From vanishing snacks to your shrinking wallet, everyone is making tradeoffs currently due to shrinkflation. What is the impact of shrinkflation on the brand? And what role does pricing have to play in it? With increased awareness and proactive measures, we can reduce the impact of shrinkflation on our everyday lives and businesses, as the author explains. Karan Sood is the Director of Sales Operations at Rakuten Kobo and has over 15 years of pricing experience working in the auto sector, digital media, CPG and electronics hardware. He can be reached at karan.sood@rakuten.com.

The Pricing Advisor, April 2023

This morning, my 5-year-old daughter scolded me for allegedly stealing two cookies from her snack bag the previous day. Little did she know it wasn’t me who took them, but rather Kellogg’s, thanks to shrinkflation. This is a common story in many households as shrinkflation is beginning to impact our everyday spending habits. I tried to explain this to her, but she stumped me with another question: “Why don’t we get another bag of cookies with more cookies?”

Everyone is making tradeoffs, and that’s a personal decision, but what about the impact of shrinkflation on the brand? And what role does pricing have to play in it? Maybe there is a playbook we can share on how to use pricing more effectively to counter the volume and brand strength loss coming from shrinkflation.

Shrinkflation is not new. It has been around for centuries. It started back in early Rome when silver content in coins was reduced to effectively produce more coins, which in turn rendered the currency less effective. There is enough evidence to point out that the price and quantity of bread were fixed in medieval France and any deviation via shrinkflation was frowned upon and could result in consequences.

There are a lot of lessons to learn here for both brands and the pricing community. First, however, I wanted to see how shrinkflation is impacting people and their purchasing habits.

I ran a little survey in my network to seek answers. The results are not surprising. Over 72% of the respondents said that they were buying lower quantities of similar brands or switching to cheaper alternatives. Both of those options are concerning to a pricing manager or brand manager because we all know it is easier to retain a customer than to win them back! That saying holds true in almost every industry.

These results were further supported by YouGov’s recent survey on shrinkflation, which suggested that nearly 46% of all respondents would switch to a cheaper private label to counter shrinkflation. The short-term strategies to optimize package size to balance supply constraints in the pandemic may not work anymore or may have an opposite impact since the pandemic has now passed and supply chain disruptions are less frequent.

So, what can pricing managers do to counter the long-term impact of shrinkflation?

1. Give customers consistency and find savings elsewhere: Customers reward consistency and predictability in brands. Give them what they have always been getting – don’t erode that trust. However, as pricers, we know this comes at a cost. So deep dive into your P&L to find places where you can drive savings that can counter the impact of higher costs. It can be packaging material, freight costs, production MOQs, or terms in the contract, for example. Minimize that delta between higher cost and sales impact.
2. Pull back on your promotions: Discounts and promotions are drugs that brands can’t have enough off. I still see brands decreasing pack size and then running promos on them. Generally, discounts are a big line item on the P&L. Optimize those promos by shortening the frequency or the depth of discount or maybe pull them back for a quarter or two. There may be a point of profit maximization where discount reduction offsets cost increases.
3. Enhance the value proposition: More often than not, there is a low-hanging feature that can be added to a product at minimal cost, which can not only keep your share of wallet but sometimes also increase it. There are customers who haven’t changed their buying habits, and this will help keep them and maybe prevent other customers from switching brands. Sometimes this may not need added value – maybe you just need to highlight an existing feature. Maybe your product already had a hidden value nugget that was underutilized. Make that centerpiece of your value strategy for the next little while and gauge the impact.
4. Optimize your terms and work with suppliers: No supplier wants to see volume going down. Everyone wants to optimize their volume and margins. I have found that asks are followed by gives when it comes down to negotiating with suppliers. Maybe there are high-quality alternatives to materials that go into your product that can keep profits steady without shrinking size.

From vanishing snacks to your shrinking wallet, shrinkflation is “more than meets the eye.” By understanding the history, consequences, and strategies to tackle shrinkflation, both consumers and companies can make informed decisions and adapt to this economic reality. With increased awareness and proactive measures, we can reduce the impact of shrinkflation on our everyday lives. If there was a Super Bowl moment for pricing managers to work with brands to protect profits, this is that moment. Make a framework for tackling shrinkflation now before customers switch.