Exhibit 16.2 Shrinkflation — 2016 Toblerone bar from the United Kingdom
with larger gaps between peaks, using 10% less chocolate.
(Source: Ashley Pomeroy, Wikipedia).
The prices of various ingredients and raw materials have fluctuated significantly
over the years, in part due to the substantial increase in demand from large markets. Take
for instance the global milk trade price
index, which soared from 693 in June 2006 to 1,691 in October 2007.
Manufacturers usually protect themselves from these types of fluctuations by
entering into long term contractual agreements with suppliers. Yet when
contracts are re-negotiated, they are often compelled to pass the sharp
increase in price of their ingredients onto consumers.
In such situations, where manufacturers need to significantly hike prices, they
often do so in part by reducing the pack size. The practice of increasing price per unit of
weight or volume by a reduction in the weight or the size of the item sold is referred to as
shrinkflation.
For instance, when milk prices soared in 2007, and
powdered milk manufacturers were obliged to increase prices per kg by as much
30% to 40%, many of them imparted a proportion of the price adjustment by
reducing pack sizes (e.g., from a 1 kg pack to 900 gm pack). This helps cushion
the impact — studies have shown that consumers are less sensitive to a
reduction in volume than they are to an increase in price.
An oft-quoted example of shrinkflation is that of the Toblerone chocolate bar.
In 2010, in markets such as the UK, Kraft reduced its 200g Toblerone bar to 170g by increasing
the gaps between the triangular blocks. The gaps were further increased in 2016 (refer to
Exhibit 16.2, bringing the weight down to 150g. Then in 2018,
after a public outcry, Toblerone reverted to original shape but with bigger size and a much
heftier price tag.