BUSINESS REVIEW: See why various proposed taxes might lead to observable ‘shrinkflation’ come 2020

In 2016, two giant multinational corporations, and manufacturers, retailers, and marketers of beverages and syrups (Coca-Cola and Pepsi), while reacting to the then unfavorable market situation when it was feared that bottled water would likely overtake carbonated soft drink sales, revealed interest to invest heavily in bottled water production.

We saw a market soon littered with Eva Water, Dasani and Aquafina. So, if consumers seem to be more health conscious than before and would no longer want to abuse intake of sugary products, the producers instead of losing revenue promptly address the challenge.

While there is no problem with this act, one thing that is clear is how businesses react to new developments. Their first duty before anything else is to stay afloat, and whatever that might lead to the opposite must be put to check.

This is 2019, and 2020 is less than 70 days. Since the Nigerian government has proposed a number of changes in form of policies and reforms; we should only expect companies and manufacturers to respond to these new economic developments in the best interest of their businesses.

Against this backdrop, we will consider shrinkflation as a possible business strategy that many of these businesses might (again) adopt as a coping mechanism. “Again,” as used, because shrinkflation is not a new concept. However, this time, there is the likelihood that this might take the centre stage as business executives work to beat down cost of production.

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Understanding Shrinkflation

With shrinkflation, a product size reduces, slightly noticeable, while maintaining its price. It’s a special form of inflation. Here, instead of an obvious increment in price, size of a product is doctored with a significant reduction in volume.

 

The Coca-Cola Company has done this before –reducing its bottle yet selling for its standing price. Leading Snacks Company, Gala, has overtime reduced its sausage while maintaining its N50 price tag. In fact, Gala reduced its sausage to a point that there was the need to sell a bigger size for N100. Today, we have both sizes in the market.

Why many companies shrinkflate

Analysing from a business stand point, shrinkflation is the magical spin to boost or maintain profit margins without (of course) drawing too much attention. This tactic is most commonly executed in the following situations:

A host of product makers engage in this to combat higher production costs. As simple as possible, “when key inputs, such as raw materials or labor, shoot up in valuation; the cost to manufacture final goods rises.” With taxes adding up daily, we foresee a jump in production cost.

Breach of customers’ trust

Although, this act is somewhat despicable as can be a breach of customer trust, especially in countries where customers’ rights are not protected by the government; recent policies, so proposed, however, to impose extra charges on goods and services might be enough to push many of these manufacturers and producers to embrace shrinkflation.

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For these companies, it is business as usual, and like they have always been accused of, they would opt for this to maximize profits by pushing the cost of production to consumers. This was how Newbisco Coaster Biscuit moved from 6/7 pieces per pack to 3 pieces. Same for many other biscuits in the market before some eventually vanished off the market. Reviewing this, we will technically pass this as reflected inflation.

Other shrinkflated products

Just as how the number of nuts in the peanut burgers reduced only to be filled with air, here is a modest list of other products that had one time or the other been shrinkflated;

  • Titus Sardines,
  • Chocolate candy,
  • Local Egg roll,
  • Coconut biscuit
  • Plantain chips, etc.

Is Nigeria ripe for this?

There is the question of whether or whether not Nigeria is set to join countries like the US, Singapore, Norway and the UK with unprecedented tax structures. While these countries have ensured to put in place adequate infrastructures and solved challenges of power supply, Nigeria on the other hand cannot be said to be on the same pedestals.

Who bares the cost?

In a capitalistic setting where we exist and with a government that feels levying taxes on virtually everything at a single stretch out of a supposed vision to grow the economy; the public can only be at the receiving end. This is why we should anticipate business stunts like shrink inflation sweeping the Nigerian market space come 2020.

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