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