With inflation hitting its highest level in four decades, consumers are beginning to feel it where it hurts - their pockets. The war in Ukraine, coupled with supply chain bottlenecks, has invariably affected the prices of groceries and consumables.
While price increase of basic items is easily noticeable, there is another aspect of inflation that takes a little while to catch up on - shrinkflation. This is when you pay the same price for a product but for a lesser quantity.
It is a proven means by which companies charge you more without increasing the product price. When brands implement a content reduction strategy most customers don’t notice they’re getting 25 or 30 grams less.
Like a cankerworm, this younger cousin of inflation eats deeper into your financial resources.
A shrunken package or reduced quantity may look minimal at first. However, the costs are added up over time, which amounts to a lot of money.
So how can you catch up on the nuances of these food brands and beat them at their game? Let's read on.
Shrinkflation also known as the grocery shrink ray, deflation or package downsizing. It is the practice by which companies reduce the size or quantity of a product while the price of the product remains the same or slightly increased.
In some cases, the term may indicate lowering the quality of a product or its ingredients while the price remains the same.
The term was coined by economist Pippa Malmgren in 2009 by combining the words 'shrink' and 'inflation'. This hidden form of inflation is quite common in the food and beverage industry, though it has been observed in other industries as well.
Rather than increase the price of a product, a move that could backfire on the brand and affect sales negatively, producers reduce the size of the product while maintaining the same price.
The absolute price of the product doesn’t go up, but the price per unit of weight or volume has increased. The small reduction in quantity is usually unnoticed by consumers (at least that’s what the manufacturer hopes).
Shrinkflation is difficult to spot because stores usually clear out old products before replacing them.
Food brands under the guise of rebranding their packages, reduce the size so that the consumer does not notice the changes to the contents therein. The change in packaging does the job of deflecting the consumers' attention to the package itself, rather than the contents. So most times, the changes go unnoticed.
The irony is that, under the law, shrinkflation is not viewed as fraud or misrepresentation of products. This is because producers always indicate the weight, volume, or quantity of their products on packaging labels knowing fully well that consumers hardly check the fine print on these items.
As such, shrinkflation may not be illegal – it’s just sneaky.
Most food brands - if not all, have engaged in shrinkflation. Even some of the most famous companies and brands have adopted these measures to keep shoppers loyal to their brands despite rising costs.
Data released by consumer advocacy group Choice found when analyzing food brands in Australia that companies including Nestle, Kellogg’s, and Cadbury have shrunk their product sizes while charging the same price or more for them.
That same year, Tetley reduced the number of tea bags sold in one box from 100 to 88.
Given that inflation is currently running wild, it would not be out of place to see that the sizes of your favorite food brands would decrease. Already, companies are citing inflation as the biggest risk to their bottom line. Most of these companies would find ingenious ways to pass the costs to consumers without offsetting them.
When bottom lines are being pinched, food companies are left with three options - raise the price directly, take a little bit out of the product, or reformulate the product with cheaper ingredients.
The main objective of a company is to make profit. As such, when overhead costs rise, companies have to pass these costs to the consumer to keep afloat.
Shrinkflation can also be caused by fierce aggressive competition.
Consumers have access to a plethora of viable replacements, which renders the food and beverage business intensely competitive.
With many companies operating at razor-sharp margins and high volume to keep afloat, a price change could mean falling down the pecking order of shoppers.
As a result, companies use shrinkflation because it allows them to retain their consumers' trust while still maintaining their profit margins.
While CPG companies like to portray themselves as being customer-centric and reluctant to pass costs to consumers, the reality is that shrinkflation presents an ample opportunity for them to shore up their profit margins.
A Mortimer's research found that shrinkflation led to a 38% increase in sales when product size was reduced along with prices.
This is because buyers felt they were getting a bargain because of the price reduction. By reducing contents, food brands can charge you more per unit. After all, how many shoppers care to measure the total grams per cost to find the unit cost?
Shoppers tend to be price-sensitive, but they may not notice subtle changes in packaging or read the fine print on the size or weight of a product.
The result is that consumers are less likely to notice getting less if the price is the same. As such, it is expedient that you pay more attention to changes in packaging size and content.
Any time that a company is repacking their product, chances are that they are also reducing the content.
Shoppers tend to focus more on the product price rather than the unit price.
Product price is the amount you pay for the package or item. Unit price is the price you get per unit, gram, litter, sheet, or whatever the item is. This is where you know if you are paying more or less.
If a company reduces its consent or quality, then there is a very strong possibility that you are being charged more. The price tag if the item is only nominal. The real value is in the price per unit.
Consumers are typically advised to have cash and emergency savings on hand in case of unanticipated expenses such as a house or car repairs, or even medical expenditures.
Pre-purchasing items on sale and in advance is another way to put your money to work. While this only applies to nonperishables, there is a real benefit to purchasing products at a reasonable price and in sufficient quantities.
Households might generate returns on their working capital well above 20% by buying intelligently and managing their stocks properly. The goal is to avoid stockpiling too much at full price and just buying when the price is appropriate.
Each day in the United States approximately one pound of food per person is wasted. According to the US Department of Agriculture, this translates to 103 million tons (206 billion pounds) of food waste created in America in 2017 or 30-40% of the food supply (USDA).
Food waste in the United States is estimated to be worth $161 billion per year, with the average American household of four wasting $1,500 per year. If such an amount of food that is trashed can be saved, this would have a significant financial impact on consumers' spending and savings.
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