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Shrinkflation

Why does it seem like everything in the store is shrinking except the price? Dive in to find out what shrinkflation is all about and how to spot it.

shrinkflation

Have you ever noticed that bags of chips are getting smaller, yet the price tag remains unchanged? That’s shrinkflation in action. Even the US President Joe Biden has flagged this practice as a “rip-off”!

Shrinkflation is not just an American problem; it’s a global phenomenon, and India is no stranger to it. Inflation is on the rise. The Reserve Bank of India’s (RBI) 6% ceiling was surpassed in January when the annual retail inflation rate increased from 5.72% in December to 6.52%. Instead of explicitly hiking prices, businesses are choosing to shrink the size of their items as living expenses increase.

It raises the question: are these brands being clever, or are they simply fooling consumers? Why are companies resorting to shrinkflation? Keep reading to find out!

What is shrinkflation?

Shrinkflation, in layman’s terms, is when companies make products smaller or reduce their quantity but keep selling them at the same price. It’s a sneaky way for brands to pass on costs without you noticing because the price tag doesn’t change, but you are getting less for your money. 

Also read: Impact of Inflation on Personal Finance

The mechanics of shrinkflation

Shrinkflation is a simple strategy used by businesses to maintain their earnings. This is how they go about it:

  1. Reducing the number of items: Have you ever noticed how a pack of chocolates or biscuits seems to have fewer pieces than before, but the price hasn’t dropped? For instance, if a biscuit packet was 150 grams with 15 biscuits for a certain price, and then it’s reduced to 130 grams with 13 while the price stays the same, that’s shrinkflation.
  2. Making containers smaller: Not only can the quantity of items fluctuate, but so can the products’ actual sizes. 
  3. Introducing “New, smaller sizes”: Frequently, brands release a “mini” version of their product at the same cost as the larger version.  This can be especially deceptive because the new, smaller size frequently has elegant packaging or a distinctive form, giving the impression that you’re receiving something unique or exceptional.
  4. Reformulating products: It’s not always about quantity or size, sometimes. A product’s ingredients may be changed by companies while maintaining the same price, either by using less of a costly component or by replacing it with a less expensive one.

Though at the expense of the customer, each of these strategies aims to lower a company’s cost of production without lowering the sale price, hence increasing the profit margin on each transaction. It’s a sneaky technique of raising prices without actually raising the price,  and it’s becoming increasingly common.

You may also like: The price of lifestyle inflation: A financial reality check

The reasons behind shrinkflation

Shrinkflation is not a random occurrence, as there are specific reasons behind a brand’s decision to downsize. Let’s break it down:

  1. Increased costs: The growing cost of manufacturing products is the primary cause of shrinkflation. The cost of components, packaging, manufacturing energy, and other expenses can all increase. Instead of raising prices to drive away customers, businesses lower the size of their products to offset these increased costs.
  2. Competition: The market is packed with brands fighting for your attention and money. Brands turn to shrinkflation in order to stay in the game without losing buyers to cheaper competitors. This way, they can keep prices constant while subtly reducing the product size or quantity.
  3. Changing demands: Consumer preferences and their willingness to pay for them can change frequently.  Businesses may alter their products in order to adapt, which occasionally leads to downsizing.
  4. Consumer psychology: Brands know that customers are more likely to notice a price increase than a slightly smaller product. By reducing the size instead of upping the price, companies hope you’ll keep buying without realising you’re getting less.
  5. Brand image: No company wants to be seen as ripping off its customers. Brands may cleverly retain their profit margins without the bad publicity that comes with price increases by using shrinkflation.

What are some shrinkflation examples?

It may surprise you to learn that many major firms routinely lower product sizes while maintaining the same costs. Here are a few instances that demonstrate how widespread this practice is:

  • Beverages: Back in 2014, Coca-Cola created waves when it reduced the capacity of their large bottle from two litres to one and a half litres, thus providing less beverage for the same cost.
  • Soap bars: Another clever shrinkflation attempt was the reduction in the size of Unilever’s Dove soap bars from 100g to 90g in 2022.
  • Milk: A litre (1,000 ml) of full-cream milk used to cost ₹50, while half a litre (500 ml) would cost ₹24.  In March 2023, it changed to 900 ml and 450 ml, respectively, for the same costs of ₹50 and ₹24.

You may also like: Fast-Moving Consumer Goods (FMCG) Sector- A Safe Haven in Bear Markets?

The cost to customers

Although shrinkflation may appear to be a minor adjustment at first glance, it affects customers significantly. Hidden inflation, as it is commonly known, is the most direct effect of shrinkflation.  Despite the constant pricing on the shelf, you’re getting a lower quality product for your money. 

Over time, the cumulative effect of shrinkflation can significantly impact a household’s budget. As more and more products are subject to shrinkflation, the total cost of goods that offer less value can add up, forcing consumers to spend more to maintain the same standard of living.

Also, customers may perceive a brand’s reduction in product size without enough explanation as a betrayal of their trust. It can be annoying to learn that a product you’ve been buying for years is now giving less for the same price if you were drawn to it because of its value. Customers may feel taken advantage of as a result of this lack of transparency.

Bottomline

Is shrinkflation a clever strategy or merely a trick for consumers? It’s evident that while brands might see it as a strategy to sustain profits, it ultimately results in consumers receiving less value for their money. 

Understand the shrinkflation meaning. By becoming aware of shrinkflation’s tactics and underlying reasons, you can transform into a more thoughtful shopper. Equip yourself with unit pricing, compare brands, and be vocal about your expectations. 

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StockGro Team

StockGro is India’s first and largest ‘Social Investment’ platform aimed at helping you master the art of “Trading & Investment”. Trade, Invest and get rewarded to Learn everything about ‘Investments’ the fun-filled way.

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