“Pay more for less!” is no supermarket’s slogan, but it’s starting to feel that way to consumers.
We’ve reported on two different shrinkflation stories this week, covering both the principle and how we’re seeing that play out in practice in the aisles. A report from Capgemini found 61% of British consumers think shrinkflation is ‘very unfair’, claiming they’d prefer to see an honest price rise on the shelf. Asked about a range of unpopular retail pricing and promotional practices, only charging different prices across apps and websites was deemed to be more unfair.
Then came Easter eggs. It’s a familiar enough story by now, but this year they’re not only smaller, they’re pricier too. Mars’ Maltesers egg led the way by combining a 16% size reduction with a 16% price increase – pushing the cost-by-weight ratio up by 38.9% to £33.82/kg. That’s more than organic rump steak, for those keeping tabs on the beef vs chocolate leagues.
And it’s five times more than the 7.1% retail price rises in chocolate and confectionery recorded by the ONS in December.
Cadbury’s extra-large Twirl egg, which last year included two full-size bars, now comes with two individually wrapped single fingers. The weight is down 9.5% while the shelf price has risen by 16.7%, meaning the price per 100g is up by 28.9%.
Sales will fall as prices rise
Suppliers blamed cocoa prices for the big business belt-tightening, amongst other things. But there’s a problem with that as, actually, cocoa prices aren’t rising anymore. The FT’s commodities index has cocoa down 57% year on year.
One could argue that’s an early sign of improvement in a volatile market reliant on harvests in some of the areas most affected by climate change. And of course cocoa alone does not an Easter egg make. But let’s see if eggs get bigger and prices reduce if this holds. I won’t hold my breath. A tin of Quality Street weighed 1kg in 2011, and by last year it had shrunk to 550g.
“Some manufacturers are behind the curve in thinking consumers don’t notice these changes and so treat them with disdain,” says Catherine Shuttleworth, CEO of shopper marketing agency Savvy. “A 39% increase on a product is just price gouging, plain and simple. They’re doing it because they think there’s an opportunity to do it.”
Easter eggs are an elastic category, Shuttleworth says, predicting that sales will fall as a result of such steep rises.
“Fundamentally brands rely on consumer trust,” she adds. “The consumer is demanding more transparency from the retailers and the brands they choose to give their money to. You don’t have to buy that egg – in fact, you don’t have to buy one at all.”
It’s also key to note that the Mars and Cadbury recipes haven’t changed – the other lever food manufacturers have reached for in the past.
“Shrinking pack sizes or quietly tweaking recipes through skimpflation – such as less cocoa, cheaper oils or synthetic substitutes – is one way to absorb cost inflation without triggering a price war or losing distribution,” says Nicholas Found, head of commercial content at Retail Economics.
“But this strategy risks a long-term cost, with the potential to erode brand equity and consumer trust. Shoppers may tolerate minor changes, but they won’t forget when a beloved product tastes worse or materially shrinks behind familiar packaging and established product names.
“To recalibrate products effectively, brands need to know exactly where consumers place value – and then balance format, formulation and price accordingly.”
Consumer fallout and long-term cost
The challenge for retailers is that they can end up taking the brunt of any consumer fallout.
Mars and Cadbury owner Mondelez is keen to point out that retailers set the prices. Which is true, of course. But that shelf price is ultimately based on adding a low margin to the price charged by a higher-margin manufacturer. “The challenge for the retailer is it’s their brand which is tarnished by shrinkflation and price rises,” adds Shuttleworth. ”The consumer thinks ‘Tesco is too expensive’; they don’t think ‘that’s Mars’ fault’.”
In France, medium and large retailers now have a legal obligation to inform consumers about shrinkflation with a label on or close to the product for two months after the change.
That level of government intervention doesn’t feel very British (nanny state accusations aside), but the drive for transparency must be admired. Capgemini’s research said 64% would find it ‘very fair’ for retailers to flag brand shrinkflation.
Until then, relying on the uneasy hope that no one will notice is starting to feel as outdated as a 1kg tin of Quality Street.
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