Photo: RetailWire
Is ‘shrinkflation’ a better option than charging higher prices at retail?
A recent Morning Consult survey concludes that only 25 percent of U.S. adults have failed to notice “shrinkflation” in any grocery categories, and many that have are seeking alternatives.
Shrinkflation refers to the practice of decreasing the size or quantity of an item while keeping the price the same.
According to the survey of U.S. adults conducted between Aug. 19 to 21, among those who have noticed shrinkflation:
- Forty-eight percent elected to buy a different brand;
- Forty-nine percent chose a generic product instead;
- A third chose to buy products in bulk rather than smaller packages;
- Thirty percent stopped purchasing from specific brands when they noticed shrinkflation.
The overall survey found that 65 percent of all respondents are “very” or “somewhat” concerned about shrinkflation. The top category in which shrinkflation was noticed was snacks, followed by pantry items and meat.
An advocacy group last week in France launched a petition to stop the practice. The group, Foodwatch, has charged that shrinkflation is “misleading on both sizes and prices for regular consumers.”
Still, the strategy is common even outside inflationary periods since price is the factor taken most into consideration by consumers. Most developed countries now have laws making the display of unit pricing mandatory in order to protect consumers. Ongoing chatter about Inflation, nonetheless, is making the practice better known.
Frito-Lay confirmed to Quartz that it shrunk Doritos’ bag size to 9.25 ounces from 9.75 ounces. A Frito-Lay representative told Quartz, “Inflation is hitting everyone … we took just a little bit out of the bag so we can give you the same price and you can keep enjoying your chips.”
A study from researchers led by Sydney’s Macquarie University from earlier this year found that shrinking sizes were preferable to price hikes because “price is more noticeable and is given more weight than size.”
A slightly higher price at a smaller package shrink was even more preferable.
The researchers concluded in The Conversation, “Our results confirm what marketers have clearly gleaned over the past decade. Consumers’ cognitive biases are strong. So you can expect ever more shrinkflation and for more ‘price drop’, ‘discount’, ‘new price’ and ‘price match’ tickets to adorn supermarket shelves.”
The Dark Side of Shrinkflation
Coined by economist Pippa Malmgren, the term shrinkflation combines “shrink” and “inflation.” In essence, it’s a deceitful practice that companies use to increase their profits, usually in response to the rising costs of economic inflation. There’s an increase of production costs and raw material prices, and in response, companies shrink the amount of product that the consumer has been used to buying at a certain price. Additionally, the company does not fairly reduce the price of the item, hoping that the consumer will not notice they are getting less than what they were previously paying.
Going back to the chips example, most consumers never check the ounces of chips they’re buying, so over time, if that amount of chips decreases, then the consumer will end up buying more chips.
Shrinkflation is becoming more common among companies whether there’s inflation or not because the bottomline is that it raises profits. The amount and frequency vary by industry and company, and companies justify this method by explaining how raising prices would have a more negative impact on the consumer.
When Shrinkflation Backfires
The main problem of shrinkflation is how the consumer will respond once they discover what has happened. Most would readily agree that it would upset them, and it’s highly probable that many consumers would feel tricked and end up harboring resentment toward the company. This could lead to the consumer ceasing their support for the brand, spreading bad word of mouth about the company, and buying similar products from other brands.
For the economy, shrinkflation complicates the accurate analysis of the state of inflation and true price changes. This makes for difficulty when calculating the consumer price index and measuring the basket of goods.
Looking Out For Shrinkflation
The best way to be aware of this controversial practice is to look out for any package redesigns or changes. You’ll want to make comparisons with the previous packaging to check for any differences in size or quantity. It’s also important to compare similar products across different brands and start taking notes on the contents of the packaging.
If you enjoyed this article, please make sure to keep tabs on retailwire.com and stay up-to-date with all the relevant retail news and discussions!
- Consumers’ Sensitivity to ‘Shrinkflation’ Is Leading Them to Switch Food & Beverage Brands – Morning Consult
- 64 percent of consumers are worried about ‘shrinkflation.’ What it is and how to watch for it while shopping – CNBC
- Consumer Digest: August – 8451
- How companies are hiding inflation without charging you more – Quartz
- Petition launches against ‘shrinkflation’ in shops in France – Connexion France
- Lindt, Danone and Kiri accused of “shrinkflation” on food products – News In France
- Why getting less with shrinkflation is preferable to paying more – The Conversation
- Will ‘shrinkflation’ grow into a big problem for CPG brands? – RetailWire
Discussion Questions
DISCUSSION QUESTIONS: How open should retailers be to accepting shrinkflation moves from vendors? Do you agree that consumers would rather see smaller packages than higher prices?
Poll
Loading …BrainTrust
Shrinkflation can be viewed differently by different consumers. To me (and to any consumer who compares unit pricing), shrinkflation is an insult to my intelligence. To consumers who do not compare unit pricing, or who prefer to ignore the reality of inflated prices, shrinkflation is a boon to retailers and wholesale distributors.
Shrinkflation is nothing new and has been in practice at the dollar stores for years. How do you think they maintain the price point? Retailers and vendors alike want to hold the line on pricing, so this is an interesting conundrum.
The truth is, humans have a weak spot for noticing what’s missing (such as the rest of the chocolate bar) in the old, full-sized package). It’s also expensive for CPG firms to retool to make smaller packages, and why would they want to if they can get away with not doing it? (See all the defections in the article for good reasons.) Snack makers have even developed special bag material that is stiffer so you can’t tell how many chips are not in the bag. Tricks of the trade won’t go unnoticed forever.
As a retailer, I have always disliked shrinkflation. The positive part of this from what I have seen is that customers are trading to private label options which, for the most part, have stayed at original sizing for that product.
Shrinkflation is inevitable in economic downturns — and retailers win, as private label sales rise. Retailers can both sympathize with customers’ frustrations and entice them with affordable store brands.
Smaller packages and higher prices have been jarring for shoppers, especially initially. Now we’re paying closer attention to changes in pricing and packaging.
The Morning Consult survey concludes that only 25 percent of U.S. adults have overlooked “shrinkflation” in any grocery category. That is what companies are hoping for 100 percent of the customers. Frito-Lay says they are cutting the package size to keep the same price. No Frito Lay. That is a price increase.
As for the retailers, I don’t think they have a choice. They will not cut a major brand off the shelves because of price changes. “Not my problem.”
Many consumers think shrinkflation is dishonest which is not a great thing for a brand to be tagged as, however it is still seen as preferable as price inflation is even less palatable. One could take a positive stance and say that smaller product sizes, particularly in snacks, are good for people’s health, though this may be one step too far for consumers already feeling hurt! We also need to consider that shrinking product and holding price actually improves the efficiency of the supply chain as less bulk, weight and size increases the volume value relationship. In times of high inflation when it may be a choice of buying an item or not then smaller sizes may at least enable people to continue their shopping habits. Will the items ever go back to the original size? Of course not, this is a one-way trend.
Frankly, McDonald’s could cut 5% of the fries out of a serving and make nuggets 5% smaller; we’d never notice and it would be better for everyone. Soda makers are selling those smaller-size cans at the same retail as regular size, and they have a market for it. That said, a pound of chicken at the store still needs to weigh a pound; a gallon of milk can’t be 62.5 ounces….
Consumers don’t like, but generally accept raising retails during inflationary times. Shrinkflation, on the other hand, is less transparent and feels more like an attempt to shortchange you. It really depends though on the product and the degree of shrinkflation. Ultimately a lot of retailers can’t really control shrinkflation and/or don’t have the luxury of dropping a major national brand or CPG product. As such, retailers need to be extra diligent with pricing – particularly on products where shrinkflation has occurred. Using the right analytics and pricing tools and processes can help on this front and ensure that prices stay static (or possibly even decrease on key items) when sizes have been adjusted. Retailers with strong private label portfolios can leverage their position and choose to not pursue “shrinkflation” in contrast to national brands or to seize the moment and offer better deals on their products to shift consumers. Ultimately, when 48 percent of consumers say they’ll switch brands when they notice shrinkflation, it’s important to have a plan in place and even better to have an alternative, higher margin product with a lower price point.
Trying to sneak in a price increase by reducing product size and hoping that the customer doesn’t notice, that’s not a great strategy. Consumers notice and they don’t like it. Giving consumers informed choices to select smaller product sizes, that’s going to be a win-win. See the smaller size cans of Coke products for example. Exactly what parents and health-conscious consumers wanted.
There is really no good option — and you can’t make everyone happy. Whichever way you go, shrinkflation, smaller packaging, or higher prices, some customers will notice, however it is the reality of the environment we are living in. Honesty is of course the best policy so as not to insult the intelligence of the consumer.
I guess taking a few Doritos out of the bag will make consumers a tiny bit healthier, too, so it’s really a benefit ;). Chip bags are usually only about 2/3 full anyway.
“Since the consumer is dumb, the best thing the manufacturer and the retailer can do is practice shrinkflation.” That is what the marketplace is saying by implementing shrinkflation. I think a better practice is for retailers to just post a sign saying we have kept the retail price of the coffee you are buying, but instead of selling you 16oz. for $8, we are now going to sell you 14oz. for the same $8 because we know you are not smart enough to see what is happening.
I’m really curious what would actually happen in a straightforward, emotionless A/B test. Buy the same size as usual at a higher price, or smaller package at lower price? What about value … cost per ounce? Bigger packages typically offer better value … lower price per ounce. Would the customer opt for better value or better price? Costco logic says better value. How does that logic work outside Costco? (Yes, Costco’s value equation is orders of magnitude beyond normal grocery store pricing.)
I think it depends a lot on the specific product. With something like a candy bar or a soft drink — i.e. single serving — it might be an opportunity to rightsize, if you will, something that many people would argue is too large. So if you like this kind of shadowy paternalism “shrinkflation” could be a two-fer.
For most anything else, though, I don’t think well of it … a quiet kind of fraud.
Likely most retailers don’t have a choice in whether to accept shrinkflation from vendors. Either this approach or higher prices is an inevitable outcome of rising supply chain, labor, packaging and fuel costs.
Good news is, unit price gives consumers options to decide for themselves.
Sure shrinkflation works … you really can fool some of the people some of the time.
During tough economic times, consumers want to get more for their dollar not less so “shrinkflation” is reducing the spend during the trip while causing the opposite affect in value. Personally, I think it is deceptive. That said, I agree with Richard Hernandez that private label/store brand can capitalize on the brand’s strategy and have great success sharing their money-saving story with consumers.
Shrinkflation is a way for manufacturers to shift perceptions on value and size to the detriment of consumers. Retailers should be very aware of the consequences, since it impacts both the choice and size of choice that their consumers will make, that impacts the availability of products in their store. This of course makes out-of-stocks, higher stocking prices, more waste and obtuse future orders a simple reality that the retailer must bear. Both the retailer and the consumer need to make their objections known on this so that shrinkflation is unaccepted as a standard practice.
Shrinkflation isn’t anything new, the game of pack-price architecture has been around for years as a mechanism to trade consumers UP to value sizes as well as a mechanism to mitigate inflation. In general, consumers tend be more sensitive to price changes versus pack-size changes unless the category is a core staple with a low price elasticity. For retailers these “new” downsized packages can be important to keep the category in the basket and provide affordable options to meet the needs of consumers and help them stretch their budgets. While downsizing can be a great mitigation to inflation, the benefit quickly erodes as consumers adjust to the new normal. The longer the inflationary cycle persists, brands and retailers will need to look at other mechanisms to engage their customers.
This is just insulting because it’s always seen as deceptive.
Also when buying ingredients or meals the “surprise” of getting less when you get home is very annoying.
Dumbest so far: old El Paso making taco shells tiny. Yes that’s right open up to start cooking and you’ve been tricked into far fewer servings because the bold print on the box says the same number of shells.