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 market—a 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.
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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.
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.
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.
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.
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.
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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 in a tin and sold it for N200. The product now juggles between three and two pieces for N250.
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.
“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.
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.
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.
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.
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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.
FG set to create at least 5 million jobs for youths in the power sector – Minister of Power
FG is set to create at least 5 million jobs for the youths, through its 5 million solar power initiative and other projects.
The Minister of Power has disclosed that the Federal Government of Nigeria is set to create at least 5 million jobs for the youths, through its 5 million solar power initiative and other projects.
This was disclosed by Engr. Sale Mamman, The Minister of Power, during a stakeholder meeting in Jalingo, the Taraba state capital, where he addressed youths on the need to foster peace and harmony.
Mamman, stated that in line with the demands of the youths, the Federal Government is set to create massive job opportunities for Nigerian youths in the power sector through its 5 million solar power initiative.
This initiative includes the five million Solar Home System (SHS) project, the Mass Metering Scheme, among others.
The minister lauded the youths for making their voices heard on developmental issues, He urged the youths to shun violent protest while giving the President a chance to implement their demands and other ongoing robust projects on youth empowerment.
#EndSARS; Minister says FG creating jobs for youths with 5 million solar power projects, mass metering, others.
— Office of the Minister of Power (@PowerMinNigeria) October 26, 2020
What they are saying
Speaking on the initiative to immerse 5 million Nigerian youths into the power sector, the minister said:
“Plans are ongoing to kick start this and it is being designed to ensure that majority of the firms and the installers are Nigerian youths. This is also part of the commitment of President Muhammadu Buhari’s focus on lifting 100 million people out of poverty within 10 years.
“From the briefings I have received so far, the youths are taking up opportunities in this aspect as well as in renewable energy. This is another way the government will be empowering young Nigerians as the local assembly; installation and the maintenance of these meters are largely handled by our industrious youths.”
“The minister urged the youths to vigilant and resist and attempt by some people to use them to incite violence for their sinister motive, noting that the Federal Government was tailoring more programmes for the youths through the Siemens Presidential Power Initiative and in building capacity on renewable energy.”
“There is the assurance of Mr. President that Nigerians will be beneficiaries of the Siemens project which will turn around the power supply situation of Nigeria. When this happens, industries will be revived and SMEs driven by youths will thrive more.
What you should know
- The initiative is expected to commence with a target for one-million-meter installation at least by December.
- The implementing agencies of the initiative are the Rural Electrification Agency and the Niger Delta Power Holding Company.
- However, the Central Bank of Nigeria is supporting local firms and Meter Asset Providers on financing the initiative.
- The National Power Training Institute of Nigeria (NAPTIN) is expected to play an active role in order to ensure that more youths become solar power installers and dealers to create a whole new trend of skills for self-empowerment.
Why this matters
The 5 million Solar project initiative will be implemented through the Economic Sustainability Plan steered by Vice President Yemi Osinbajo, and it is expected to create opportunities for manufacturers of solar panels, installers, revenue collection agents and technicians.
This initiative is expected to reduce the level of unemployment in Nigeria, and cater to demands for better opportunities by the youths, through self-employment.
#EndSARS: Lagos State needs N1 trillion to rebuild losses – Gbajabiamila
Gbajabiamila has said that the Lagos State Governor told him that the state would need N1 trillion for the reconstruction of destroyed assets.
The Speaker of the House of Representatives, Femi Gbajabiamila has disclosed that Lagos State will need about N1 trillion for the reconstruction and repair of the properties and infrastructure that was vandalized and destroyed by hoodlums.
Gbajabiamila disclosed this while responding to questions from State House Correspondents after the assessment visitation of some of the properties that were destroyed during the protest.
What you should know
The #EndSARS protest which started as a peaceful demonstration by thousands of youths, degenerated into chaos after the protests were hijacked by hoodlums. The distasteful actions of hoodlums and arsonists have seen properties worth billions of naira vandalized, destroyed and razed down.
One of the consequences of these events was reported by Nairametrics as the Lagos State Government revealed that 27 of the burnt Bus Rapid Transit (BRT) vehicles in the Oyingbo and Ojodu Berger areas of the state cost $200,000 each, while 57 of them cost $100,000 each, which gives a total of N3.9 billion.
What they are saying
According to information gathered by The Punch, the Speaker said, “The House of Representatives will do all it can to compensate all those who suffered brutality, including policemen that lost their lives in the process.
“However, we want to know what exactly happened at the Lekki Toll Gate. The judicial panel must reveal this. However, I want to encourage Nigerians to allow peace to reign.
“I learnt from the governor of Lagos State that it will take N1trn to rebuild what had been lost and asked him what’s the budget size of the state, he said about N1trn. You can see we are moving backwards.
“Hence, we must consider the consequences of our actions before embarking on any venture. I, therefore, appeal to the youth to allow peace to reign henceforth. I still believe in the unity of Nigeria.”
#EndSARS: NBC fines AIT, Channels and Arise TV over use of “unverifiable” footages
The NBC has sanctioned three major Nigerian television stations over their reportage of recent unrest across the country.
The National Broadcasting Commission, NBC, has fined Nigerian media houses including AIT, Channels TV and Arise News, claiming they used unverifiable video footages from social media to cover the #EndSARS protests.
This was disclosed in a report by AIT on Monday afternoon. According to media reports, the regulators imposed various fines on Arise TV, African Independent Television (AIT) and Channels Television between N2million and N3million.
“The National Broadcasting Commission has sanctioned Africa Independent Television, AIT, Arise TV and Channels for what it calls, a gross violation of the broadcast code, top of which is the use of unverifiable online video footages on the social media,” AIT said.
The Acting Director-General of the commission, Armstrong Idachaba, warned that further sanctions will be harsher and announced that the owners of AIT, DAAR Communications would be fined separately for alleged reports of a fire incident at the National Christian Centre.
The sanction according to Idachaba, will be a fine of not less than N2 million.
The NBC had warned last week that broadcasters must “perform the role of a peace agent by adhering to the principle of responsibility, accuracy and neutrality” in reporting the protests.
More details later..