Wednesday, July 6, 2011


How to beat the need to raise the prices of food products without antagonizing the consumer? This is a crucial issue that is confronting the industry world over and if the the product is not price sensitive the manufacturers may not be averse to increase the retail price to keep up with the rising inflation. But what about those products which are more or less staple foods for most of the consumers who will definitely feel the pinch when the family expenditure shoots up significantly? In western countries and many affluent communities the share of processed foods in the daily diet can be as high as 80%, any upward movement of prices is easily discerned.

In the retail market there are broadly two types of packed foods which consist of branded ones and the generic ones usually marketed by the retailing store under its own label. Invariably there is significant price difference with the branded products costing much more compared to generic or local store brands. One of the choices for the consumers is to switch over to local products in preference to established brands and stay within the family food budget. This is where the big processors find it difficult to compete and maintain the business volume. Naturally the main stream industry has to evolve effective strategies to survive and grow in such an environment. Playing around with the human weakness vis-a-vis appearance is exploited to "deceive" the consumer, giving the impression that products prices are not increased in spite of inflation.

It is true that commodity and energy costs have been climbing continuously with no respite and the organized food industry cannot escape from increasing the prices of their products to keep in step with the rising input costs. Whether one calls it ingenuity or plain deception, industry has hit upon the idea of downsizing their pack size without the consumer knowing about it unless the product labels are closely scrutinized. Probably the credit for this strategy must go to the wily package designers who are able to evolve suitable packs containing lesser quantity of products inside which cannot be discerned so easily. The result is a hidden price increase that has gone largely undetected by the average shopper. Recent studies in some of the markets in the Western world have brought out the fact that most popular products were able to to shrink their effective delivery by as much as 20 percent. In a few cases, even after reducing the quantity in the package the products actually appeared larger after downsizing!

One of the reasons why the consumer is not able to find out this deception must be due to the non-standard sizes of packs with each manufacturer using odd sizes which are difficult to remember. There was a time when standard weights and measures were specified and made mandatory by the authorities which helped the consumer to more or less pick up products based on comparative price analysis. But industry has been handed over a convenient route to deceive the consumer by using any pack size provided a declaration is made on the pack that it is not a standard size! With computer aided design capabilities, manufacturers can make a pack look bigger while actually reducing the content size and what is being witnessed to day is the result of such "intelligent" manipulation by the industry to protect their bottom line.

Probably it may be a pretty smart way of "having your cake as well as eat it"! It is a pity that most consumers buying any product do not have the faintest idea as to how much product is contained in a pack and a few pieces missing when the pack is opened at home are unlikely to be noticed. At least this is what the industry thinks. In contrast even a marginal increase in price is immediately noticed which can invite adverse reaction. This is the cardinal basis as to why food manufacturers feel that they can retain customers if they reduce volume instead of passing along price increases. Since this trend has more or less succeeded in almost all parts of the world, it is not unreasonable to expect the same to continue in light of a recent surge in prices of basic food commodities like wheat, corn, coffee etc.

International market prices for foods rose for eight straight months before peaking at a record high in February as per the monthly index figures put out by the United Nations' Food and Agriculture Organization, which tracks data for sugar, cereals, dairy, oils and meat products. This has been attributed to rising oil prices and extreme weather conditions in countries like Russia, which banned grain exports after experiencing its worst drought in a century. Naturally this puts food manufacturers in a fix as they know that most consumers are hyper-sensitive when it comes to price hikes at the supermarket. While in a country like the US consumers may be spending about 10% of their income on food purchase, this figure can be as high as 50% in countries like India. Further erosion of the purchasing capacity through all round, uncontrolled price escalation, at a rate faster than their income levels, is unlikely to be tolerated by the citizens. The new down sizing strategy by the industry, though understandable and considered perfectly legal, cannot be condoned from the ethical angle. Indirectly reducing serving size through shrinking pack size may be a blessing in disguise in countries faced with obesity problem as food intake gets automatically reduced.


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