Shrinkflation

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In economics, shrinkflation, also known as the grocery shrink ray, deflation, or package downsizing,[1] is the process of items shrinking in size or quantity, or even sometimes reformulating or reducing quality,[2] while their prices remain the same or increase.[3][4] The word is a portmanteau of the words shrink and inflation. First usage of the term "shrinkflation" has been attributed to both Pippa Malmgren and Brian Domitrovic.[5]

Shrinkflation allows companies 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.[6] Consumer protection groups are critical of the practice.

Economic definition[edit]

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.[citation needed] The price for one piece of the packaged product remains the same or could even be raised. 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,[citation needed] 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.

Explanation and some related cases for India[edit]

The implicit contracts approach, captured in Okun's memorable phrase "the invisible handshake", provides a rationale for the shrinkage effect.[7] In customer markets as distinct from auction markets, "prices are not set to match the current period profits but are rather based on multi period consideration." Instead, prices are "based on notions of trust and fairness. Such behaviour can be explained by the long-term customer seller relationship: 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]

In 2008, Procter and Gamble reduced the pack size of its detergent Tide from 1 kg to 850 g while maintaining the same price. Similarly, around 2012, Orbit reduced the chewing gum pack size from 6 to 5 units, keeping the price at Rs. A dramatic example of shrinkage effect in the restaurant sector was reported in the Bangalore Mirror. The full text of the article stated: "The villain of the piece here, says the hotel owners, is the rising prices of urad dal. 'We have to survive, and we cannot do it by increasing prices, so we decided to lessen the quantity'." The shrinkage effect is a hidden cost and indicates that actual inflation is higher than reported inflation.[9] Many more cases of shrinkflation in India have occurred during the latest 2022 huge bout of global stagflation. Some companies hold the price line as much as possible by reducing grammage (another way to describe shrinkflation) while others finally let the prices rise above the magic price points – typically round numbers 1,5 10. [10] The Times of India reported "Why FMCG companies can't shrink sachets anymore even as inflation bites".[11] A week later, it reported on Gits Food Products, which neither raised prices nor reduced grammage. This strategy paid off with a 35% surge in sales during April--May. [12]

Consumer impact[edit]

Consumer advocates are critical of shrinkflation because it has the effect of reducing product value by "stealth".[13] The reduction in pack size is sufficiently small as not to be immediately obvious to regular consumers.[14] An unchanged price means that consumers are not alerted to the higher unit price. The practice 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. 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.[15] 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.[6]

Examples of shrinkflation[edit]

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".[16]

The UK's Office for National Statistics[16]

  • In 2010, Kraft reduced its 200g Toblerone bar to 170g.[17]
    Older Toblerone chocolate bar
    Newer Toblerone bar with larger gaps between peaks
  • Coffee sold in 1lb (453.6g) bags shrank to 400g or smaller in the 1980s
  • Tetley tea bags were sold in boxes of 88 instead of 100.[17]
  • Nestlé reduced its After Eight Mint Chocolate Thins box from 200g to 170g.[17]
  • Cadbury's Crunchie were sold in packs of three instead of four.[17]
  • In 2003, Dannon shrunk its yogurt containers from 8 ounces to 6 ounces.[18]
  • In January 2009, Häagen-Dazs announced that it would be reducing the size of their ice cream cartons in the US from 16 US fl oz (470 ml) to 14 US fl oz (410 ml).[19][20]
  • Birds Eye potato waffles were reduced from a 12 pack to a 10 pack
  • In 2015, Cadbury Fingers removed two fingers from each pack, reducing the weight of a pack from 125 grams to 111 grams.[21]
  • In July 2015, a tub of Cadbury Roses which weighed 975g in 2011, was reduced to under 730g, while a tub of Cadbury Heroes was reduced 695g. However the price remained the same at around £9.[22]
  • In 2016, Mondelez International again reduced the size of the UK 170g Toblerone bar to 150g, while the 400g bar was reduced to 360g. This was done by enlarging the gap between the chocolate triangles.[23]
  • In 2017, Milka Alpine Milk and Milka Nuts & Raisins got reduced from 300 g to 270 g while Triolade got reduced from 300 g to 280 g, all without changing the bag size.[24]
  • In 2017, McVities reduced the number of Jaffa Cakes in every standard packet from 12 to 10, raising the cost per cake from 9.58p to 9.9p[25]
  • In 2018, Koopmans reduced the weight of their buckwheat flour packages by 20% from 500g to 400g - claiming 'renewed' on the package, without specifying that 'renewed' only meant that less product was provided. It is unknown whether wholesale prices were affected, while it is certain that retail pricing remained exactly the same.
  • In 2020, Unilever reduced the size of Ben & Jerry's ice-cream tubs in Europe, going from 500ml to 465ml, whilst still retaining the RRP of around 5 euros. Despite this, Unilever has publicly criticized rival ice-cream brands for shrinkflation in the United States, where Ben & Jerry's ice-cream is still sold in pint-sized (473ml) tubs.[26][27]
  • In 2021, Sainsbury's replaced their 80g Spicy Thai Crackers with a 40g packet, but the price was less than halved resulting in a by-weight price increase of over 15%.
  • In 2021, General Mills shrunk their family-sized boxes of cereal down from 19.3 ounces to 18.1 ounces. That means the unit cost per ounce of the product has increased, but for the consumer, the average price in the United States remained $2.99 and the amount of cereal in the box looks pretty much the same to the consumer.[28]
  • In 2022, Procter & Gamble reduced the number of double-ply sheets per roll from 264 to 244 sheets in the 18-count mega package. This amounts to approximately a roll and a half in the 18-count package.[29]
Impact of Shrinkflation on CPIH in the UK, with the number of food price quotes that saw a change in package size per month

Skimpflation[edit]

In October 2021, NPR's 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.[30]

See also[edit]

References[edit]

  1. ^ "Honey, they shrunk the groceries the rise of 'shrinkflation'". essentialkids.com.au. 2019-08-06. Retrieved 2021-09-14.
  2. ^ "Shrinkflation: When less is not more at the grocery store". The Conversation. Retrieved 2021-09-14.
  3. ^ "More than 2,500 products subject to shrinkflation, says ONS". BBC News. Archived from the original on 2017-07-24.
  4. ^ "The scourge of Shrinkflation eats away at the man in the street like a cancer!". Perpetual Traveller Overseas. Retrieved 2014-06-08.
  5. ^ "That Shrinking Feeling". Merriam Webster Dictionary. Retrieved 21 January 2019.
  6. ^ a b "ECB Meets To Tackle Deflation While Ignoring Shrinkflation". London: Goldcore. 4 September 2014. Retrieved 7 July 2020.
  7. ^ Okun, Arthur M. (1980). The Invisible Handshake and the Inflationary Process: Reprinted from Challenge. Brookings institution. pp. 5–12.
  8. ^ Moorthy, Vivek (2014). Understanding Stagflation-Past and Present. McGraw Hill Education. pp. 79–80. ISBN 978-93-392-0334-4.
  9. ^ Moorthy, Vivek (2014). Understanding Stagflation-Past and Present. McGraw Hill Education. pp. 80–81. ISBN 978-93-392-0334-4.
  10. ^ Mukherjee, Andy (16 May 2022). "Sticky inflation in India could have been seen in magic prices".
  11. ^ Singh, Namrata. "Why FMCG companies can't shrink sachets anymore even as inflation bites". The Times of India.
  12. ^ Singh, Namrata. "Why some companies have not raised prices yet". The Times of India.
  13. ^ "Shrinkflation – Real Inflation Much Higher Than Reported". London, UK: Goldcore. 28 June 2017. Retrieved 7 July 2020.
  14. ^ Sewraz, Reena (21 February 2017). "Shrinkflation: the food and drink items that have shrunk but aren't any cheaper". lovemoney.com. London, UK: lovemoney.com. Retrieved 7 July 2020. 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."
  15. ^ Studman, Anna (23 February 2019). "Shrinking products: are we paying more for less?". Which?. London, UK: Which?. Retrieved 7 July 2020.
  16. ^ a b "Shrinkflation: How many of our products are getting smaller?". Office for National Statistics. Retrieved 2021-03-13.
  17. ^ a b c d "VAT rises but food shrinks". Daily Mirror. 19 December 2010. Retrieved 2014-06-09.
  18. ^ Yogurt cups not quite a full cup these days, Pittsburgh Post-Gazette, Thursday, July 3, 2003
  19. ^ York, Emily Bryson (March 9, 2009). "Ben and Jerry's Calls Out Haagen-Dazs on Shrinkage". adage.com. Advertising Age. Retrieved November 22, 2015.
  20. ^ partysugar (March 10, 2009). "Ben and Jerry's vs. Haagen-Dazs: A Pint-Sized Battle". popsugar.com. POPsugar. Retrieved November 22, 2015.
  21. ^ "There are now TWO fewer Cadbury Fingers in every pack".
  22. ^ "Cadbury take ELEVEN CHOCS from Heroes and Roses tubs but price stays same". Daily Express. 20 July 2015. Retrieved 2016-11-27.
  23. ^ "Toblerone triangle change upsets fans". BBC News. 8 November 2016. Retrieved 2016-11-08.
  24. ^ Milka se nenápadně zmenšuje, cena ale zůstává stejná. Obalové triky jen tak nepoznáte - Aktuálně.cz
  25. ^ "Jaffa Cakes packet size reduced in latest 'shrinkflation' move". The Guardian. 26 September 2017. Retrieved 2017-09-26.
  26. ^ York, Emily Bryson (March 9, 2009). "Ben and Jerry's Calls Out Haagen-Dazs on Shrinkage". adage.com. Advertising Age. Retrieved November 22, 2015.
  27. ^ partysugar (March 10, 2009). "Ben and Jerry's vs. Haagen-Dazs: A Pint-Sized Battle". popsugar.com. POPsugar. Retrieved November 22, 2015.
  28. ^ Rosalsky, Greg (2021-07-06). "Beware Of 'Shrinkflation,' Inflation's Devious Cousin". Planet Money. NPR. Retrieved 2021-07-07.
  29. ^ Kavilanz, Parija (2022-03-08). "Your toilet paper roll is slimming down". CNN Business. Retrieved 2022-03-08.
  30. ^ Rosalsky, Greg (26 October 2021). "Meet skimpflation: A reason inflation is worse than the government says it is". NPR. Retrieved 30 October 2021.

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