Commodity prices causing ‘shrinkation’

(Reuters Business Report) – Once a luxury only the rich could afford.

Now tea is the UK’s favourite brew and at less than a penny a cup, relatively inexpensive.

But for how long?

The rising cost of commodities is squeezing margins – pushing some brands to reduce the size of its offering rather than increase the price.

Jacque de Cock is from the London School of Marketing.

Jacques de Cock, Director, London School of Marketing,

“I think PG Tips are, like all manufacturers, are under stress because the last 6 months the tea prices have nearly increased by 50% from about £1.35 – £2 a kilo. And so they are looking at ways of maintaining their margins in a market where they can’t increase the price because nobody is going to pay more for a cup of tea.”

So called shrinkation is a fairly recent phenomenon.

Mars was one of the first to cut its bar size, claiming fewer calories were better for consumers.

But not everyone agrees.


“I had no idea a Mars bar had changed size, because you probably just don’t even notice, but they’re having to pay more for the thing you eat less of so clearly that’s wrong.”

The move by Cadbury’s to cut costs didn’t go unnoticed.

Jacques de Cock, Director, London School of Marketing:

“Earlier this year Cadbury’s cream eggs did it very badly because they did it surreptitiously, they didn’t inform anyone and they changed the box of eggs from six to five leave a gap and every one expects a box of eggs to have six eggs.”

According to research by Brand Finance, Cadbury’s cost cutting contributed to an 8% fall in its brand value.

And shrinking snacks or higher prices are only likely to get worse, says BGC’s Mike Ingram.

Mike Ingram, Strategist, BGC Partners:

“A big shift for greater demand, particularly from Asia for sugar, cocoa, coffee, will mean that the prices of these commodities will go up over the longer term.”

For now though consumers can still enjoy their favourite brew for the same price – albeit with a little less tea than before.