Does it feel as if you are not getting as much bang for your buck at the grocery store? Does it seem you are paying the same price or perhaps more for products that are getting smaller and smaller in quantity and size?
What you are experiencing is known as Shrinkflation. Yes, Shrinkflation is a real word, and it is what you are experiencing throughout your shopping experience.
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Let’s Expand on Shrinkflation and learn more about it.
What is Shrinkflation?
Shrinkflation involves reducing the amount or size of a product while keeping the price the same. As a result, the price per amount is conversely increased, which is not noticeable by a consumer. It’s the method adopted by most companies to boost the profit margin without notifying their customers. Mainly the food and beverage industry adopts these strategies to help boost the profit margins.
Moreover, Shrinkflation is the combination of two words, “shrink” and “inflation.” The shrink means the reduction or decrease in products’ size or amount. While inflation means rises in price due to the size reduction. Generally, a consumer won’t know that the price per product is increased otherwise due to the shrinking size. This is one of the oldest techniques and is still adopted to increase profits on a large scale.
In short, you are paying the same or more for less.
Examples of Shrinkflation
Suppose if cocoa price increases, it will result in an increase in the price of chocolate. So, in this case, customers won’t like the rise in price and may change the brand. To offset this, the company will reduce the chocolate size rather than increase the price to retain the customer. This is how the technique works to raise the profit margins while retaining the customers.
For example, in the past, General Mills followed Shrinkflation in 2021 by shrinking their family-sized cereal boxes from 19.3 ounces to 18.1 ounces maintaining the average price of $2.99 in the United States. Similarly, Puffs tissue went through the same path in 2020 and reduced its count from 56 to now 48 count. These are just some of the more well-known examples, and if you look deeper, you can see many other examples around you, even at the smaller brands.
What Causes Shrinkflation?
Companies always want to keep the profit margins the same and, at some point, increase them. This is not possible when the raw material’s cost is increased, or labor rates are raised. So, to maintain the margins, they reduce the size or lower the amount of the final product. We can conclude higher production cost is the primary cause here, which leads to shrinkflation.
Furthermore, another cause includes intense market competition; due to more choices for the customers, the company never raises the price. As a result, they have to reduce the quantity or lower the amount to keep the profit the same. So, while retaining the customers when there’s intense competition in the market and increasing the product price is not possible, quantity is lowered.
Corporate Advantages of Shrinkflation
Shrinkflation is always helpful for the company as it leaves two important advantages while sustaining the profit margins without losing the customers. Let’s discuss two advantages in detail.
- When the production cost increases due to a rise in labor cost or an increase in raw material price, it’s not possible to earn the same profit as before. In that case, Shrinkflation helps a lot by maintaining the previous profit by reducing the product size or lowering the amount. A decrease in quantity helps save a lot of money when having to pay the higher costs for raw materials. So, there’s no pressure on the company with an increase in the cost of production.
- When there’s intense competition in the market, and you have to provide the best product without increasing the price, you have to compromise on the quantity as many customers care about the quality rather than quantity. So, a manufacturer will keep the price and quality the same but lower the quantity to compete in the market. Because every time the company increases prices, they lose customers.
Limitations of Shrinkflation
Shrinkflation does not always work in favor of the company because it’s not the best solution to all issues. For example, if the quantity of product can’t be reduced, like baskets, it’s not going to work because you cannot lower the quality. Affecting quality always loses customers within no time.
Furthermore, most of the time, the lowering or reduction in the size or quantity is not noticeable by all the customers. But in some cases, when it’s clearly noticeable, the customers lose confidence and trust. As a result, you may lose a lot of customers, and it has happened to many brands in the past.
In addition, you can’t measure the exact price change due to the cost of production and margin due to a decrease in quantity. While covering the gap, you might reduce too much size, and it won’t work. Chances are the company may lose everything when it fails to deliver what they primarily offer.
What is the Impact on the Consumer?
There are two cases; either a consumer will notice the abrupt change in the product size or they won’t. If they do not clearly notice the change, which is rare, there won’t be any problem for a manufacturer. But in case the change is clear and easily noticeable, it leads to several situations. Sometimes the consumers compromise on the quantity because of quality being provided and less competition or monopoly.
In other cases, loss of confidence and trust in the manufacturer because if a customer doesn’t know the price is conversely increased, they definitely know the reduction in size, which is also quite troubling. If they’re receiving the same quality from a competitor with increased quantity, the company may lose customers. It also leads to inflation as the companies who are providing more quantity may increase the price to keep the competition.
Check out this video from PBS:
Manufacturers use ‘shrinkflation’ to pass costs on to consumers.
Since there are many advantages and disadvantages of Shrinkflation, the companies who choose to go with it meet their profit goals. Somehow they manage to retain the customers by reducing the not noticeable quantity or keeping the quality the same. In the past, Shrinkflation has worked successfully for companies with less competition or no competition at all. It can be challenging for the manufacturers who have intense competition and have increased cost of production pressure. Shrinkflation works perfectly well for the companies that have a monopoly in the market.
So, the next time you are shopping, and you feel as if you are paying the same or more for less product, shake your fist to the sky and yell, Shhhrinkflaaation!
Go to the comment section and let us know your thoughts.
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