When checking in online for a flight this summer, I realised the carry-on baggage allowance I’d been expecting with the ticket I’d bought had been changed from the pre-covid-19 levels of a small suitcase to more like handbag-sized proportions.
We could call this ‘shrinkflation’, as it reduces the size of what you used to receive for your money, or it could even be described as ‘sneakflation’, because it seems to be yet another tactic for the airlines to sneakily extract extra revenue from customers while keeping the headline (i.e. most visible) price intact.
Whatever you want to call such activities, they are not unusual in the airline industry, or any other sector right now for that matter, because as the cost-of-living crisis bites ever harder, companies of all descriptions are reducing the size of their products and adding in extra charges wherever they are able. It’s a route to grabbing margin while avoiding increasing prices, because there is only so far you can go with this before a customer becomes an ex-customer.
We’ve seen pretty much every branded goods company shrink their package sizings, and all the major supermarkets reduce the portion sizes of their ready meals. Most unusual on the sneakflation front is the manoeuvre by BMW to bring in subscription-type monthly charges for various add-on elements such as the use of the heated front seats in its cars and the heated steering wheel, and incredibly, you can also pay a monthly fee to have the engine sound played inside your car.
Things aren’t quite so radical in the hospitality industry, apart from the appearance in some restaurants in the US of a ‘kitchen appreciation fee’, which is in addition to the tip. On my travels, it’s been the more mundane things like ice cream cones being charged as an additional cost in some venues in London. Ketchup, mayo and other sauces are being charged as extras by frite sellers in Belgium, while at Burger King, the ten-piece nuggets option has been reduced to eight, and that old stalwart of complementary bread in restaurants is now becoming a rarity.
Such activity has resulted in shrinkflation being increasingly mentioned in reviews on Yelp, with inflation-related experiences having jumped 38% year-on-year at casual restaurants, and 36% at other food businesses in the US. Restaurants focused on popular, low-cost dishes such as burgers and pizzas generated the most shrinkflation-related complaints.
Of course, this re-engineering of products to fit a specific price point has been the business model of retailers like Poundland for many years. They have constantly adjusted the number of batteries, cappuccino sachets and After Eight mints within the packaging in order to hit the £1 price tag.
But in the hospitality industry, such practices invariably have a high risk tariff attached to them, and so it is maybe no surprise that we are also seeing a more intelligent approach being taken to handling pricing, which involves tailoring it more to individuals. Whereas the airlines, hotels and theatres have been able to offer a panoply of different prices to customers, because they use a variety of channels and third parties, this has not been easily possible for restaurants.
But with the proliferation of digital channels and loyalty programmes, the ability to deliver personalised offers and pricing to specific individuals is now a possibility. Whereas national promotions are a blunt instrument – with everybody gaining, including those who would have paid more money – the use of loyalty programmes to target select people with tailored offers or recommendations is a very powerful dynamic.
The delivery of these highly targeted promotions is helping bump up frequency rates and average spends at a growing number of operators who have recently launched loyalty schemes, including McDonald’s, Chipotle, Ole & Steen, Burger King, Leon and Pret A Manger. It’s this engendering of loyalty and the associated increasing of frequency and basket size that is so critical right now.
With the ability to pull so many more levers than simply changing national prices, reducing portion sizes and adding in dodgy extra costs, the digital-based loyalty programme looks set to be an incredibly important weapon through the cost-of-living crisis, and I’m therefore expecting to see many more companies investing in such tools.
Glynn Davis, editor of Retail Insider
This piece was originally published on Propel Info where Glynn Davis writes a regular Friday opinion piece. Retail Insider would like to thank Propel for allowing the reproduction of this column.