October 16, 2024
iStock.com/sasirin pamai
How Should Brands Respond to Shrinkflation Charges?
After seeing chip sales decline amid “shrinkflation” charges, PepsiCo has been adding about 20% more chips to bags of Tostitos, Ruffles, and Doritos without raising prices.
On the company’s third-quarter analyst call, CEO Ramon Laguarta said PepsiCo is also adding two or three extra bags of chips to variety packs.
The moves, he said, “will be all additional value that I think will have a positive impact on the business in the coming months,” especially as chip-eating occasions pick up with watch parties taking place around major college and professional football games.
“It’s the football season,” Laguarta said. “There’s a lot of gatherings, and those brands belong very well in those gatherings.”
Sales at Frito-Lay North America, PepsiCo’s domestic snack-food division, were down 1% in the third quarter.
Although food inflation has cooled, grocery prices are up about 25% compared to 2019, according to the U.S. Bureau of Labor Statistics. As a result, consumers are still seen seeking out sales and discounts, switching to cheaper and generic brands, and buying fewer nonessential foods like chips.
Beyond value, the move is also seen as a response to the charges against PepsiCo over the controversial tactic of shrinkflation, which generally involves downsizing a package’s size but keeping the price the same.
In late 2023, Carrefour launched a “shrinkflation” campaign by sticking warnings on products in aisles, including PepsiCo products, that have shrunk in size but cost more.
By January, Carrefour removed numerous PepsiCo products due to escalating price increases in stores in France, Italy, Belgium, and Spain. Beyond chips, Quaker Oats, Lipton, and PepsiCo’s namesake soda were pulled. Price negotiations led to their return by early April.
On Oct. 7, two Democratic members of Congress, Sen. Elizabeth Warren and Rep. Madeleine Dean, sent letters to Laguarta as well as the CEOs of Coca-Cola and General Mills with concerns about shrinking products and corporate tax avoidance.
The congresswomen cited several examples, including PepsiCo’s replacement of 32-ounce Gatorade bottles with 28-ounce bottles, but charging the same price, essentially “a 14% price increase,” they wrote. Packaging changes were also called out for General Mills’ cereals and Coca-Cola’s sodas.
“Shrinking the size of a product in order to gouge consumers on the price per ounce is not innovation, it is exploitation,” the letter to Laguarta read.
PepsiCo has previously denied changing bottle sizes for profit. A spokesperson told CNBC in July that the 28-fluid-ounce bottle of Gatorade has existed for over a decade and that selling it more widely was part of the company’s long-term strategy, not a response to the current economic environment. Coca-Cola has explained that it sells smaller bottles as a way to offer lower price points to budget-conscious consumers.
According to Packaging Dive, options for smaller package sizes in recent years also reflect the desire of many consumers, particularly younger generations, for moderation and portion control for health reasons. Small pack sizes can also drive trials with new buyers.
A recent survey from LendingTree found that 71% of Americans report experiencing or noticing at least one incident of shrinkflation in the past year, with 57% noticing multiple incidents. Of those who’ve noticed shrinkflation, 82% said they feel deceived, and 66% stopped buying the offender’s products because of it.
BrainTrust
Cathy Hotka
Principal, Cathy Hotka & Associates
Melissa Minkow
Director, Retail Strategy, CI&T
Nicola Kinsella
SVP Global Marketing, Fluent Commerce
Recent Discussions
Discussion Questions
What do you think of PepsiCo’s move to add more chips to snack bags in the face of shrinkflation charges and inflationary concerns?
Is shrinkflation an acceptable way for brands to protect their margins while keeping pricing consistent?
Is shrinkflation “exploitation” and should shoppers feel “deceived” by the practice?
Poll
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In an inflationary environment where costs have risen rapidly it is understandable that brands need to take corrective action either by increasing prices, changing formulations, or increasing unit pricing by shrinking volumes. The straight price route is open and honest. Shrinkflation is far less transparent, and it leads to charges of brands being dishonest and underhand. Brands probably need to have a more open dialogue about the reasons for their moves. However, most will likely ignore the latest study without comment.
I think – hope?- we can all agree this really isn’t an issue for government intervention, but… but it does seem like a form of deception, doesn’t it? (I’ll not call it fraud since it likely fails the legal standard for such.) As much as it might seem to make sense in the short term for people to think they’re not paying more, in the long-term one has to think it backfires: what’s worse that paying more? > Paying more and being gaslighted about it.
When more than 5 million people drop out of the job market as happened during Covid and those who are still there are making 3 times as much as they did prior, that’s the cause of inflation.
My Kashi cereal box got smaller and only has seven servings instead of eight as it once did. I appreciate that it keeps the cereal under eight dollars. If we’re to maintain at its previous Serving size, it would cost over $10 which could doom the product.
EVERYONE has noticed smaller container sizes. Everyone knows that it’s now easy to spend $8 for a box of cereal. Consumers have the power to change this by refusing to purchase tiny sizes at outrageous prices…and they are.
Due to 23% inflation since January 2021, brands are clearly stuck between a rock and a hard place. “Shrinkflation” is an alternative to price increases, but most brands have had to do both.
But shrinkflation is worse than inflation because consumers resent it. It would be better for brands if they offered a smaller size at a lower cost, rather than reducing the quantity of existing sizes.
It is even worse that shrinkflation is ugly and messy. Beverage bottles with lower fill lines or packages labeled 6 oz. when the contents are only 5 oz. are unappealing. A bag of air with fewer chips is also unappealing.
The practice of shrinkflation definitely deceives consumers, and it’s not good for the brand.
Kudos to Carrefour for protecting their customers, and kudos to PEPSICO for taking action in response. The poll offers two solutions: raise prices or reduce product sizes. CPGs also have to be aware of the 3rd option. Health-conscious 16-34 year olds who will shun expensive, shrinkflated, and unhealthy snacks.
This isn’t new. It’s call cost control. It happens in all types of production -apparel, food, appliances, etc, etc – which costs can be reduced while maintaining the appearance of the original product. The consumer has to vote with their purchase power.
I’d always say up prices rather than shrink packaging. When upping prices, you’re at least matching the rest of the environment. Shrinkflation is obvious and offensive to the consumer.
I don’t mind making portion sizes smaller. As a country, we tend to overindulge. But charging the same price for smaller volumes is not ok. Especially when those charges represent high percentages – way higher that income increases over the past few years. It’s deceptive. And will have a negative brand impact long term.
In times of inflation, let’s say you ask shoppers if they prefer higher prices or less contents in packages. I do NOT think they would say they want higher prices.
There needs to be a balance. Raising a price is easy to spot. Being surprised by a shrinking volume that is “hidden” until noticed can backfire and create the problems mentioned in the article. Then, there is the discussion around government jumping in. This creates a different dialogue that could seem like a political argument. My take on it is simple: If a company raises its prices, it will understand the consequences of doing so. Some customers may not care. Others may find competing products with lower prices. Same with shrinking the volume of the product. And if a company chooses to be deceptive in its practice of pricing and volume, that’s another story. Every change has consequences, good and bad, that must be considered.
Price increases are more transparent and may preserve consumer trust (but risk alienating some customers in the short term, as does shrinkflation). If inflation is long-lasting, repeated shrinkage could backfire, making price increases more sustainable brand decision. Whichever option is chosen, we live in an age where it is easy and necessary to communicate to your customers what you are doing and why.
To answer the 3 questions:
1) They aren’t giving anything to the consumers here, just closing a value gap they imposed upon themselves. Did they communicate their shrinkflation to the customer base on the front end? Or are they saying “sorry” because consumers noticed?
2) Acceptable as long as the brand is proactively communicating to their customers the logic behind the move, but not sustainable.
3) Shrinkflation without communication is deception.
Having worked with Frito-Lay I expect they are doing in their categories what everyone else should be doing, following the data.
Whether you think shrinkflation is or isn’t impactful is irrelevant. In some categories it works. In others, there’s backlash.
Businesses have to sell profitable products to continue to sell products. When raw materials increase, something has to change. A price increase, especially when a series have already happened, is tough for brand, retail and consumer. Shrinking product size is another option to keep the price point where consumer want.
No easy answer. Follow the data for your category. Or change the game a bit. Upsize and sell at lower per ounce. Don’t make shoppers pay for packaging.
Hmm.. most of the stuff sold by packaged goods companies are terrifically bad for you anyway, so the way I see this is Pepsico and others were actually doing the food eating public a favor by reducing the amount of non nutritious foods we actually eat.
Now that I think about it, that might be a great campaign concept-“we know the stuff we sell you contributes to the record amounts of obesity in our country, and we also know that we still want to eat it, so in order to protect our stock price while still serving you horribly non nutritious food, we decided to lower the amount of product actually end the bag”!!
Just a suggestion.
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In an inflationary environment where costs have risen rapidly it is understandable that brands need to take corrective action either by increasing prices, changing formulations, or increasing unit pricing by shrinking volumes. The straight price route is open and honest. Shrinkflation is far less transparent, and it leads to charges of brands being dishonest and underhand. Brands probably need to have a more open dialogue about the reasons for their moves. However, most will likely ignore the latest study without comment.
I think – hope?- we can all agree this really isn’t an issue for government intervention, but… but it does seem like a form of deception, doesn’t it? (I’ll not call it fraud since it likely fails the legal standard for such.) As much as it might seem to make sense in the short term for people to think they’re not paying more, in the long-term one has to think it backfires: what’s worse that paying more? > Paying more and being gaslighted about it.
When more than 5 million people drop out of the job market as happened during Covid and those who are still there are making 3 times as much as they did prior, that’s the cause of inflation.
My Kashi cereal box got smaller and only has seven servings instead of eight as it once did. I appreciate that it keeps the cereal under eight dollars. If we’re to maintain at its previous Serving size, it would cost over $10 which could doom the product.
EVERYONE has noticed smaller container sizes. Everyone knows that it’s now easy to spend $8 for a box of cereal. Consumers have the power to change this by refusing to purchase tiny sizes at outrageous prices…and they are.
Due to 23% inflation since January 2021, brands are clearly stuck between a rock and a hard place. “Shrinkflation” is an alternative to price increases, but most brands have had to do both.
But shrinkflation is worse than inflation because consumers resent it. It would be better for brands if they offered a smaller size at a lower cost, rather than reducing the quantity of existing sizes.
It is even worse that shrinkflation is ugly and messy. Beverage bottles with lower fill lines or packages labeled 6 oz. when the contents are only 5 oz. are unappealing. A bag of air with fewer chips is also unappealing.
The practice of shrinkflation definitely deceives consumers, and it’s not good for the brand.
Kudos to Carrefour for protecting their customers, and kudos to PEPSICO for taking action in response. The poll offers two solutions: raise prices or reduce product sizes. CPGs also have to be aware of the 3rd option. Health-conscious 16-34 year olds who will shun expensive, shrinkflated, and unhealthy snacks.
This isn’t new. It’s call cost control. It happens in all types of production -apparel, food, appliances, etc, etc – which costs can be reduced while maintaining the appearance of the original product. The consumer has to vote with their purchase power.
I’d always say up prices rather than shrink packaging. When upping prices, you’re at least matching the rest of the environment. Shrinkflation is obvious and offensive to the consumer.
I don’t mind making portion sizes smaller. As a country, we tend to overindulge. But charging the same price for smaller volumes is not ok. Especially when those charges represent high percentages – way higher that income increases over the past few years. It’s deceptive. And will have a negative brand impact long term.
In times of inflation, let’s say you ask shoppers if they prefer higher prices or less contents in packages. I do NOT think they would say they want higher prices.
There needs to be a balance. Raising a price is easy to spot. Being surprised by a shrinking volume that is “hidden” until noticed can backfire and create the problems mentioned in the article. Then, there is the discussion around government jumping in. This creates a different dialogue that could seem like a political argument. My take on it is simple: If a company raises its prices, it will understand the consequences of doing so. Some customers may not care. Others may find competing products with lower prices. Same with shrinking the volume of the product. And if a company chooses to be deceptive in its practice of pricing and volume, that’s another story. Every change has consequences, good and bad, that must be considered.
Price increases are more transparent and may preserve consumer trust (but risk alienating some customers in the short term, as does shrinkflation). If inflation is long-lasting, repeated shrinkage could backfire, making price increases more sustainable brand decision. Whichever option is chosen, we live in an age where it is easy and necessary to communicate to your customers what you are doing and why.
To answer the 3 questions:
1) They aren’t giving anything to the consumers here, just closing a value gap they imposed upon themselves. Did they communicate their shrinkflation to the customer base on the front end? Or are they saying “sorry” because consumers noticed?
2) Acceptable as long as the brand is proactively communicating to their customers the logic behind the move, but not sustainable.
3) Shrinkflation without communication is deception.
Having worked with Frito-Lay I expect they are doing in their categories what everyone else should be doing, following the data.
Whether you think shrinkflation is or isn’t impactful is irrelevant. In some categories it works. In others, there’s backlash.
Businesses have to sell profitable products to continue to sell products. When raw materials increase, something has to change. A price increase, especially when a series have already happened, is tough for brand, retail and consumer. Shrinking product size is another option to keep the price point where consumer want.
No easy answer. Follow the data for your category. Or change the game a bit. Upsize and sell at lower per ounce. Don’t make shoppers pay for packaging.
Hmm.. most of the stuff sold by packaged goods companies are terrifically bad for you anyway, so the way I see this is Pepsico and others were actually doing the food eating public a favor by reducing the amount of non nutritious foods we actually eat.
Now that I think about it, that might be a great campaign concept-“we know the stuff we sell you contributes to the record amounts of obesity in our country, and we also know that we still want to eat it, so in order to protect our stock price while still serving you horribly non nutritious food, we decided to lower the amount of product actually end the bag”!!
Just a suggestion.