Business / Consumer Goods
Business signals: regulation, strategy, macro links, and market structure. Topic: Consumer-Goods. Updated briefs and structured summaries from curated sources.
How Moneyball Legitimized Shrinkflation
Full timeline
0.0–300.0
Modern consumerism has shifted towards value extraction, resulting in decreased quality, service, and choice while prices rise. The philosophy of Moneyball has been adopted by the consumer goods industry, justifying cost-cutting measures and shrinkflation as competitive advantages.
- Modern consumerism has shifted towards value extraction, leading to a decline in quality, service, and choice while prices continue to rise. Shrinkflation has become a permanent strategy in corporate America, where companies reformulate products and reduce sizes under the guise of upgrades
- The release of Moneyball in 2011 marked a significant change in corporate strategy, elevating efficiency to a corporate mandate and redefining innovation as optimization. This films message emphasized that success should be driven by data rather than instinct, leading to a culture where brands are treated as interchangeable assets
- The philosophy of Moneyball has been particularly embraced by the consumer goods industry, which has used it to justify cost-cutting measures and shrinkflation tactics as competitive advantages. Companies have adopted this mindset, seeking efficiency and profit maximization over product quality
300.0–600.0
Hershey's has shifted its focus from innovation to efficiency and profit, resulting in a significant reduction in product offerings and increased marketing costs. This strategy has led to a 60% drop in profits by 2007, with the company now prioritizing pricing and packaging changes over genuine product development.
- Hersheys executives prided themselves on innovative product launches in the 1990s and 2000s, but by 2007, a 60% drop in profits forced the company to confront reduced shelf space and product cannibalization. This led to a high-intensity innovation model that strained resources and resulted in falling margins
- In 2011, new CEO JP Billbray shifted focus from marketing-driven leadership to efficiency and profit, dismantling the R&D pipeline and redirecting funds into analytics. This strategy prioritized three core brands: Reeses, Hersheys, and KitKat, discontinuing hundreds of products and reducing innovation
- As innovation slowed, Hersheys turned to marketing as the primary growth lever, leading to doubled advertising costs. The company began defining innovation through pricing and packaging changes, exemplified by products like Reeses Thins, which offered less product at a higher price per ounce
600.0–900.0
Hershey's has transitioned from original product creation to acquiring trending brands, focusing on shareholder returns over innovation. Similarly, Kellogg's has prioritized cost-cutting and dividends, discontinuing complex products in favor of financial efficiency.
- Hersheys has shifted from creating original products to acquiring trending brands like Crave Jerky and Skinnypop, allowing for improved ROI without the risks associated with innovation. Since 2010, the company has spent over $7 billion on dividends, indicating a focus on shareholder returns rather than product development
- Kelloggs faced similar challenges, struggling against private labels and appointing a new CEO in 2011 who prioritized cost-cutting over innovation, mirroring the Moneyball approach. Under this leadership, Kelloggs discontinued complex products that required extensive R&D, redirecting cost savings towards dividends and share buybacks
900.0–1200.0
Kellogg's and General Mills have shifted their strategies towards maximizing profits through cost-cutting measures and a focus on a limited number of legacy brands. This approach has led to a significant reduction in innovation and product offerings, prioritizing short-term financial gains over long-term brand value.
- Kelloggs current strategy focuses on maximizing profit from declining sales through annual price increases and shrinkflation, such as reducing the depth of cereal boxes while maintaining the same front design to obscure the changes from consumers
- General Mills shifted its approach after missing earnings in 2014, embracing Moneyball principles by investing in analytics and prioritizing a small group of brands that generate the majority of revenue
- Under Moneyball logic, General Mills has drastically reduced its new product launches from hundreds per year to fewer than 50, placing legacy brands like Progresso and Betty Crocker in maintenance mode
- Kraft Heinz adopted an extreme version of Moneyball, viewing traditional innovation processes as wasteful, which led to a decline in brand value and a focus on cost-cutting rather than nurturing their iconic products
- The shift towards data-driven decision-making across these companies has resulted in a focus on short-term profits, with innovations being replaced by repackaged variations of existing products
1200.0–1500.0
Kraft Heinz adopted zero-based budgeting to enhance profitability, resulting in significant cost-cutting measures and a focus on optimizing existing products. This strategy led to record dividends and a tripling of stock value, but ultimately resulted in a $15 billion loss as customer trust eroded.
- Kraft Heinz implemented zero-based budgeting to prioritize profitable growth, leading to the closure of brands that did not meet financial metrics. This approach included aggressive cost-cutting measures, such as reducing the size of Heinz Ketchup bottles and Kraft Mac and Cheese boxes to increase profit margins without alerting consumers
- The companys strategy resulted in record dividends and a tripling of stock value in under four years, but by 2019, customers began to abandon the brand. Kraft Heinz reported a $15 billion loss on Kraft and Oscar Meyer, acknowledging the depletion of value and trust built over generations
- Unilever, PNG, and Nestle also experienced declines in creativity and innovation after adopting Moneyball principles. This shift legitimized optimization as innovation, fostering a corporate culture that prioritizes cost-cutting over long-term growth