cookies, pasta, chocolate bars, you name it. Some of us have noticed and we have seen several media stories on this issue in recent years. But now, packages are shrinking even faster than ever before. The tactic is so widespread that some are even eluding to the phenomena of shrinkflation.
All over the world food packages are shrinking. A recent U.K. study suggests that there almost 3000 food products that can be found in a typical grocery store that have shrunk since 2012. This came at a point when the annual food inflation hit a whopping 6%. At the time, the food industry was blamed for gouging consumers. Similar numbers are coming out of the U.S. market. Many U.S. food manufacturers have also admitted to shrinking packages to maintain prices at a competitive level. Many of these products enter the Canadian market. Rough estimates suggest that anywhere between 15% to 20% of all packaged food products have shrunk in the last 5 years, if not more. Food companies have found a way to defend margins without upsetting anyone, well, almost.
Shrinkflation, or downsizing, is almost the norm these days, which causes some consumers to find this practice to be irritating. Yet food companies are not really misleading the public. Weight and volume information can easily be found on any labelled package. Habits make us believe we are purchasing the same thing as we zoom in on the one constant that motivates our behaviour when shopping: price.
When costs rise in food manufacturing a company has basically three options: raise the price, make smaller packages, or change the ingredients. Given our competitive food industry, raising prices can be challenging. Since early 2018, prices in food stores have dropped because of higher competition. Yet changing ingredients can be deadly. For 30 years, before the 2008 bump in commodity prices when food was considered as an afterthought compared to today, companies were egregiously reformulating food products. This was at a time when taste and the quality of ingredients were not on the radar. Some food manufacturers have paid the ultimate price for changing the taste of certain products, just to save a few pennies. Today, with social media, companies are one poor decision away from seeing an entire product line vanish.
The only viable option really is to downsize. With the arrival of many non-food investment firms and conglomerates that value food as much as bolts, tires, or buildings, recalibrating ingredients and changing a package is almost second nature. 3G Capital, the Brazilian giant which gobbled Heinz-Kraft, Burger King and Tim Horton’s in recent years, is one good example. Most of these new players in the food space are not astute to the nuances of food products. They just look at the numbers knowing consumers are out there looking for the best price.
Whether we want to admit it or not, as food consumers we value quantities for the lowest price. It is challenging to get out of this way of thinking. There could be an opportunity for manufacturers looking at increased costs. Instead of downsizing products and hoping no one would notice, it could become a selling point. Studies show that consumers who remember how good a product tastes are willing to pay more for less if given no other choice. Selling flavour over quantity, so to speak. Showing a more transparent approach to packaging could let consumers appreciate that things do get complicated out there and some adjustments are required. But we all know that won’t happen.
What is unclear is how shrinkflation is captured by the StatsCan consumer price index. Protocols show certain quantities being mentioned, but it does not explain how data collection is adjusted as quantities change rapidly. This contributes to food inflation in a subtle way. StatsCan could assist Canadians in monitoring shrinkflation to help consumers be more vigilant and assess how it affects our food budget. Right now, however, most of us would not know. In some cases, quantities have been reduced by 15% in three years. By compounding real inflation, food prices may have gone up by more than 6% in many cases, when the reported food inflation rate was anywhere between 1.5% to 2%.
In the end, consumers can be outraged and condemn the practice of shrinking food products. But when you really think about it, food companies are really delivering what consumers are asking for.
Sylvain Charlebois, Professor in Food Distribution and Policy, Faculties of Management and Agriculture, Dalhousie University.