In recent years, the term shrinkflation has become common in economics classes. This is a condition when a manufacturer of certain products reduces a product’s size and quantity while maintaining its current market price unchanged, leaving a consumer to pay the same amount for less.
This kind of situation frequently happens during rising inflation, which is putting pressure on manufacturers’ production input costs.
For all you know, global inflation has shot up and as a result, producers and manufacturers are steering the pains of high input costs to consumers in different ways in order for them to remain in business, or to increase their profit margin at the expense of the consumers. The tactic is that rather than increasing the price of their products, manufacturers choose to decrease the quantity provided in each product package (package’s contents) or the size. Little do you know that you are paying the same price yet get less of the product, while a company saves money on rising supply costs and gains as much as possible on profit margins.
Many consumers have little knowledge of this practice, instead going for prices, while ignoring packaging contents. You can only find out if a product is experiencing shrinkflation by comparing the prices, the content of ingredients and size over time. For example, a certain bakery previously sold a 30 cm length bread for the same price it sold a 23 cm length one in 2022.
Clearly, the bakery is engaging in unfair practices. It reduced the length and width of the baking pan. However, the price of the bread remains the same. Another example is a bag of eight mixed portions of chicken previously sold at N$49.99, but for the same price sold in 2022 with now only six portions in it.
What causes shrinkflation
Higher production costs are the primary cause of shrinkflation, and subsequently, diminish producers’ profit margins. Therefore, by reducing the product’s weight, volume or quantity while keeping the same retail price tag, manufacturers believe they can improve their profit margin. Another reason is the intense market competition; fierce competition in the marketplace may also cause shrinkflation. The food and beverage industry is generally an extremely competitive one as it has products with a variety available close substitutes, and consumers are capable of accessing them. Therefore, manufacturers look carefully for options that will enable them to keep the favour of their customers while maintaining their profit margins and cutting costs on production inputs.
How it works
Due to asymmetry market information, sellers always have more information about a product than the consumers. So, to practice shrinkflation, companies use price elasticity of the demand concept to raise prices while decreasing the products’ contents or size. A product’s price elasticity of demand is a measure of how sensitive the quantity demanded of that product is to its price. In doing so, manufacturers group the products according to their price elasticity of demand. In the case where consumers are sensitive to changed prices of one of the group’s products, the companies normally believe there is elastic demand for these products. Therefore, they may not want to risk raising prices and losing customers. In this case, they may choose to decrease the quantity of the contents of their products while maintaining a constant price. By law, any manufacturer is required to disclose the weight, quality and standard of their products. However, they always know that consumers pay less attention to quantity changes than do to price changes. Therefore, they can hide shrinking product information.
Research showed that whether manufacturers raise the prices or shrink the contents of its product, consumers will end up paying the price for inflation. Yes, but it would be economically fair to pay more for the same amount of a product than to pay the same for less, given the current level of inflation.
How consumers avoid shrinkflation
In general, the first step in dealing with any problem is learning to recognise it. In the case of shrinkflation on food and beverages, it’s often easy to spot by taking a check at the product packaging, and reading its unit weight.
Other researchers found that another way to navigate shrinkflation is to buy goods that have less packaging. By the look of things, eggs and apples are among those with less shrinkage in the short-term. In addition, consumers should adapt to shopping at stores selling products in large quantities. It may be of importance as there is less packaging on bulk items than those that can be found at a grocery shop.
Despite others believing shrinkflation is completely legal, I am of the opinion that as much as consumers don’t like inflation, I don’t support this, unless manufacturers clearly mark their products with an accurate weight to which consumers can compare the overall prices.