You may remember some time ago Mike Utting had a look at how and why our chocolate bars were shrinking. A year on from his article and it appears many other products have now followed suit.
This Easter, Creme Eggs pack went from containing six eggs to five, following Kraft taking over as the American owner of Cadbury. Kraft also made the decision to change the shell of the egg to “standard, traditional Cadbury milk chocolate” instead of Dairy Milk, but that’s a discussion for a different article!
In the case of the Creme Egg, there was a slight price drop to compensate for their smaller portion, yet, with other products, we are still paying the same but for a significantly smaller product.
A recent article by Which? reveals Twinings have actually gone the other way, and reduced the size of their product, but increased their prices. Their boxes of Assam tea have decreased from 100 bags to 80 and from 50 bags to 40, with prices now being more per teabag.
An earlier article showed it’s happening with many of the household names – Philadelphia, Birds Eye, Hovis and Aunt Bessie’s are also amongst the culprits when it comes to shrinking products, with some items within their brand name reducing in size by on average 7%.
It is not just the UK market where this is occurring; there is also evidence of it happening in the USA as well. A packet of Lays crisps is now just 180g in comparison to its original 200g and cans of Coke are now 222ml as opposed to their previous size of 237ml.
Unfortunately this shrinkage doesn’t just end at the food we are buying; it has also had an impact on other items in our shopping basket too.
Surf & Cif have shrunk some of the items they produce by 8%, whilst Imperial Leather Soap has shrunk to 100g from 125g, meaning it is now 20% smaller; and Pampers Baby Wipes now have 7 less wipes in their pack than they did originally. Over in America, one lady took to Facebook to vent her frustration that she had spotted her Tresemmé Shampoo had shrunk from 1000ml to 900ml to its current size of 748ml – she chose to vote with her feet (or hair) and didn’t buy it!
Why is this happening?
When questioned, the manufacturers all listed various reasons as to why products are shrinking; they include –
- Economic Factors; labour costs, interest rates, government policies and taxes
- To keep costs for themselves down and in turn increase their profits
- Some had changed their packaging following customer feedback and due to this added expense needed to cut costs elsewhere
- Recipes had been amended or ‘improved’; again this comes at a price and savings needed to be found elsewhere
A simple framework to help understand the influences on commercial markets is PESTLE, and we’ll use it here as we look at the different factors that are affecting the market for Cocoa.
PESTLE stands for:
Specifically looking at the example of the Creme Eggs and the original shrinking chocolate bars that Mike previously discussed; the big problem is – people love chocolate. The global demand for chocolate is a massive 18,000 tonnes per day, equivalent of over 40 million bars. This demand has increased by 80% since 2008 and the trend shows little sign of reversing.
Greater disposable incomes in developing countries, such as Brazil, the Russian Federation, India and China (BRIC countries) means their chocolate consumption continues to grow, whilst new entrants such as Iran and Kazakhstan now buy and consume vast quantities of chocolate.
Ghana, West Africa, is the primary source of cocoa globally. With 700,000 farmers producing the crop, Porter’s 5 forces would suggest the competitive intensity to be fierce. This, combined with high levels of demand for the crop, should mean that the power is on the supply side of the model, with buyers paying a premium.
But here the ‘P’ element of PESTLE comes into play. In an attempt to insulate the farmers from the fluctuations of the global market, the Ghanaian government has fixed the price paid to the farmers for their crop. As a result, many are abandoning cocoa production, as the crop is simply not profitable. Instead, they’re moving into rubber and other crops (an easy switch for them, as it means simply planting a different crop that doesn’t carry the same market restrictions).
The region’s weather is also highly volatile, and here the ‘E’ of PESTLE comes into effect: the environment exacerbating the supply side of the equation, with poor weather conditions reducing yields. All of these elements have a negative impact on buyer power: it’s easy to switch crops; no power over producers; fluctuation yields – but, in the buyers’ favour, the prices are at least fixed.
Add to this model another dynamic in the form of Futures Markets. Trading in Cocoa is big business and, with Hedge funds and Global Banking thriving on volatility, major swings, both high and low, have been experienced in the last 10 years (hence Government’s intervention in many countries to fix prices to the grower). In a perfect market, given rising demand year-on-year, these fluctuations are contrary to what you’d expect in a competitive market, creating additional complexity for the buyer. To counter these extreme swings, an intervention from the EU (P and E of PESTLE) is anticipated in the future: this aims to introduce stability.
Suppliers seek to move down the supply chain
In the face of this complex market environment, many manufacturers are seeking stability and integrating further down the supply chain – building relationships with the growers and investing at the point of production. FairTrade co-operatives circumvent the government price controls and mean that suppliers can guarantee product.
This however comes at a higher price – and ends up driving the reductions in the size of the chocolate in our shopping baskets, as suppliers strive to maintain acceptable retail prices.
Have you experienced shrinking products? What are your thoughts?
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