Why isn’t inflation touching snacking industry?

Why does a chocolate bar or a pack of chips costs the same as it used to a decade back?

As we draw closer to the third wave of COVID-19, inflation is the new buzzword. This follows debates related to rising costs of living, crashing markets and what not. This means that prices of goods will increase and we would require more money to buy the same goods in future.

But, why is it that this rise in prices is seen only in a few cases like foodgrains, rents, etc? Why is that a Cadbury chocolate still costs me INR 10 – the same amount that it costed me in 2008? Or why is it that a standard Lays packet still cost me INR 10? What is unusual about these snacking categories that inflation does not show its impact on them? Let’s try to break it down!

First things first, for our friends new to the inflation world, here’s a quick definition (skip the following paragraph if you already know what inflation is):

Inflation can be defined as a persistent rise in the general price of goods and services of common or daily use — such as clothing, food, fuel, transport, etc — which results in an increase in the cost of living. In India, there are two main sets of inflation indices to measure changes in price levels — Consumer Price Index (CPI) and Wholesale Price Index (WPI). These indices measure changes at the retail and wholesale price levels, respectively.

Fun Fact: The WPI and CPI numbers for the month of June’21 are too high at 12.94% and 6.3% respectively. The comfortable range by RBI for CPI inflation is 4-6%. As this range is breached, inflation is much more than expected.

Now, back to our discussion –

Whenever inflation happens, the cost of raw materials is bound to increase, labour costs shoot up and brands have to adjust their costs in MRP to stay in business. But why don’t we see that happening?

Well, It does happen!

In fact, Brands like Cadbury, Lays or any other packaged food categories are too sharp to let you notice the impact of inflation on their products. These brands are, in fact, stealthily making you pay more with a simple marketing genius at play!

So, each of these items are still priced the same as they were a decade ago, but the average size has decreased! This is often done without a warning. And in most cases, consumers don’t even notice.

Let’s take a use case:

For a Dairy Milk bar produced by Mondelez International's Cadbury unit, in 2011, the company lopped two squares of chocolate from the snack, holding the price unchanged. In 2013, it made the corners of the bar more rounded, reducing the weight. Did you notice the rounded edges? We didn’t.

For a Cadbury chocolate manufacturing unit, the 10 year profitability forecast will factor in standard gramage of a chocolate bar starting at 15g and slowly reduced to 7 g while MRP of the product remains at INR 10. It accounts for unforeseeable events like recessions or inflation. Then, slowly and smoothly, another SKU of 15 g is released at INR 20, to eventually discontinue the original SKU at INR 10 and the cycle continues.

Also, in most of the cases like chips, the packaging size remains the same, reducing the quantity of the food/snack inside it to mask the change in quantity! For example, a packet of Kurkure that retails at INR 10 weighs 50g today (45g+5g mentioned on the packaging ironically). This same packet with the same size packaging weighed 55g 3 years back – a massive 9% decrease in weight! In the UK, in 2018, a new tax on sugar led to shrinkage of Coca-Cola bottles. A bad peanut harvest season might lead to some manufacturers increasing the size of the dimple in the bottom of the peanut butter jar to reduce the amount it can hold.

Brilliant retail camouflage gimmick! Isn’t it?

So, basically, brands make you pay the same amount of money, but for a lesser quantity. And guess what, there is a term for that – shrinkflation!

Shrinkflation is a term made up of two separate words: shrink and inflation. The "shrink" in shrinkflation relates to the change in product size, while the "flation" part refers to inflation—the rise in the price level. Shrinkflation is basically a form of hidden inflation.

So, it is a brilliant gimmick if customers do not notice it. But what if the customers notice it? Many a times, brands are aware that customers might notice a sudden decrease in weight. In such cases, another camouflage technique comes into play – a technique where brands acknowledge/admit the reduction in weight and link it to a social cause.

For example, Mondelez announced last year that all Cadbury chocolate bars sold in multipacks will shrink by the end of 2021 to reduce their calorie count! Because the company is too keen on addressing the obesity epidemic, it is reducing calorie count per pack – not by changing contents though, but by reducing the size!

While these techniques work at times, they can also backfire. For example, in 2016, when the same company reduced the weight of its Toblerone bar from 200g to 150g by spacing out its distinctive triangular chunks, it faced backlash and finally had to reverse the change two years later.

According to the UK’s Office of National Statistics, 2,529 products on supermarket shelves decreased in size or weight in the five years between 2012 and 2017.

So, long story short, when inflation happens, it is not going to spare anyone and as always, it is the end consumer who ultimately faces the brunt of it. While some e-commerce sites also show the INR/kg that customers have to pay (usually in case of large packs and even detergents, etc), when it comes to offline shopping, all a consumer can do to stay more aware is by checking the net weight along with the price tag.

When was the last time you checked quantity along with price tag? Let us know! And if we left your senses watering for more, don’t forget to share and subscribe for a regular delivery of Finns&Marks!

By: Anmol Gupta | Isha Garg