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‘Shrinkflation’ intensifies with under pressure manufacturers now considering cheaper ingredients to cut costs

| Economic factors

A new report claims to reveal the “unpalatable truth” behind the growing price pressure felt by more than three quarters (76%) of UK food and drink manufacturers. The study, by insurance brokers Lockton, found that not only is ‘shrinkflation’ more endemic than previously thought, but manufacturers are having to consider cheaper ingredients to cut costs in the face pressure from retailers to keep prices down.

In its report – The tipping point: cost cutting pressure piles recall risk onto UK food and drink manufacturers – Lockton reveals details of its survey that found that 43% of UK manufacturers have reduced the size of their products but are selling them at the same price, with an additional 56% open to doing this in future. Only 1% of manufacturers said they would completely rule this out.

Earlier this year, data from the Office of National Statistics (ONS) showed that over 2,500 consumer products have shrunk in size over the past five years despite being sold for the same price. With more than 6,000 food and drink businesses operating in the UK, Lockton’s research suggests the scale of ‘shrinkflation’ is far bigger than previously anticipated.

Ian Harrison, Head of Product Recall at Lockton, said: “The real impact of shrinkflation goes way beyond consumers getting less for their money – manufacturers are seemingly willing to significantly alter products to cut costs. If price pressures continue, consumers could be left with a bad taste in their mouths as manufacturers are forced to use inferior ingredients as well as reducing the size of their offerings.”

Lockton’s survey found that while one in ten food and drink manufacturers are already using cheaper raw materials in response to demand for reduced costs, as many as 72% would consider doing this in the future, suggesting quality is next in line to be cut after product size.

More than half (58%) of manufacturers admit they are already seeking out cheaper raw materials or ingredients to use in an attempt to cut costs and meet demands of retailers. Lockton said the hunt for cheaper raw materials has led a third of manufacturers to look abroad rather than source ingredients from the UK.

The study suggested that manufacturers are feeling the pinch as the British consumer, and in turn retailers, demand lower prices in the face of rising inflation. 76% of manufacturers surveyed agreed that they are under pressure to reduce their prices to meet retailer demands, including 31% who strongly agree that this is the case.

Harrison added: “We’re fast approaching a tipping point where the quality of what’s on our shelves is at stake. The move towards cheaper raw ingredients is setting a dangerous precedent that puts manufacturers at risk of product recall or food scandal. Inexpensive ingredients are often associated with poorer quality, food fraud and lower safety standards.”

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