Manufacturer cost cutting could lead to increased recalls
Manufacturers are being forced to cut costs of food products, meaning a compromise on ingredients. Such a compromise could lead to increasing product recalls, impacting insurers providing coverage to food and beverage firms. Unless manufacturers are willing to compromise on the size of their products then cheaper ingredients are likely to be used. Manufacturers have been historically reluctant to alter the size of their products due to consumers having a familiarity with the brand.  

As many as 99% of food and drink manufacturers admitted to shrinking their products or considering doing so in the future, claimed Lockton.

It described shrinkflation as an “endemic”​, as 76% manufacturers admitted to coming under pressure from retailers to cut costs.

Only 1% of respondents ruled out shrinkflation, while 43% of manufacturers admitted they had already reduced the size of products and kept the price the same. A further 56% said they were thinking of doing the same in the future.

Lockton’s head of product recall Ian Harrison 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.”​

Manufacturers have already started to use cheaper raw materials in response to demand for reduced costs, according to Lockton.

Demand for reduced costs​

One in 10 said they had already started to use cheaper raw materials, while as many a 72% said they were considering doing this in the future.

Just under a third (32%) of manufacturers said they had started to look for international sources for cheaper raw materials, while 53% said they planned to.

“We’re fast approaching a tipping point where the quality of what's on our shelves is at stake,”​ added Harrison.

What is shrinkflation? Shrinkflation is a term used to describe the business practice of changing the physical weight of a product, while keeping its price constant. Source: The Office for National Statistics

“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.”​

On-site safety standards have also taken a hit as manufacturers combat rising costs.

Of the manufacturers surveyed, 38% said standards had been eroded, while a further 32% said production facilities were less safe than in the past due to pressure to cut costs.

Reduced focus on improving safety standards​

Over half (55%) of manufacturers surveyed said they had reduced or would reduce their focus on improving safety standards in order to meet contractual demands from retailers.

Lockton’s research also found that 44% of manufacturers were forced to take out increased liability insurance purely to meet contractual demands from retailers. On average, manufacturers had to purchase 13% additional liability.

Harrison said retailers were trying to distance themselves from any potential scandals, such as the horsemeat scandal.

“By pushing responsibility further down the supply chain, retailers are hoping to shelter themselves from any potential fallout should a recall or legal action occur,”​ he said.

“More liability cover is no bad thing, but comes with higher premiums and manufacturers must determine what costs are realistic for them.”​

FoodManufacture.co.uk has approached the British Retail Consortium for a comment on Lockton’s report.

Meanwhile, earlier this year, Coco Pops, Peperami and Doritos were reportedly the latest food products to decrease in weight, while maintaining their original prices.​