A global recession could be on the horizon, but strategies that helped keep struggling food and beverage companies afloat during the 2008 financial crisis, such as shrinkflation, might not work as well this time around.
Adam Ben-Yousef, SVP of revenue growth management at o9 Solutions, an enterprise software company that sells an AI-powered planning platform – branded the o9 Digital Brain – said he first noticed the shrinkflation/small indulgence trend appearing during the ‘08 crisis.
The birth of shrinkflation
The 2008 financial crisis prompted a significant pullback from consumers, particularly for big-ticket items like homes and cars, Ben-Yousef recalled.
However, consumer spending on smaller-ticket items like food and alcohol rebounded faster, he explained.
“You had this premiumization trend across a bunch of categories within the grocery store,” he said. “Some companies responded [to economic challenges] to try to maintain margins and keep costs healthy with what was called ‘value engineering’ at the time.”
That included sometimes using lower-quality ingredients and shrinkflation, which is the strategy of reducing the size, and sometimes raising the price, of products.
“These were examples of trying to offer better value to the consumer,” Ben-Yousef said. “In the short-term, it tended to work, but consumers are smart and they spotted these trends.”
Consumers grow savvier
“Those same levers of shrinkflation or value-engineering products don’t work anymore,” he said.
A strategy of small indulgence is different, though, Ben-Yousef explained. “Where you see small formats work well is with small indulgence, where that’s clearly part of the value proposition to the consumer,” he said.
Trying to stealthily reduce a 16-ounce pack to a 15-ounce pack without mentioning it makes consumers “feel like you’re trying to get one by them, and that’s very anti-consumer,” according to Ben-Yousef.
Consumer-first value proposition
Focusing on consumers entails giving them more options, which includes hitting the right price range on the shelf, Ben-Yousef said.
“How do you make that, from a consumer’s perspective, feel like a great quality-for-value exchange?” he asked. “That’s where we’re seeing positivity in our analysis.”
He encouraged CPG companies to closely evaluate optimal price points and then offer packages that feel like a deal to consumers.
“What’s a great package we can put together for them that they’ll feel good about at $10, as opposed to this thing that used to cost you $15, and we’ve now nudged it up to $16 and we’ve taken 10% of the product out,” he said. “That feels like you’re taking something from me rather than giving something to me.”
