Shrinkflation

Shrinkflation

I wasn’t sure whether to post this brief under the topic of scams or economics, since there is a bit of both evident in the concept. Since it’s not technically a scam but more of a way of legally deceiving consumers, I have decided that economics is the place this brief is going to be posted under. Read the brief and let me know if you agree.

Shrinkflation is not a term most people are familiar with, but believe me, you are certainly familiar with the concept whether you are aware of it or not. Shrinkflation combines the terms “shrink” and “inflation” in one. Let me explain.

In the past organisations would pass increased costs to consumers through increases in prices. Sometimes organisations would not even have higher costs, but would simply want to make a larger margin on sales, and so they would increase their margins (and profits) by increasing prices. When there is a sustained increase in the price of goods and services, we term this inflation. So when prices rise, we have inflation. As competition increased and the differences between various brands of goods became less recognisable, organisations would increasingly compete on price. Those firms which offered cheaper products would get more sales at the expense of their competitors. Increasing prices was avoided at all costs – literally. However, firms still wanted to increase their margins. This did not change. Some also have higher costs for one reason or another. This did not change. So you can see the dilemma here. Firms continued to face the same issues as the desire to increase profits and margins as well as potentially rising costs, but the problem was that overcoming these obstacles had to be done in some other way than increasing prices. But how? The answer is to decrease product sizes. The trick, however, was to do it in such a way as to ensure that consumers do not notice. Decreasing product sizes would have the same results as increasing prices but keeping product sizes the same, hence, we get the term shrinkflation. In both cases the consumer gets screwed because they get less for their money. However, from the organisation’s perspective shrinking product sizes is a better way to screw the consumer and achieve corporate goals because unlike increasing prices, the consumer will often not be able to tell that products portions have shrunk, if done strategically.

Below is a table with a sample of products which have undergone shrinkflation in the UK:

Shrinkflation Prices

SOURCE: Poulter (2015)

What the table above illustrates is how there is an obvious decrease in product sizes and portions. From my quick calculations a 10% decrease is quite common in those goods presented, and the 8g shrinkage of the Kit Kat or the almost 400g gram shrinkage of the Surf washing powder are both almost a 20% decline in product sizes of these two samples. These shrinkages equate to the same percentage price increases if the product sizes remained the same. It’s all very easy to notice such shrinkages when presented neatly on a table as has been presented above, but check out the pictures below and ask yourself whether you would notice any differences in products when they are just one of the many products that you would be putting into your trolley on a typical weekly shopping day:

Aunt Bessies Creme Egg

SOURCE: Carroll (2015)

 

Whether shrinkflation is an innocent economics concept or a scam is really up to you to decide. There is nothing illegal about altering product sizes, but it has come to the point where organisations are altering their products in such a way as to decrease the likelihood of consumers noticing. It’s these deceptive intentions which give the concept of shrinkflation that scammy stench.

Confectionery companies have argued that a reduction in the size of their bars is not all about rising production costs but is also an attempt to support the Government’s drive to help people lose weight in the face of an obesity epidemic.

SOURCE: Carroll (2015)

REFERENCES

Carroll, H  2015, “Shrinkflation! How sneaky firms are making your favourite products smaller, but NOT shrinking the price”, Daily Mail, April 14.

Poulter, S  2015, “Shrinkflation! How big brands have cut the size of products – but not the price of them”, Daily Mail, March 18.

How do you view shrinkflation?

Peter Solanikow
Peter Solanikow
Peter Solanikow is a tertiary educated and qualified business consultant and options trader based in Melbourne, Australia.
Peter founded A1 Tuition, an education resource provider, in 1997 at the age of 23. Peter has written a number of educational books as well as presented seminars in accounting and economics.
Over time Peter developed an interest in business management and has assisted hundreds of clients from various countries around the world in management, marketing, strategy and finance matters.
Peter travels to Europe annually and has knowledge and experience in business matters relevant mainly to Poland.

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