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Should U.S. Retailers Be Fighting Suppliers Against Shrinkflation?
French supermarket Carrefour put stickers on its shelves in France last week warning shoppers of “shrinkflation” — where the size or quantity of an item is reduced but prices are kept the same — to encourage suppliers to cut their prices as raw material prices cool.
“Obviously, the aim in stigmatizing these products is to be able to tell manufacturers to rethink their pricing policy,” Stefen Bompais, director of client communications at Carrefour, explained in an interview.
The supermarket chain put labels on 26 products, reading, “This product has seen its volume or weight fall and the effective price by the supplier rise. We undertake to renegotiate this price.”
For example, a bottle of sugar-free peach-flavored Lipton Ice Tea, produced by PepsiCo, shrank to 1.25 liters from 1.5 liters, resulting in a 40% effective increase in the price per liter.
The shrinkflation warnings are in all Carrefour stores in France and will stay until the targeted suppliers agree to price cuts. These stickers could extend to other items as well. The price warnings reportedly come as Carrefour’s contract talks with major brands are slated to start in mid-October.
The French government has threatened to penalize or publicly shame suppliers that are reluctant to renegotiate lower prices with grocers amid declining prices of oil, transportation, food ingredients, and other raw materials.
Suppliers have claimed that “as inflationary pressures decrease at the start of the food supply chain, it takes time for that to transmit down the chain to retail shelves.” Other factors, including wages, weather, disease, and events like wildfires, also play a role in inflation.
Food inflation in France in France has eased in the last few months but still hangs in the double digits. In the U.S., food inflation has come down faster but remains above historical levels. U.S. grocers have indicated that they continue to collaborate with suppliers to further bring down prices. Earlier this year, Walmart reportedly threatened to replace national brands with private labels if prices don’t come down.
Shrinkflation is a standard sales tactic, but it becomes more prevalent during periods of high inflation. It has also caught more attention in the U.S. over the last two years in media coverage and with complaints across social media.
An Ipsos survey from June found that 83% of U.S. consumers are noticing that they are getting less and paying the same amount or more. And nearly as many (79%) say they feel cheated when that happens.
Discussion Questions
Do you applaud Carrefour’s move to call out shrinkflation by suppliers on store shelves to incentivize price reductions? Should U.S. grocers push back against shrinkflation?
Poll
Loading …BrainTrust
Brandon Rael
Strategy & Operations Transformation Leader
Zel Bianco
President, founder and CEO Interactive Edge
Carrefour’s shrinkflation labels are a way of both informing consumers about negative changes and exerting pressure on the large CPG companies. If they drive switching behavior among consumers, they could well make suppliers sit up and take notice. Whether it works remains to be seen. Carrefour isn’t the only retailer fighting against supplier inflation: Tesco has delisted products and paused orders, even from big companies like Heinz, in response to increased prices. Walmart has also been putting more pressure on suppliers. While CPG firms are huge and powerful, many retailers have an equal amount of muscle and can, and should, fight back where they can, if only to protect their own competitive interests.
Why does this remind me of the Game of Thrones scene when the crowd was chanting “shame-shame-shame!” at Cersei Lannister? I do not agree that retailers should penalize manufacturers who are trying to stay profitable during inflationary times. Customers are very savvy and are capable of making their own purchase decisions. If anything, it appears to be a great moment for expanding private label and marketing the difference in a more positive way.
The sad thing is, the big consumer brands are staying more than profitable, they’re boosting margins, and using the headlines as cover to do so.
Absolutely. No matter what they say, they love the opportunities under the cover of inflation.
Reading today’s headline, my first reaction was to let companies do what they want. Some will win, some will lose.
Then, I read the first paragraph regarding Carrafour’s actions. I gave them a big HURRAY! This is the perfect response. It is the exact right thing to do.
The objective of a company’s use of shrinkflation is simply to fool the shopper for the company’s own benefit. Surely, someone in the pricing meeting said, “They won’t even notice.”
I’d like to see U.S. retailers follow the Carrefour lead. Stop banging heads with the CPG salesperson and just give the shopper the needed information to make an informed decision. Let the sales fall where they may.
First, Carrefour’s shrinkflation warning signs could use some shrinking themselves. How about shortening “This product has seen its volume or weight fall and the effective price by the supplier rise. We undertake to renegotiate this price.” Let’s see: CAUTION: SHRINKFLATION! Done.
Now, I believe shrinkflation is a global character flaw of suppliers. We see it with oil all the time. OPEC changes their price and the ripple effect is instantaneous but when lowered, not so much. My pet peeve is coffee: what used to be a pound is now 12 ounces. Retailers need to push back, but in the right ways. Carrefour is being transparent with consumers as a passive-aggressive move to embarrass suppliers while at least trying to maintain customer trust and loyalty. Of course, not every grocer is as big as Carrefour (which we haven’t seen any shrinking in lately).
By the way, my original comment had 25 percent more words.
This comes down to true collaboration between retailers and their suppliers and should be worked out by them without putting the consumer in the middle. Consumers have enough to worry about and retailers have enough clout to get to a fair and reasonable resolution.
Shrinkflation is out of control and needs to be addressed in every way possible. Boxes of cereal should not start with the number “7.” Ice cream cartons are now comically small. Kudos to retailers who balk.
Cereal boxes? Yes, they cut the contents, but not the size of the box.
Agreed! They are helping me with my personal objective to reduce the amount of ice cream I consume, but not in a helpful and positive way!
Why does this have to be a fight? Why can’t it just be about transparency and full disclosure? Brands can make choices on how they package and price their products and customers can make choices about what they buy. Of course it’s a problem when the brand makes a very quiet, under-the-radar change in packaging and pricing. But if the retailer and brand both simply makes sure that the changes are fully disclosed then the customer will vote with their wallet. Lots of customers are on auto-pilot as they shop. They deserve a flag of some kind that the pricing and value equation has changed. If the brand doesn’t want to flag it, the retailer owes their customers the level of disclosure that helps them make informed decisions. When customers know that the retailer is operating in their favor, that builds loyalty. When the brand knows that the retailer will flag changes if the brand doesn’t, that builds disclosure at the brand level.
I love what Carrefour is doing here. I would suggest that this would be a great opportunity for a savvy grocer to bring their private label brands forward and leave them in the original size package so consumers can compare and make their choices. It would be interesting to see what the brands do, and what choices consumers would make.
Trust and transparency are the core tenets of the relationship between customers, retailers, and their CPG partners. Customers are experiencing relentless pressure to make ends meet in our disrupted, inflation-fueled economy. Simultaneously, grocers, mass merchants, and their CPG wholesale partners are managing the perfect storm of rising operational costs, tight margins, and competitive pressures.
Unfortunately, shrinkflation is a strategy that takes place when manufacturers make smaller products but fail to change prices accordingly. It’s commendable for Carrefour to explicitly call out such activities and retain the trust and confidence of their loyal consumers. The Carrefour chain has decided to name and shame brands by marking 26 products with labels reading, “This product has seen its volume or weight fall and the effective price by the supplier rise.”
CPG firms have leveraged this shrinkflation strategy for decades now. However, such activities will not go unnoticed in the age of social media.
Good move, because everyone blames the retailers. I’ve gone through my Gatorade rant. These are the times consumers notice. Definitely they should be pushing up the food chain (so to speak).
Public protests are very French. Carrefour’s bold move alerts consumers, shames suppliers and boosts its bargaining power.
It may work well in France, given the government’s support to protect consumers from shrinkflation.
Carrefour helps combat shrinkflation by labeling products affected by it on store shelves. These labels encourage suppliers to reduce prices when they decrease product size or quantity while keeping prices the same. This action benefits consumers by promoting fair pricing.
Yes, U.S. grocers should push back against shrinkflation by maintaining, transparency, negotiating lower prices with suppliers, introducing private, labels, customer education, competition amongst suppliers, and advocacy by collaborating with industry associations. The United States retailers should take the lead in combating shrinkflation.
Food retailers recognize that they have a “local shelf monopoly.” In this regard they have considerable sway over even the largest CPG companies. Price, promotions & shelf space are a few of the ways food retailers negotiate with manufacturers. These are good strategic & tactical tools to deal with “shrinkflation” & should be considered by other retailers, especially if it is becoming a consumer related problem.
I love it! But, remember two things — Carrefour goes into contract negotiations next month and the French government supports putting this kind of pressure on suppliers. Those are two differences between France and the US. As to whether US retailers should copy Carrefour’s approach, I’d say it depends on whether or not they believe their brand’s relationship to consumers is stronger than their suppliers’ relationship. If they do, have at it. Consumers will appreciate it and most suppliers won’t want to lose distribution.
Given the scrutiny supermarkets across the world have been under, it’s no surprise they’re looking to deflect some of that attention. Since Shrinkflation usually leaves the retailer with the same margins as before, this looks performative rather than an actual negotiating tactic and will only make an already strained relationship worse. Food and drink companies need more sophisticated strategies than shrinkflation to retain margins in the face of rising costs but I don’t think this is the right way to encourage that.
This is all a bit showy. Retailers have plenty of bargaining power in this equation. If they want to order the 1.5 liter size in packs of 12 they can do so. If the 1.5 liter packaging goes to 1.25 then the Retailer negotiates as best they can what they are willing to pay for that size product and establishes the Retail accordingly or uses MSRP. Either way they are somewhat complicit in raising prices and the shelf label should say “the manufacture and us decided to put a smaller package on the shelf and charge a lot more per ml..
Kudos to retailers who inform customers and communicate how they are helping them save money, find more value. They ultimately are the ones who should build and own the customer relationship.
But this one is best solved by market forces. If customers see the grocer has been working to bring other brands or private label to compete at a better price/deal equation, the customer can make a good choice. If the customer wants to pay for inflated breakfast cereal brand prices, its up to them.
So is it “le” shrinkflation or “la”??. While I won’t question Carrefour’s motives here, it takes little imagination to think it might be more of an effort to collect brownie points with consumers than to actually accomplish anything. Ultimately I think it might be more useful to empower consumers by pointing out the tools already available to them – i.e. the per unit cost that already shown on the shelf price – than singling out alleged evil doers. As always, consumers have the final say: if a brand thinks it’s indispensable, it can FAFO.
In this age of information sharing, it only seems responsible and beneficial to customers to be transparent about shrinkflation, giving them the information they need to make the most informed choices. It seems this might be an interesting opportunity to integrate this information into retailer mobile apps and loyalty programs, perhaps highlighting and incentivizing the exploration of private label products, assuming they haven’t had the same level of shrinkflation.