Shrinkflation : What It Is and How To Avoid It 

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If it feels like there are fewer chips in your Doritos bag these days, you’re not imagining things. There are, and it’s all thanks to a pesky and enduring business practice known as “shrinkflation.” Here’s everything you need to know:

When the cost of doing business goes up, one way companies compensate is by shrinking package and product sizes without actually lowering prices — meaning consumers are paying the same or more but getting less. It’s a phenomenon dubbed “shrinkflation,” and it’s essentially “the inflation you’re not supposed to see,” per The Associated Press.

While the practice is usually common in times of rising prices, “we happen to be in a tidal wave at the moment,” shrinkflation expert Edgar Dworsky told AP, as manufacturers work to “balance” the increased costs of gas, labor, and supplies against sales and profit, he added in a separate conversation with The New York Times….Story continues….

By: Brigid Kennedy

Source: Shrinkflation: What it is and how to avoid it | The Week

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Critics:

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.

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.”

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.

Consumer advocates are critical of shrinkflation because it has the effect of reducing product value by “stealth”. The reduction in pack size is sufficiently small as not to be immediately obvious to regular consumers. 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. In 2023 the French grocery chain Carrefour has started to warn their customers about these practises. 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. Most yogurt manufacturers followed suit, resulting in smaller packages.

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’. 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.

 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. 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.

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. This term had already been used in online communities such as Reddit or Twitter since 2020.

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.

• The impact of Shrinkflation on the CPIH: January 2012 to June 2017
• Shrinkflation – the economics of stealing from customers

Source: Shrinkflation: What it is and how to avoid it | The Week