Shrinkflation and how Dali is surviving competition

MANILA, Philippines — “For the longest time, sardines came in cans of 155 grams,” says Steven Cua, president of the Philippine Amalgamated Supermarkets Association. (Disclosure: Cua is a friend, whose family business Welcome Supermart was profiled in this column on April 4, 2014.)

“Mainly because of the pandemic, sardine prices went up by 12 percent in 2021. Instead of raising prices, some companies came out with smaller cans of 140 grams for the same price. People availed of it.”

Isn’t this shortchanging the public? No.

“Deception would be if companies shifted from 155 to 140 grams and took the original off the shelves,” says Cua. “The 155-gram can is still an option, at a higher price now.”

This is inflation at work.

Shrinkflation, the manufacturing practice of keeping prices steady by reducing the product amount, is not new. Cua lists examples: “A box of hopia used to have five pieces, now it is four. The box is still the same size, but with plastic so the pieces don’t get crushed. Can you buy five pieces? Yes, but mas mahal (more expensive). For spaghetti packs, you have 900 grams and 1 kilogram, same with jamon. You choose what fits your budget. This is not fooling the consumer.” Cua differentiates shrinkflation from inflation by the NHK World show “Somewhere Street.”

“One time, the Philippines was featured, with a calesa ride which has a minimum fare of P7. The credits revealed that the year was 2017. Today the minimum fare is P15. In seven years, the minimum fare doubled. That is inflation. And inflation is hitting us very hard.”

Consumers do not like inflation or shrinkflation. Neither do manufacturers.

“If companies want to downsize a can, they spend,” Cua says. “They study the configuration of the container, do a new label, order a minimum of 10,000 pieces, program the machinery, etc. People think that parang sibuyas lang sa palengke, binabawas lang, hinahawakan ang timbangan (It’s not like onions sold in wet markets where sellers simply downsize), but not when items are mass-produced. Manufacturers have to think twice before downsizing. Will we lose or gain market share? How much do we spend for this? How much do we save by that? We say, daya, binawasan lang (it’s unfair). But they go through a series of discussions before they act.”

“Manufacturers don’t want to increase prices unless they have to, because they are so afraid of losing market share. It’s so difficult to gain back even [a] 1-percent market share. If you raise prices, people feel sobrang mahal, lugi (they will also lose if people think items are too expensive).” Companies resort to shrinkflation instead.

Several small and medium enterprises (SMEs), mostly family businesses, folded up during the pandemic. Cua warns that with shrinkflation, small companies are getting hit by more established and popular competitors. They have to think of other sales and marketing strategies.

Cua is impressed with Dali, the low-priced retail mart patterned after a German model and backed by the Asian Development Bank. Dali caters primarily to the underprivileged, and for each item, Dali carries one affordable brand. Customers do not have choices, but items are cheap, mainly house brands done by local producers.

“No bags, no shelves, just cartons,” says Cua. “Self-service except for the cashier, manager. Cost-efficient, very few SKUs (stock keeping units). But the electronic door opens for you, and shops are air-conditioned.”

“Dali came in before rapid shrinkflation caught on. They may have products lighter in weight so they can be priced cheaper. Dali studied what is most sellable. In statistics, the mode, iyong pinakamabenta [items that sell fast]. Let’s not care about the other stuff. Keep inventory low, make items nice and affordable.”

Use promotions all year round, not just Christmas, Cua advises SMEs. “When you change your brand, change your size, change the label, change the SKU, do temporary promotions, for a limited time. When you are overstocked, do a temporary sale. These may succeed.”

(To be continued next week)