Shrinkflation Explained

In economics, shrinkflation, also known as package downsizing, weight-out,[1] and price pack architecture[2] is the process of items shrinking in size or quantity while the prices remain the same.[3] [4] The word is a portmanteau of the words shrink and inflation. Skimpflation involves a reformulation or other reduction in quality.

Shrinkflation allows manufacturers and retailers to increase their operating margin and profitability by reducing costs whilst maintaining sales volume, and is often used as an alternative to raising prices in line with inflation.[5] Consumer protection groups are critical of the practice.

Economic definition

Shrinkflation is a rise in the general price level of goods per unit of weight or volume, brought about by a reduction in the weight or size of the item sold. The price for one piece of the packaged product remains the same. This sometimes does not affect inflation measures such as the consumer price index or Retail Price Index, i.e. it might not increase in the cost of a basket of retail goods and services, but many indicators of price levels and thus inflation are linked to units of volume or weight of products, so that shrinkflation also affects the statistically represented inflation figures.

The first use of the term shrinkflation with its current meaning has been attributed to the economist Pippa Malmgren, though the same term had been used earlier by historian Brian Domitrovic to refer to an economy shrinking while also suffering high inflation.[6]

Causes

Barak Orbach, an academic economist, argues that competition typically drives shrinkflation: "When supply shocks or other factors inflate production costs, businesses must pass on cost increases to maintain profitability. However, in competitive markets, direct price increases are risky. Under such conditions, businesses often choose to raise prices indirectly through downsizing."[7]

Without explicitly using the term shrinkflation, macroeconomist Vivek Moorthy much earlier documented and analysed the shrinkage effect of inflation, explaining it by Arthur Okun’s "invisible handshake" approach: "Prices are ... based on notions of trust and fairness. it is considered acceptable for firms to respond to cost increases, but not to demand increases. Firms selling a branded product will make deliberate efforts to continue selling at the same price thereby retaining loyal customers. Hence, to cope with inflation, fast moving consumer goods firms would often resort to shrinking the product size to avoid raising prices."[8]

Consumer impact

Consumer advocates are critical of shrinkflation because it has the effect of reducing product value by "stealth".[9] The reduction in pack size is sufficiently small as not to be immediately obvious to regular consumers.[10] An unchanged price means that most consumers will not immediately notice the higher unit price, which adversely affects consumers' ability to make informed buying choices. Consumers have been found to be deterred more by rises in prices than by reductions in pack sizes, and some customers would rather have a smaller package at the old price than the old package size at a higher price.

Suppliers and retailers have been called upon to be upfront with customers. According to Ratula Chakraborty, a professor of business management, they should be legally obliged to notify shoppers when pack sizes have been reduced.[11] In 2023 the French grocery chain Carrefour has started to warn their customers about these practises.[12] [13]

Corporate bodies deflect attention from product shrinkage with "less is more" messaging, for example by claiming health benefits of smaller portions or environmental benefits of less packaging.

Shrinkflation is not the only cause of reduced package sizes. In some cases, such as junk food, some customers do prefer smaller package sizes.

In other cases, the change is part of a trend to adjust package sizes. In 2003, Dannon shrunk its yogurt containers from 8 ounces to 6 ounces, because consumers thought their larger product was too expensive overall; many, though not all, of the grocery stores selling it maintained the old price for the smaller product.[14] Most yogurt manufacturers followed suit, resulting in smaller packages.

Statistics

The UK Office for National Statistics wrote in 2019, "We identified 206 products that shrank in size and 79 that increased in size between September 2015 and June 2017. There was no trend in the frequency of size changes over this period, which included the EU referendum. The majority of products experiencing size changes were food products and in 2016, we estimated that between 1% and 2.1% of food products in our sample shrank in size, while between 0.3% and 0.7% got bigger. We also observed that prices tended not to change when products changed size, consistent with the idea that some products are undergoing 'shrinkflation'."[15]

Examples

Related terminology

In October 2021, NPR's Greg Rosalsky from Planet Money proposed the term skimpflation to refer to a degradation in the quality of services while keeping the price constant, such as a hotel offering a more meager breakfast or reducing the frequency of housekeeping.[35] In 2023, Guardian Money described a number of ingredient changes in British supermarket foods – such as a brand of mayonnaise changing from 9% egg yolk to 6% egg and 1.5% egg yolk – as an example of skimpflation.[36]

Unlike changes to the size and weight of a product, skimpflation is more difficult to measure in a standardized way, and consequently goes unrecorded in measurements of inflation.[37]

Conversely, in September 2022, Izabella Kaminska's The Blind Spot published an article that proposed the term shitflation in reference to maintaining a product's price while decreasing quality.[38] The article's author, Dario Garcia Giner, proposed that shrinkflation and shitflation spoke to the Grossman-Stiglitz paradox, and argued they were akin to "Trojan horses buried in the heart of mainstream finance — just waiting to tear down the system by discombobulating relative values in the big-data spreadsheets that central bankers and financiers depend on to manage economic allocation."

Popular usage

The term has been used by President Joe Biden in 2023 and 2024, blaming companies for deploying this tactic to increase their profits.[39] Biden's claim has been criticized, with some conservatives arguing that he was the primary cause.[40]

See also

External links

Notes and References

  1. Web site: More than 2,500 products subject to shrinkflation, says ONS . . dead . https://web.archive.org/web/20170724104410/http://www.bbc.co.uk/news/business-40703866 . 2017-07-24.
  2. Web site: J. Edward Moreno . What's a fancy name for shrinkflation? . . 2024-05-31. 2024-07-03.
  3. Web site: The scourge of Shrinkflation eats away at the man in the street like a cancer! . Perpetual Traveller Overseas . 2014-06-08 . 2017-12-01 . https://web.archive.org/web/20171201035809/http://www.perpetualtravelleroverseas.com/2014/01/the-scourge-of-shrinkflation-eats-away.html . dead.
  4. Web site: 28 May 2018 . Shrinkflation: When less is not more at the grocery store . 2021-09-14 . The Conversation.
  5. News: ECB Meets To Tackle Deflation While Ignoring Shrinkflation . 7 July 2020 . Goldcore . 4 September 2014 . London, UK.
  6. Web site: That Shrinking Feeling . 21 January 2019 . Merriam Webster Dictionary.
  7. Web site: Do Antitrust Enforcers Know They Induce Shrinkflation? . 17 February 2024 . ProMarket. 18 August 2023 .
  8. Book: Moorthy, Vivek . Applied Macroeconomics Employment, Growth and Inflation . I.K. International Publishing House Pvt.Ltd . 2017 . Ist . Delhi . 2017 . Section 3.5 The Rationale for cost based price pp 78.
  9. News: Shrinkflation – Real Inflation Much Higher Than Reported . 7 July 2020 . Goldcore . 28 June 2017 . London, UK.
  10. Web site: Sewraz . Reena . Shrinkflation: the food and drink items that have shrunk but aren't any cheaper . lovemoney.com . 7 July 2020 . London, UK . 21 February 2017 . Ratula Chakraborty, senior lecturer in business management at the University of East Anglia, said: "Shrinkflation is a sneaky practice because consumers are not expecting any size changes so do not inspect package sizes unless there is a really noticeable difference.".
  11. Web site: Studman . Anna . Shrinking products: are we paying more for less? . Which? . 7 July 2020 . London, UK . 23 February 2019 . 18 January 2021 . https://web.archive.org/web/20210118011824/https://www.which.co.uk/news/2019/02/shrinking-products-are-we-paying-more-for-less/ . dead.
  12. News: 2023-09-09 . Carrefour warnt vor versteckten Preiserhöhungen . live . https://web.archive.org/web/20230916083210/https://www.merkur.de/wirtschaft/carrefour-warnt-vor-versteckten-preiserhoehungen-zr-92509987.html . 2023-09-16 . 2023-09-16 . . Wirtschaft . Münchener Zeitungs-Verlag GmbH & Co. KG . de.
  13. Web site: Ammann . Lucas . 2023-09-15 . Erstmals warnt eine Supermarktkette vor versteckten Preiserhöhungen - Eine französische Supermarktkette hängt Warnschilder aus und warnt somit vor "Shrinkflation". Sogar ein Gesetz ist vorgesehen. . live . https://web.archive.org/web/20230915183318/https://kurier.at/politik/ausland/shrinkflation-frankreich-inflation-teuerung-supermarktkette-carrefour-foodwatch/402595283 . 2023-09-15 . 2023-09-15 . . de-AT.
  14. News: Yogurt Makers Shrink the Cup, Trying to Turn Less into More . The New York Times . 3 May 2003 . Day . Sherri .
  15. Web site: Shrinkflation: How many of our products are getting smaller? . . 2021-03-13.
  16. Moorthy Vivek "Understanding Stagflation—Past and Present" McGraw Hill Education (India) 2014, pp. 79-80
  17. Web site: Ben and Jerry's Calls Out Haagen-Dazs on Shrinkage . 2009-03-09 . 2015-11-22 . adage.com . Advertising Age . York . Emily Bryson.
  18. Web site: Ben and Jerry's vs. Haagen-Dazs: A Pint-Sized Battle . 2009-03-10 . 2015-11-22 . popsugar.com . POPsugar.
  19. Web site: VAT rises but food shrinks . . 19 December 2010 . 2014-06-09.
  20. Web site: There are now TWO fewer Cadbury Fingers in every pack. 14 April 2015 .
  21. Web site: Cadbury take ELEVEN CHOCS from Heroes and Roses tubs but price stays same . . 20 July 2015 . 2016-11-27.
  22. Web site: 2019-10-24 . Terry's Chocolate Orange doubles in price in some supermarkets . inews.co.uk . 27 November 2017.
  23. News: Toblerone triangle change upsets fans . BBC News . 8 November 2016 . 2016-11-08.
  24. https://zpravy.aktualne.cz/finance/nakupovani/milka-se-nenapadne-zmensuje-cena-ale-zustava-stejna-obalove/r~bc80e024f45d11e7be860cc47ab5f122/ Milka se nenápadně zmenšuje, cena ale zůstává stejná. Obalové triky jen tak nepoznáte - Aktuálně.cz
  25. Web site: Jaffa Cakes packet size reduced in latest 'shrinkflation' move . . 26 September 2017 . 2017-09-26.
  26. News: Rosalsky . Greg . Beware Of 'Shrinkflation,' Inflation's Devious Cousin . . . 2021-07-06 . 2021-07-07.
  27. News: Kavilanz . Parija . Your toilet paper roll is slimming down . . 2022-03-08 . 2022-03-08.
  28. Web site: Leonard-Bedwell . Niamh . Unilever shrinks Dove Beauty Bar packs as cost inflation bites . 2023-07-31 . The Grocer . en.
  29. Web site: 2023-06-06 . Visualizing Shrinkflation in Different Industries . 2023-08-25 . Coventry Direct . en-US.
  30. News: Whiskas shaves 15g off packets – but still charges same price . 7 April 2023 . The Telegraph . 26 January 2023.
  31. News: Rogelberg . Sasha . McDonald's CEO sees a McFlation 'battleground' with customers revolting over $8 chicken sandwiches and $3 hash browns . 14 May 2024 . Yahoo Finance . 13 February 2024.
  32. News: TikTok showing $25.39 McNugget, fries bundle with no drink goes viral . 14 May 2024 . KATV . 9 April 2024 . en.
  33. News: STUDY: McDonald's prices have increased by over 100% in the last decade . 14 May 2024 . WKRC . 3 April 2024 . en.
  34. News: ROGELBERG . SASHA . McDonald's may be willing to lose money on $5 meal deals if it means winning back disgruntled cash-strapped customers . 14 May 2024 . Fortune . May 14, 2024.
  35. News: Rosalsky . Greg . Meet skimpflation: A reason inflation is worse than the government says it is . 30 October 2021 . NPR . 26 October 2021.
  36. News: Osborne . Hilary . 'Skimpflation': how supermarkets reduce the quality of what you buy . 11 August 2023 . The Guardian . 22 July 2023.
  37. News: Smialek . Jeanna . 1 March 2024 . Shrinkflation 101: The Economics of Smaller Groceries . . While ‘shrinkflation’ gets measured, ‘skimpflation’ does not. Shrinking itself is captured in official inflation data, but another sneaky force that costs consumers is getting missed in the statistics. Companies sometimes use cheaper materials to save on costs in a practice some call “skimpflation.” That is much harder for the government to measure..
  38. Web site: Hi Shrinkflation, Meet Your Cousin Shitflation . 2 September 2022 .
  39. Web site: 2024-03-08 . Biden calls out 'shrinkflation' as part of a broader strategy to reframe how voters view the economy . 2024-03-14 . AP News . en.
  40. Web site: Venegas . Natalie . 2024-02-11 . Conservatives mock Biden's "shrinkflation" video about Super Bowl snacks . 2024-03-14 . Newsweek . en.