By Oddo BHF

If the box of chocolates you received for Valentine's Day was half empty, the fault lies with some brands that don't hesitate to reduce quantities while keeping the same price and using oversized packaging. This practice, commonly known as shrinkflation, is perfectly legal. In an environment of widespread cost inflation and supply chain pressures, brands are increasingly resorting to shrinkflation and other unorthodox strategies. However, according to a study by Kroger 's 84.51°, one in three consumers is unaware of this phenomenon. In this insight, we look back at the evolution ofthese contested practices within the food industry.

SHRINKFLATION: A FUZZY PRACTICE TO PROTECT MARGINS

As illustrated by the US consumer price index, which went from almost 0% just after the Covid to a peak of around 9% last summer, the year 2022 has seen an extremely virulent inflation shock. When we look in more detail, it appears that this shock was very generalized and that it impacted agricultural raw materials as well as wages, energy and transportation costs. Thus, the agri-food sector has not been spared and many players have increased their prices, passing on the costs of inflation to consumers - a well-known practice. In addition to price hikes, producers have other, less clear-cut practices to protect their margins in a context of rising costs across the board.

Today we will focus on the best known and most widespread practice among producers: 'shrinkflation'. Its definition is extremely simple: reduce quantity while maintaining or even increasing the selling price. Its application is difficult to identify by the consumer who is rarely attentive to the weight of the products he puts in his cart. Thus, shrinkflation can be likened to invisible inflation, which is most likely underestimated in traditional inflation measurement indices.

The products most affected are the so-called processed products, such as yoghurts, snacks, beverages or cheese. Apart from the weight of the product, there is no other indicator that tracks changes in the quantity/price ratio of these products. On the other hand, less processed products such as fresh produce (fruit and vegetables, etc.) have their prices displayed per kilo, so consumers can more easily spot price increases.

Brands compete in ingenuity to fool buyers and do not hesitate to play on the size of the packaging to make people believe that the quantities are larger. The most famous example is the cereal packets whose size is often disproportionate to the quantity of products contained. Brands even go as far as convincing shoppers that this decrease in quantity is for their own good. For example, in April 2019, the Coca-Cola brand reduced the size of its cans sold in Switzerland from 50 cl to 45 cl, while explaining that this reduction was, in fact, in response to consumer expectations. Against all expectations, the 50-cl format will make its comeback in Switzerland in May.

The brand's spokesperson justifies this change of heart with consumer surveys. However, supermarkets have played a decisive role in this battle. The Coop decided to counter-attack by importing 50 cl bottles, first from Poland, then from Ukraine and Serbia, still at 1.35 francs each, while selling the Swiss 45 cl bottles at the same time. In addition, the retailer decided to reintroduce bottles of Pepsi, Coca-Cola 's historical rival, into its assortment. In the end, four years later, the soda producer decided to backtrack while maintaining the same prices!

EUROPE IN THE FRONT LINE

Unfortunately, this example is still in the minority and the trend is rather to increase the use of shrinkflation. Indeed, reversals are rare, even when inflation is falling. Thus, in France in 2022, the Foodwatch association estimates that 6% of the products sold have seen their quantities decrease and, in front of this recrudescence, the government has decided to take action. At the end of 2022, the Repression of Fraud opened an investigation in packaging plants. It was able to compare the quantities indicated on the packaging and the actual weight of the products. The investigation was also conducted in food stores to scrutinize the labels of these products.

The results communicated at the end of January show anomalies in 11% of the shops visited and in 7 of the 31 factories controlled, concerning mainly chocolate bars, household and hygiene products, but also yoghurts. The French government is asking for more transparency and advocates the use of mobile applications to better inform consumers.

After France, it is now Poland's turn to make the headlines and, as the Financial Times aptly puts it: "Consumers need not only a well-stocked wallet but also a magnifying glass to sift through the packaging. With inflation in Poland at around 17%, almost double the Eurozone average, shrinkflation is being practiced with an intensity never before seen.

If today you can't go a day without this topic being discussed in the press, shrinkflation is not a new practice. The technique was used by Roman emperors, who trimmed the edges of silver and gold coins, or even introduced copper and other cheaper metals to finance the building of their empire. More recently, after the Brexit in 2016, producers and distributors operating on British soil have massively resorted to this strategy as costs, including customs taxes, have exploded.

But there are also other weapons available to the agrifood sector - such as cheapflation, which involves using cheaper ingredients, which is even harder for consumers to identify. Examples include butter in which palm oil replaces milk, confectionery in which glucose syrup replaces sugar, and toothpaste that contains less and less fluoride. These changes often have a negative impact on the health of the consumer, not to mention the ecological impact.

IN CONCLUSION

The consequences of the 2022 inflation shock go beyond price increases measured by traditional indicators. Unclear practices that have always existed, such as shrinkflation, or more recent methods, such as cheapflation, have seen record adoption. The aim of the players in the agri-food sector is to protect their margins in a context of generalized cost increases. But these techniques are not without consequences for consumer confidence, their health and that of our planet. Thus, we can only recommend to everyone to avoid processed products as much as possible and to spend more time in the kitchen. As the culinary journalist Michael Pollan says: "You can eat whatever you want as long as you cook it yourself".