Shrinkflation: to control food costs, companies shrinking packaging

When costs rise, a food company has only three options: raise the price, make smaller packages or change the ingredients

Rough estimates suggest that anywhere from 15 to 20 per cent of packaged food products in Canada have shrunk over the last five years.

Consumers find this irritating, but given the economics of the food industry, the industry can hardly be blamed.

Most consumers worry 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 per cent of all Canadian consumers say price is one of the top three criteria when deciding what to buy at the grocery store. Grocers play around with prices to keep 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 and chocolate bars. Some of us notice and have seen media reports on the issue in recent years. But now packages are shrinking even faster. The tactic is so widespread that some have even given it a name: shrinkflation.

Food packages are shrinking all over the world.

A recent U.K. study suggests that almost 3,000 food products that have been downsized since 2012 can be found in a typical grocery store. This came as the annual food inflation hit a whopping six per cent and the food industry was being blamed for gouging consumers.

Similar numbers are coming out of the U.S. Many U.S. food manufacturers admit to shrinking packages to maintain competitive prices. And many of these products enter the Canadian market.

Food companies are simply trying to defend their profit margins.

Shrinkflation, or downsizing, is almost the norm and many consumers find the practice to be irritating. Yet food companies aren’t really misleading the public. Weight and volume information can easily be found on any labelled package. It’s just habit that makes us believe we’re purchasing the same thing as we focus 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 how competitive the food industry is, raising prices can be challenging. In fact, since early 2018, prices in food stores have dropped.

Before the 2008 bump in commodity prices, companies egregiously reformulated food products. Taste and the quality of ingredients weren’t deemed nearly as important. But some manufacturers paid the ultimate price for changing the taste of products just to save a few pennies. And today, the prevalence of social media means companies are one poor decision away from seeing an entire product line vanish.

The only viable option is to downsize portions. With the arrival of many nonfood investment firms and conglomerates that value food as much as bolts, tires or buildings, recalibrating ingredients and changing packages is almost second nature. 3G Capital, the Brazilian giant that gobbled up Kraft Heinz, Burger King and Tim Hortons in recent years, is one good example. Most of these new players don’t know the nuances of food products. They just look at the numbers. And they know that consumers are looking for the best price.

As food consumers, we value the lowest price and it’s challenging to get past this way of thinking.

But instead of downsizing products and hoping no one will notice, higher prices could become a selling point for manufacturers. 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 and being more transparent about packaging could let consumers appreciate that things get complicated and some adjustments are required.

But we all know that won’t happen.

Sylvain Charlebois is dean of the faculty of management and a professor in the faculty of agriculture at Dalhousie University, senior fellow with the Atlantic Institute for Market Studies, and author of “Food Safety, Risk Intelligence and Benchmarking,” published by Wiley-Blackwell. Troy Media.