Every year I spend a week skiing with my oldest schoolfriend. We didn’t start out very good skiers and haven’t improved with age! This year when we stopped for our morning hot chocolate, my buddy passed me a snack bar from one of the world’s largest food companies. It had nearly a full inch of air and empty wrapper where the brand had succumbed to shrinkflation but hadn’t bothered to adjust the packaging… presumably it would have taken too long or cost too much?
As I look at the market context for such a large food company today, I feel 15% shrinkflation was not the only lever to be pulled. The brand has an elaborate and emotive purpose statement. Does it live it? If you follow the data, today around 25-30% of consumers are seriously struggling with a horrible cost-of-living crisis. Whether you look at spending trends, private label share, loan difficulties, credit card debt, people with multiple jobs boosting the job figures or the dramatic slowdown in restaurant spend in the last 100 days. Real evidence that people need real solutions for feeding their families and accessing affordable nutrition. Shrinkflation is a very basic response to a prolonged and substantial issue. I wonder why more large suppliers haven’t made bigger efforts in the way many retailers have tried to?
A founding belief of Alchemy-Rx is that growth surrounds us. We believe in almost all business situations there are practical paths to grow markets, win share and build a bigger relationship with the consumer.
Looking past this example to a broader question. Why do we limit ourselves often to the most basic and incremental responses rather than looking beyond to real opportunity? The pragmatist in me is more than comfortable with tactical short-term activity to buy time for the bigger ideas. The purist in me is frequently disappointed by the absence of those longer-term roadmaps and strategic responses to changing market conditions. Real opportunity requires persistent vision, commercial discipline, and self-confidence to manage through short-term constraints.
We find with each new team we work with that generally the information available is very immediate. Short-term financials and forecasts without a true activity basis. A lack of integration of consumer and retail data and a bias to back of envelop Excel “bridges”. The trap of these short summaries is they reduce the variables to the most basic volume, price, and cost dynamics. Important dynamics are adjusted into the baseline and accepted. So those consumer trends I mentioned are put into a base decline and the “solve” for the annual profit target necessitates a higher price/pack and any cost out until we reach our financial goal. This becomes next year’s baseline and an iterative approach to P&L management is accidentally fostered. Very few teams have true long-term data to show how the shape of things evolves over time and the true level of risk being taken. Consumer data doesn’t get the c-suite attention the P&L does, especially if it’s contrarian to the P&L plan. Management tenures continue to shorten so many different people touch the business in these cycles. Large organizations systemize this incrementalism and counter-consumer strategies - almost by accident.
I remember then another Founder story. I acquired a business a few years ago. It was a large, mature brand in a category we already competed in. The industry had a high commodity input cost impact with some constraints on pricing. This meant we usually started our planning each year with the raw material input costs and pricing actions. Then we moved to wider demand creation. I remember the day the founder told me his business hadn’t taken a price rise in over ten years and they wouldn’t even know how to. They had focused on creating value by automation and efficiency in manufacturing and distribution, by product design and innovation and by partnering retail very closely to grow category volumes but with much less promotional spend than we used. A lot of work, consistent over many years. That founder had maintained “the rule of 40” in his results which is exceptionally rare in consumer goods. We can all learn a lot from Founders. The excel will give you whatever answer you feed it with. Sometimes what it really needs to do is to tell us to do better and feed it more consistent and more worthwhile actions.