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Business News

As economy bites, companies use ‘shrinkflation’ to rip off Nigerians

Several companies have been using shrinkflation to rip off customers for years. In 2015, @Pepsi_Naija and @CocaCola employed it until @getbigi and @BigCola9ja disrupted the market—a move that reversed both household brands into default setting. However, Pepsi and Coca-cola aren’t the only FMCG involved in shrinkflation, as this deceptive but legal activity dates back to over a decade in the Nigerian market.

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Shrinkflation in the market, Companies engaging in shrinkflation, Cola war in Nigeria, Pepsi Coca-cola Bigi and Big Cola

Several companies have been using shrinkflation to rip off customers for years. In 2015, Pepsi and Coca-cola effectively utilized the strategy until Bigi and Big Cola disrupted the marketa move that reversed both household brands into default setting.

However, Pepsi and Coca-cola aren’t the only fast-moving consumer goods makers involved in shrinkflation as this deceptive but legal activity dates back to over a decade in the Nigerian market. 

 Shrinkflation is a word coined from shrink and inflation. It simply implies a reduction in the quality or quantity of a product with the product price remaining the same. In the case of Nigeria, product price increases without justifiable reasons given by manufacturers. This is common among FMCG firms even with regulators’ connivance. Thus  it is the act of giving customers less value for their money.

[READ ALSO: 46-years after, Mr. Bigg’s is not so big anymore]

Shrinkflation is how some companies pass on costs of production to their customers in a manner that is not usually noticeable. It is deceptive from the customers’ perspective. But in the business world, it is a legal concept particularly in Nigeria where consumer protection is weak.

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Shrinkflation is the reduction of quality or quantity of a product or goods with the product price remaining the same or hike (Credit: Money Guru)

Food and beverage markets thrive when companies compete through prices and product size. When this happens, it is advantageous to the customers. But over the years, household companies have employed shrinkflation to stay afloat as brand loyalists are often absent-minded when purchasing goods. In some cases companies don’t hide this change, they also add extra prices to their goods. 

Why brands engage in shrinkflation 

When companies’ production costs rise, they often put the burden on customers to cut back operation expenses. One of their most effective methods is the reduction of products’ quality and quantity while the price remains unchanged. 

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[READ ALSO: It’s time to break Nescafe’s two-decade grip on Nigeria’s coffee market]

Companies prefer this strategy because it’s less visible to non-discerning customers since the difference is usually small or unnoticeable unlike price increments which can’t go unnoticed by customers. 

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Occasionally, brands opted for shrinkflation over fears that price hike will provoke customers to switch loyalty to their competitors who maintain their prices though they may have reduced their product sizes. 

One reasons given by customers  or loyalists of a particular brand when such brand reduce the quality or size of its product is economy. They often cited the unhealthy economic situation in the country for sharp practices or misdemeanor by manufacturers or any other individual. 

For instance, the 2016 Cola War in Nigeria brought to fore the uniqueness of customers in the whole process as competitive prices and diverse sizes of bottles were released to the market by new entrants during the country’s economic recession of 2015 -2017. 

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A display of shrinkflation process (Photo Credit: Buddy Loans)

Companies that engage in shrinkflation  

Drinks makers: Several brands have at one time or the other reduce the size of their products in order to accrue more profits in Nigeria. These companies don’t just reduce the size of their products, they also increase the prices.

Biscuits and confectionery firms: In the early part of this century, Coaster Biscuit  put seven pieces in a pack but as years went by the number began to drop even as each stick became leaner until the company felt three would be enough for its customers. This move was later accompanied by a price-hike. A Coaster pack with seven sticks was initially sold at N5, but today, a pack with three biscuits goes for N10. 

[READ ALSO: How Cable TV could die in Nigeria]

Other brands that also adopted shrinkflation are Speedy, Coconut Biscuit, Fish Biscuit and Crackers. These brands have also hike their product prices. 

Burger and sardine companies: Apart from biscuits companies, the manufacturer of Burger peanut is successfully selling breeze to consumers who have termed it ‘airbag’ due to the excessive air inside the pack. Also on the list is Titus Sardine, which initially put four pieces of fish intin and sold it for N200. The product now juggles between three and two pieces for N250. 

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One day you might open a pack and won’t find anything in it (Photo Credit: This Is Money; UK)

In a chat  with our Analyst, a brand expert, Segun Akinleye, explained the term shrinkflation and the rationale behind its adoption by manufacturers.

He said: “Production costs are a major factor in pricing. So, it is not surprising that companies reduce the quality of products while retaining the price. Some, however, rather than reduce the quality, reduce the quantity without letting the public know.  

“The reason is simple: To cut production cost instead of transferring the additional cost of production to the consumers. Brands do this a lot all over the world, especially when the products have got substitutes. Secondly, as for those that reduce the quantity or quality, while increasing the price, I don’t think that’s a good business strategy. 

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[READ ALSO: Nigeria’s decision to sign the AfCFTA might be a grievous mistake…]

“What companies need to do is cut the component costs even if it’s by a slight percentage. This can have a substantial impact on cost of production. For example, redesigning a product is an effective way of reducing production costs.” 

Akinleye, who is also the founder of Kontact Media, said shrinkflation is also necessary to enable firms survive tough economic situations.

“This is because if such a strategy isn’t employed, some companies will exit the market,” he added.

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Shrinkflation is as a result of profit making

Competition as a solution to shrinkflation 

While shrinkflation has been successful in other FMCG markets, the beverage sector has struggled to implement such business strategy. Although the likes of Coca-cola and Pepsi tried the strategy but it backfired spectacularly when Big Cola and Bigi brands made their way into the market with competitive prices in the same period that Coca-cola and Pepsi company added numbers to their price points. 

The disruption caused by Bigi and Big Cola with bigger and affordable products showed that Pepsi and Coca-cola could actually offer consumers value for their money. Both companies later return to the drawing  board to win back the low-end of the market but it was too late as majority of the distributors had already adopted Big Cola and Bigi variants as ideal replacements for the expensive Pepsi and Coca-cola.

[READ ALSO: Superstores in Nigeria: Can SPAR and Shoprite’s business models keep them afloat?]

Akinleye added: “There are substitute products everywhere. If the price of Sunlight soap is too much, I can go for Ariel. If I can’t afford Milo, I can go for Bournvita, etc. That’s the beauty of capitalism..” 

Competition is not a lasting solution 

While competition compelled Pepsi and Coca-cola to backtrack to some extent, it does not always work for all FMCG markets as evident in the biscuit market. While there are surplus substitutes, most brands have their own unique tastes which cannot be easily substituted for others.

There were reports that some companies collude to fix market price. So, competition at times isn’t as effective as customers expect. In South Africa some years back, it was discovered that four of the country’s largest milling companies Premier Foods, Tiger Brands, Foodcorp and Pioneer Foods (makers of Nigerian loaf, Butterfield) had colluded to fix market price. 

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Shrinkflation is another source of revenue (Photo Credit: The London Economic)

South African Competition Commission uncovered their secret meeting points to be churches, stadia, hotels, and other places. These companies were later fined by the regulator. 

The action taken by the regulator is laudable because when household brands choose to dump competitive prices for a fixed price, it’s almost impossible for new and smaller entrants to disrupt the market or break the grips of these household products as their entry will not have far-reaching effect in the long-term.

[READ ALSO: Day-light robbery behind Apapa gridlock]

The way out

To find a lasting solution to this scenario, a Deputy Director at the Consumer Protection Council (CPC), Abiodun Obimuyiwa, had in 2018 promised to probe manufacturers of sachet goods after acknowledging the menace of shrinkflation 

“Information reaching our offices showed that consumers feel short-changed with the goods purchased with their hard-earned money,  he said.

 

Olalekan is a certified media practitioner from the Nigerian Institute of Journalism (NIJ). In the era of media convergence, Olalekan is a valuable asset, with ability to curate and broadcast news. His zeal to write was developed out of passion to shape people’s thought and opinion; serving as a guideline for their daily lives. Contact for tips: [email protected]

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    Business News

    FG to distribute 10 million LPG gas cylinders in 1 year

    The FG is set to inject up to 10 million gas cylinders into the market to help improve safety and deepen cooking gas utilization.

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    The Federal Government has announced plans to inject 5 to 10 million Liquefied Petroleum Gas (LPG) cylinders into the market in the next one year.

    This is to help improve safety and deepen LPG (otherwise known as cooking gas) utilization across the country.

    This disclosure was made by the Programme Manager, National LPG Expansion Implementation Plan, Mr Dayo Adeshina, at a sensitisation workshop on LPG Adoption and Implementation for Industry Stakeholders, on Wednesday in Lagos.

    According to a report from the News Agency of Nigeria (NAN), Adeshina said the National LPG Expansion Implementation Plan, domiciled in the Office of the Vice President, was committed to achieving Nigeria’s target of 5 million Metric Tonnes of LPG consumption annually by 2027.

    What the Programme Manager for LPG Expansion Implementation Plan is saying

    Adeshina said, “The Federal Government is working towards injecting five to 10 million cooking gas cylinders into the market within the next one year. We are starting the cylinder injection under the first phase in 11 pilot states and FCT, with two states from each of the geopolitical zones.

    The states are Lagos, Ogun, Bauchi, Gombe, Katsina, Sokoto, Delta, Bayelsa, Ebonyi, Enugu, Niger and the Federal Capital Territory. The cylinders will be injected through the marketers. The marketers will be responsible for the cylinders and the exchange will take place in homes and not in filling stations.

    What this means is that going forward, cylinders will not be owned by individuals but by the marketers who will ensure that they are safe for usage.’

    Adeshina pointed out that apart from household consumption, the government was trying to increase LPG usage in agriculture, transportation and manufacturing adding that this will enable the country to reduce CO2 emission by about 20% and create millions of jobs for Nigerians.

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    He said that the government had also granted waivers on importation of LPG equipment and removed Value Added Tax (VAT) on LPG in addition to investment in infrastructure.

    The President of the Nigerian Liquefied Petroleum Gas Association, Mr Nuhu Yakubu, said efforts should be made to ensure the availability, accessibility and affordability of cooking gas in the country adding that this would encourage more Nigerians to embrace gas usage in their homes with the attendant benefits to the country.

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    Mr Olalere Odusote, Lagos State Commissioner for Energy and Mineral Resources, said the population of Lagos makes it imperative for residents to adopt cleaner energy sources for cooking, transportation and power generation adding that the government was targeting the conversion of 45% of about 4 million vehicles in the state to autogas over a four-year period in partnership with marketers.

    What you should know

    • It can be recalled that the Federal Government had in November 2020, announced plans for the conversion of cars to autogas in a bid to have cheaper and cleaner energy especially with the high cost of petrol.
    • The government at different levels are pursuing cleaner energy sources for cooking, transportation and power generation.

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    Business

    JAMB bans use of email by candidates for UTME, DE registration

    JAMB has announced that candidates for the UTME and Direct Entry will no longer be required to provide their email addresses at the point of registration.

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    The Joint Admission and Matriculation Board (JAMB) has announced that candidates for the Unified Tertiary Matriculation Examination (UTME) and Direct Entry will no longer be required to provide their email addresses at the point of registration.

    The new adjustment is to protect candidates from various forms of manipulation and distortion of their personal details by some fraudulent cyber café operators.

    The Registrar of JAMB, Prof. Is-haq Oloyede, who made the disclosure while addressing newsmen at the board’s headquarters on Wednesday in Bwari, Abuja, said the change, would take effect from Thursday, April 15, 2021.

    What the JAMB Registrar is saying

    Oloyede said, “They gain access to profiles of these candidates under the pretense of creating an email address for them. Then they change and block the candidates from receiving messages from the board. They also extort them after they change their passwords.

    In view of this, the board has come up with adjustments to our operations. The first decision is that beginning from Thursday, April 15, candidates would no longer be required to provide any email address during registration from this year onwards.

    It is by going to these cyber cafes to open emails that these candidates are open to abuse and stealing of their personal data,’’ he said.

    He said that the board now had a mobile app that would allow candidates to deal directly with the board with their smartphones or via SMS to ‘55019’ code option.

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    The code option, he explained, would allow candidates to check admission status as well as all other verifications via SMS.

    He said, “Printing of examination slips, results notification or raising tickets can be done anywhere by using candidates’ registration number only. However, at the close of registration every year, we would need the email addresses of the candidates so we can have access to as many of them as possible.

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    At the conclusion of registration, candidates are expected to send their email addresses through the mobile app or text message to the 55019 code twice, for validation. This is to update their profile with JAMB as the email will no longer be used as access to their profile, but rather as a communication tool with candidates.’

    While advising candidates to guard their phones with utmost care as it was the weapon for all transactions, Oloyede said that henceforth, all JAMB owned Computer-Based Tests (CBT) centres across the country, would only allow candidates with ATM cards into its centres.

    He said that in order to cut down on the activities of fraudsters who hijack candidates to extort money from them, the centres would no longer allow candidates go outside the centres to pay for their e-pins and other cash transactions.

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    The JAMB Registrar said, “Only candidates with ATM cards will be allowed into all JAMB owned CBT centres, it can be that of their parents as long as they have the pin for the transaction.

    “Those without ATM cards can go to other privately owned CBT centres where they can pay cash to register but we will not take cash or transact outside our centres.’’

    What you should know

    Meanwhile, in a related development, JAMB had said that the board lost over N10 million in 2020 to activities of fraudsters who penetrated their payment portal for ad-hoc staff.

    The JAMB Registrar said that the money, which was meant to pay JAMB ad-hoc staff from the 2020 Unified Tertiary Matriculation Examination (UTME), was hijacked by the suspected fraudsters.

    JAMB had a few days ago confirmed the commencement of registration for the 2021 UTME/DE examinations after the initial hiccup.

    It stated that applicants must provide NIN at the point of registration with the registration by Direct Entry candidates to run concurrently with that of UTME candidates.

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