Shrinkflation and Startups: Turning Challenges into Opportunities

Welcome back to the blog my dudes. Every day I share a new idea on what’s up in the startup world. Back in 2015 I started my hair vitamins brand out of my bedroom as a side hustle and who knew it would turn into a million-dollar brand by 2022. I sold last summer (more on that below)

A short story about how I sold my startup on Acquire.com and how it changed my life massively for the better.

Today let’s talk about Shrinkflation. Rather than all the doom and gloom out there, I wanted to share a positive perspective on how we as founders can learn from larger companies, on how they manage shrinkflation!

Table of Contents:

What is Shrinkflation and How Does It Impact Shoppers?

In today’s competitive market landscape, the strategies businesses use to maintain profitability can often seem enigmatic to the average consumer. One such strategy that has garnered attention recently is ‘shrinkflation.’ For the uninitiated, shrinkflation is the practice where companies reduce the size or quantity of a product while maintaining or even increasing its price. Essentially, consumers pay the same or more for less. Though most commonly observed in consumer goods like chocolate bars or bags of chips, the implications of shrinkflation ripple across industries and offer both challenges and opportunities for startups and small businesses alike. CNBC recently found that 64% of consumers worry about shrinkflation:

https://www.cnbc.com/2022/08/29/64percent-of-consumers-worry-about-shrinkflation-heres-what-to-watch-for.html

Why Shrinkflation is on the Rise

Several factors have contributed to the rise of shrinkflation. Rising production costs, supply chain disruptions, increased wages, and inflationary pressures compel businesses to think innovatively about maintaining profit margins. While increasing the product price is an obvious solution, it can deter price-sensitive consumers. This is where shrinkflation comes in as a more subtle approach. By reducing the product size or quantity, businesses can maintain or even increase profitability without explicitly hiking prices. This tactic can be especially appealing to startups and small businesses operating on thin margins and facing fierce competition from larger, more established entities.

Harnessing Shrinkflation in Your Business

  1. Transparency is Key: One of the biggest criticisms of shrinkflation is the perceived deception. If your startup or small business chooses this route, it’s crucial to be transparent. Informing customers of changes and providing valid reasons can mitigate potential backlash. Authenticity fosters trust.
  2. Value Addition: While you might be offering less of a product, think about how you can add value elsewhere. Can you enhance the product’s quality? Offer better customer service? Provide additional features or benefits that justify the change?
  3. Leverage Packaging: Redesigning packaging is not just about disguising shrinkflation. It can be an opportunity to innovate. Sustainable, eco-friendly packaging or designs that enhance user experience can be appealing to consumers.
  4. Diversify Offerings: Shrinkflation might not be suitable for all your products or services. As a startup or small business, consider diversifying your offerings. Introduce premium versions or entirely new products that cater to different market segments.
  5. Monitor Feedback: Keep a close eye on customer feedback. Understanding how your market perceives changes will allow for timely adjustments.

Opportunities Beyond Shrinkflation

While shrinkflation offers a strategic approach to cost-saving, it’s essential to remember it’s just one tool in the toolbox. Startups and small businesses have a nimbleness that many larger corporations lack.

  • Agility: Use your business’s agility to adapt quickly to market changes. This flexibility can be a significant advantage in testing and implementing strategies that bigger players would find cumbersome.
  • Build Relationships: In an age of automation and faceless corporations, personal relationships matter. Cultivating strong supplier and customer relationships can offer advantages in cost negotiations and customer loyalty.
  • Leverage Technology: There’s a myriad of tech solutions tailored for startups and small businesses. From inventory management to customer relationship management, technology can optimize operations and reduce costs.

Brands, Shrinkflation, and Lessons for the Savvy Consumer

Shrinkflation, as many have come to realize, is not just an economic theory but a very tangible practice that consumers encounter on their supermarket runs. As highlighted by the meticulous investigation of Edgar Dworsky, brands, in their bid to maintain profitability amid rising costs, have often chosen the path of subtly reducing product sizes while keeping prices steady or even inflating them. While the strategy might make business sense from a purely profit-driven perspective, it poses ethical questions and challenges concerning transparency and consumer trust. Here’s a closer look at brands caught in the act and the key takeaways for businesses and consumers.

General Mills and the Case of the Shrinking Cereal Box

General Mills, a household name in breakfast cereals, made a notable shift in their “family size” cereal boxes, reducing contents from 19.3 ounces to 18.1 ounces, as identified by Dworsky. For the consumer, it might appear as a negligible difference on first glance, but when looked at from a broader perspective, the change represents over 6% less product for the same price. The business lesson? While downsizing might be a solution to maintain margins, doing so without transparency can hurt brand trust in the long run.

Cadbury’s Chocolate Reduction

For the sweet-toothed amongst us, you may have been asking “Have Cadbury’s Creme Eggs got smaller?” Yes they have.

Cadbury’s Easter eggs have also been hit by ‘shrinkflation’. As the Irish Mirror pointed out in March this year, “Chocolate lovers are getting around 25g less chocolate in the small, medium and large-sized Cadbury Easter eggs than they got in 2022”

Moreover, Cadbury’s decision to reduce the size of their ‘Big Share’ bags of Dairy Milk buttons by 23% offers another glaring instance of shrinkflation. The price remaining constant at £2 in supermarkets like Asda and Tesco is particularly eyebrow-raising. While Mondelez, Cadbury’s parent company, justified the move citing competition and rising costs, the change undoubtedly left a bitter taste in the mouths of many chocolate lovers. For startups and small businesses, Cadbury’s move underlines the importance of balancing cost-saving measures with preserving brand reputation. And Cadbury’s aren’t the only confectioners balancing their profits and products with shrinkflation:

Kids and Grown Ups (Don’t) Love It No: Shrinkflation Hit Haribo

Haribo, the renowned candy brand, hasn’t remained untouched by the phenomenon of shrinkflation. Several consumers have noted that certain Haribo packages appear smaller than in previous years, yet retail at the same, if not higher, price points. This strategy, mirroring other big brands, seems to be Haribo’s way to offset rising production or ingredient costs without directly increasing the product price. Such subtle adjustments can sometimes go unnoticed by the everyday shopper, but for the keen observer, it raises questions about value for money and the transparency of brand practices in an ever-evolving marketplace.

Jacobs and the Mini Cheddars Makeover

Cracker giant Jacobs didn’t just stop at reducing the size of their Mini Cheddars packets; they reportedly made them less cheesy too. This dual assault on quantity and quality serves as a cautionary tale for businesses. Altering a product’s core features can alienate a loyal customer base. Companies, especially those in the food sector, must weigh the pros and cons of changing a beloved product’s characteristics.

Toblerone Shrinkflation Backlash

In recent years, Toblerone, the iconic Swiss chocolate brand, faced backlash due to a notable instance of shrinkflation. The company altered the distinct triangular peaks of its chocolate bar, increasing the gaps between peaks, thereby reducing the chocolate’s overall weight. This decision was justified as a cost-saving measure in response to rising ingredient prices. However, despite the unchanged price tag, consumers quickly noticed and expressed their displeasure. Toblerone’s case serves as a prime example of how shrinkflation can be immediately discernible, impacting brand reputation and consumer trust.

Lessons to Draw from Shrinkflation Incidents

  1. Value Consumer Trust: While brands might perceive shrinkflation as a discreet way to manage costs, many consumers feel deceived when they realize they’re getting less for their money. Maintaining consumer trust should always be a priority.
  2. Transparent Communication: If there’s a legitimate reason for reducing product size, such as rising ingredient or production costs, companies should consider being upfront with consumers. This transparency can prevent feelings of betrayal.
  3. Reassess Business Models: Instead of instantaneously resorting to shrinkflation, brands might consider reassessing their business models. Are there inefficiencies that can be ironed out to maintain product integrity? Can technology or innovative strategies offer cost-saving solutions?
  4. Value Perception: Brands need to be acutely aware of value perception. If consumers start feeling that they’re not getting value for their money, they might switch to competitors or alternative products.
  5. Consumer Awareness: On the consumer front, awareness is key. Dworsky’s investigative approach is a testament to the importance of being an informed consumer. Checking product weights, sizes, and prices over time can keep brands in check and ensure consumers get their money’s worth.

Conclusion

In the world of business, shrinkflation emerges as a dual-edged sword. On one hand, it provides companies with a means to navigate economic challenges, ensuring margins remain favorable. On the other, it risks compromising consumer trust and brand reputation. From the subtle cereal box adjustments of General Mills to Cadbury’s significant chocolate size reduction and Jacobs’ revamped Mini Cheddars, the evidence of shrinkflation is palpable. The key lessons drawn highlight the significance of valuing consumer trust, maintaining open communication, continuously reassessing business models, and understanding consumer value perception. In the end, while brands seek profitability, they must remember the foundation of any successful business: a loyal and satisfied customer base. Both businesses and consumers have roles to play in this delicate balance – businesses in being transparent and prioritizing customer value, and consumers in remaining informed and discerning. In this intricate dance, mutual trust and respect must lead the choreography for sustainable success.

Also a heads up, if you liked this post, you’ll like my deepdive on the amazing Tori Gerbig – she started her fashion side hustle on E-bay and scaled it up to over $100 million – and the best part is, she bootstrapped it! I’ll see you again tomorrow for another article, love ya!

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