Shrinkflation: Product Downsizing Risks and Opportunities to Consider

As long as the word "inflation" has been with us, people have been playing with it to make a point — meatflation, gasflation and stagflation — to name but a few. And while the buzz now is all about shrinkflation, it’s no conspiracy. It’s long been a dependable strategy to maintain profit margins and shelf prices in the face of rising material and production costs.

Yes, the package may be smaller and no, it’s not just you

If you’re like most consumers, you’ve noticed a substantial number of the products you buy have shrunk a wee bit. Perhaps the package is smaller or it holds less product by weight or, quite frequently, both. Shrinkflation, also known as “product downsizing,” is the practice of reducing the size of a product while maintaining its sticker price.

It’s a strategy long employed by companies, mainly in food & beverage but in fast-moving consumer goods (FMCG) too. Raising retail prices per a given amount of product stealthily boosts or maintains profit margins in the face of rising input costs. In recent times, packaging commodity costs, raw materials costs and production costs have increased by 20-30%. This motivates brands to evaluate alternative methods that can maintain price points on the shelf while balancing their own margin-management goals. Get the details on various methods of cost-based pricing here.

“[Shrinkflation] comes in waves. We happen to be in a tidal wave at the moment.”
Edgar Dworsky; Consumer Advocate, mouseprint.org

Product-to-package risk factors

A major shrinkflation risk concerns excessive void-fill that can lead to costly fines or penalties for misleading the consumer. While it may be a faster change process to update graphics, Nutrition Facts Panels and fill your current packaging with less product, this could end up being misleading and result in slack-fill penalties or fines. As Rob Kaszubowski mentions, “Slack fill is the difference between the actual capacity of a container and the volume of the product it contains. If you are going to shrink the product, the package should shrink with it to avoid unintended consequences".

Operation considerations prior to executing on change

For many CPGs, the product and package transformation required for a shrinkflation overhaul can be an enormous effort requiring skillful management. It all starts with adjustments to marketing plans and their effects on consumer-facing communication at the packaging level. Focus then shifts to production and supply chain considerations — functionality, operations, machinability and the determination of packaging size, structure and material requirements. All these factors need to remain in balance to accomplish the goal at hand. Engage in a fair amount of due diligence with even the simplest of changes to avoid production downtimes, missed delivery dates, lost sales, and (even worse) a product recall.

Additional downstream supply chain benefits

There can also be additional opportunities to drive more value while the transformation is ongoing. Evaluating current pallet TI/HI values can help determine an optimized package dimension and drive improved usage through the supply chain. With the price of shipping today, this typically means cost savings! If you’re looking for a sustainability angle, evaluating current packaging materials to right-weight and alter designs to reduce materials can lead to an environmental success story for your organization.

— By Alex Turner