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Shrinkflation

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Toblerone chocolate bar, 2006
2016 Toblerone bar from the United Kingdom with larger gaps between peaks, using 10% less chocolate[1]
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In economics, shrinkflation, also known as package downsizing, weight-out,[2] and price pack architecture[3] is the process of items shrinking in size or quantity while the prices remain the same.[4][5] The word is a portmanteau of the words shrink and inflation. Skimpflation involves a reformulation or other reduction in quality.[6]

Shrinkflation allows manufacturers and retailers to manage rising production costs while maintaining sales volume, operating margin, and profitability, and is often used as an alternative to raising prices in line with inflation.[7][5] Consumer protection groups are critical of the practice.

Economic definition

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A parallel to shrinkflation is currency debasement. This graph shows decline in coin silver content over the history of the Roman Empire.

Shrinkflation is a rise in the general price level of goods per unit of weight or volume, brought about by a reduction in the weight or size of the item sold.[citation needed] The price for one piece of the packaged product remains the same. This sometimes does not affect inflation measures such as the consumer price index or Retail Price Index, i.e. it might not increase in the cost of a basket of retail goods and services,[citation needed] but many indicators of price levels and thus inflation are linked to units of volume or weight of products, so that shrinkflation also affects the statistically represented inflation figures.

The first use of the term shrinkflation with its current meaning has been attributed to the economist Pippa Malmgren, though the same term had been used earlier by historian Brian Domitrovic to refer to an economy shrinking while also suffering high inflation.[8]

Causes

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Barak Orbach, an academic economist, argues that competition typically drives shrinkflation: "When supply shocks or other factors inflate production costs, businesses must pass on cost increases to maintain profitability. However, in competitive markets, direct price increases are risky. Under such conditions, businesses often choose to raise prices indirectly through downsizing."[9][unreliable source?]

Without explicitly using the term shrinkflation, macroeconomist Vivek Moorthy much earlier documented and analysed the shrinkage effect of inflation, explaining it by Arthur Okun’s "invisible handshake" approach: "Prices are ... based on notions of trust and fairness. it is considered acceptable for firms to respond to cost increases, but not to demand increases. Firms selling a branded product will make deliberate efforts to continue selling at the same price thereby retaining loyal customers. Hence, to cope with inflation, fast moving consumer goods firms would often resort to shrinking the product size to avoid raising prices."[10]

Consumer impact

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Many grocery stores provide unit price information for all products. In this Norwegian grocery store, the price for a bottle of ketchup is displayed in terms of the price paid per package (64.90 kr) as well as the paid paid per kilogram (111.90 kr). This allows customers to see how much they will pay and to quickly compare products that have different sizes of packages.

Consumer advocates are critical of shrinkflation because it has the effect of reducing product value by "stealth".[11][unreliable source?] The reduction in pack size is sufficiently small as not to be immediately obvious to regular consumers.[12] An unchanged price means that most consumers will not immediately notice the higher unit price, which adversely affects consumers' ability to make informed buying choices. Consumers have been found to be deterred more by rises in prices than by reductions in pack sizes, and some customers would rather have a smaller package at the old price than the old package size at a higher price.[6]

Suppliers and retailers have been called upon to be upfront with customers. According to Ratula Chakraborty, a professor of business management, they should be legally obliged to notify shoppers when pack sizes have been reduced.[13] In 2023 the French grocery chain Carrefour has started to warn their customers about these practises.[14][15]

Corporate bodies deflect attention from product shrinkage with "less is more" messaging, for example by claiming health benefits of smaller portions or environmental benefits of less packaging.[16][unreliable source?]

Shrinkflation is not the only cause of reduced package sizes. In some cases, such as junk food, some customers do prefer smaller package sizes.[6]

In other cases, the change is part of a trend to adjust package sizes. In 2003, Dannon shrunk its yogurt containers from 8 ounces to 6 ounces, because consumers thought their larger product was too expensive overall; many, though not all, of the grocery stores selling it maintained the old price for the smaller product.[2] Most yogurt manufacturers followed suit, resulting in smaller packages.[6][2]

Just-noticeable difference

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Main article: Just-noticeable difference
Shrinkflation changes kept under JND
Size increase above JND trumpeted

In experimental psychology, a just-noticeable difference is the amount something must be changed for a difference to be noticeable.[17] Discovered by Ernst Heinrich Weber, the JND is a fixed proportion of the reference sensory level, and so the ratio of the JND/reference is roughly constant: where is the original intensity of the particular stimulation, is the addition to it required for the change to be perceived, and k is a constant. Weber's law has important applications in marketing. Manufacturers and marketers endeavor to determine the relevant JND for their products for two very different reasons:

  1. Negative changes (e.g. reductions in product size or quality, or increase in product price) are not discernible to the public (i.e. remain below JND) and
  2. Product improvements (e.g. improved or updated packaging, larger size or lower price) are very apparent to consumers without being wastefully extravagant (i.e. they are at or just above the JND).

When it comes to product improvements, marketers very much want to meet or exceed the consumer's differential threshold; that is, they want consumers to readily perceive any improvements made in the original products. Marketers use the JND to determine the amount of improvement they should make in their products. Less than the JND is wasted effort because the improvement will not be perceived; more than the JND is again wasteful because it reduces the level of repeat sales. On the other hand, when it comes to price increases, less than the JND is desirable because consumers are unlikely to notice it.

Statistics

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The UK Office for National Statistics wrote in 2019, "We identified 206 products that shrank in size and 79 that increased in size between September 2015 and June 2017. There was no trend in the frequency of size changes over this period, which included the EU referendum. The majority of products experiencing size changes were food products and in 2016, we estimated that between 1% and 2.1% of food products in our sample shrank in size, while between 0.3% and 0.7% got bigger. We also observed that prices tended not to change when products changed size, consistent with the idea that some products are undergoing 'shrinkflation'."[18]

Impact of Shrinkflation on CPIH in the UK, with the number of food price quotes that saw a change in package size per month

In the United States, the Bureau of Labor Statistics has written that "the impact of product downsizing at the all commodity and services level is minimal, with an average annual effect of 0.01 percent per year, so while consumers may notice shrinkflation at the grocery store, it has a very small impact the overall inflation picture they face."[19]

Examples

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An example of shrinkflation: Dove soap bars were made 10% smaller in 2022
  • Coffee sold in 1 lb (453.6 g) bags shrank to 400 g or smaller in the 1980s.[6]
  • In India in 2008, Procter and Gamble reduced the pack size of its detergent Tide from 1 kg to 850 g while maintaining the same price. Similarly around 2012, Orbit reduced the chewing gum pack size from 6 to 5 units, keeping the price at Rs. 5. In 2013 the staple breakfast item idli was shrunk from 100 g to 75 g, as reported in the Bangalore Mirror.[20]
  • In January 2009, Häagen-Dazs announced that it would be reducing the size of their ice cream cartons in the US from 16 US fl oz (470 ml) to 14 US fl oz (410 ml).[21][22]
  • In 2010, Kraft reduced its 200 g Toblerone bar to 170 g.[23]
  • Tetley tea bags were sold in boxes of 88 instead of 100.[23]
  • Nestlé reduced its After Eight Mint Chocolate Thins box from 200 g to 170 g.[23]
  • Cadbury's Crunchie were sold in packs of three instead of four.[23]
  • In 2015, Cadbury Fingers removed two fingers from each pack, reducing the weight of a pack from 125 grams to 111 grams.[24]
  • In July 2015, a tub of Cadbury Roses which weighed 975 g in 2011, was reduced to under 730 g, while a tub of Cadbury Heroes was reduced to 695 g. However the price remained the same at around £9.[25]
  • In 2016, Terry's Chocolate Orange was reduced from 175 g to 157 g by changing the moulded shape of each segment to leave an air gap between each piece.[26]
  • In 2016, Mondelez International again reduced the size of the UK 170 g Toblerone bar to 150 g, while the 400 g bar was reduced to 360 g. This was done by enlarging the gap between the chocolate triangles.[1]
  • In 2017, Milka Alpine Milk and Milka Nuts & Raisins got reduced from 300 g to 270 g while Triolade got reduced from 300 g to 280 g, all without changing the bag size.[27]
  • In 2017, McVities reduced the number of Jaffa Cakes in every standard packet from 12 to 10, raising the cost per cake from 9.58 p to 9.9 p.[28]
  • In 2020, Unilever reduced the size of Ben & Jerry's ice-cream tubs in Europe, going from 500 ml to 465 ml, whilst still retaining the RRP of around 5 euros. Despite this, Unilever has publicly criticized rival ice-cream brands for shrinkflation in the United States, where Ben & Jerry's ice-cream is still sold in pint-sized (473 ml) tubs.[21][22]
  • In 2021, General Mills shrunk their family-sized boxes of cereal down from 19.3 ounces to 18.1 ounces. That means the unit cost per ounce of the product has increased, but for the consumer, the average price in the United States remained $2.99.[29]
  • In 2022, Procter & Gamble reduced the number of double-ply sheets per roll of toilet paper from 264 to 244 sheets in the 18-count mega package. This amounts to approximately a roll and a half in the 18-count package.[30]
  • In 2022, Unilever reduced the size of Dove soap bars from 100 g to 90 g, with most retailers either maintaining the same price or increasing prices.[31]
  • CVS Pharmacy reduced the amount of Dextromethorphan and Guaifenesin in their 4 oz Tussin DM cough formulation by half, and then doubled the recommended amount per dosage from 10 ml to 20 ml. The 8 oz bottle remains at previous concentration. The 4 oz bottle is now therapeutically equivalent to one-fourth of the usual 8 oz bottle. The 4oz bottle retails at $1.70/oz and the 8 oz bottle retails at $1.16/oz. [citation needed]
  • In 2023, researchers conducted a study[32] on products known to have shrunk in size but not in price. They found that the average reduction percentage of the product sizes was 11.84%, which the researchers then applied to various other products to demonstrate the absurd effect of shrinking product sizes.
  • In 2023, Mars, Incorporated reduced the weight of their Whiskas cat food by 15%, reducing the weight of each pouch from 100 g to 85 g. The price of the packs did not change. This was applicable to their 12×100 g, 40×100 g, 80×100 g, and individual products for both the "in jelly" and "in gravy" products.[33]
  • In 2023, several large coffee roasters (including Melitta BellaCrema, Norma CaffeCiao) dropped a "100% Arabica" declaration previously residing on some of their coffee packs as a sign of quality and started to blend less expensive Robusta coffee into the mix. To avoid making larger changes to the visual design of the package the Arabica label was replaced by other labeling, keeping the previous ornamental design. In some case, the coffee is still advertised as "100% Arabica" in supermarket flyers in 2024, but is no longer declared so on the actual package.
  • In 2023, the size of Haribo gummy bears 360 g packages was first reduced to 320 g keeping a long-term stable price of 1.29 EUR. Then, the price was raised to 1.79 EUR while switching back to the old size of 360 g, only to later reduce the size to 320 g again while keeping the new price. Later, the price was slightly lowered to 1.69 EUR advertising a "price reduction".
  • In 2024, McDonald's was criticized for shrinkflation, colloquially dubbed "McFlation", with increases in menu prices far exceeding inflation.[34][35][36][37]

Legislation

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In 2024, a bill was introduced in the U.S. Senate which would ban shrinkflation.[38] A separate bill, introduced in the U.S. House of Representatives, would require brands to label products that contain less product than before at the same price.

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In October 2021, NPR's Greg Rosalsky from Planet Money proposed the term skimpflation to refer to a degradation in the quality of services while keeping the price constant, such as a hotel offering a more meager breakfast or reducing the frequency of housekeeping.[39] In 2023, Guardian Money described a number of ingredient changes in British supermarket foods – such as a brand of mayonnaise changing from 9% egg yolk to 6% egg and 1.5% egg yolk – as an example of skimpflation.[40]

Unlike changes to the size and weight of a product, skimpflation is more difficult to measure in a standardized way, and consequently goes unrecorded in measurements of inflation.[6]

Conversely, in September 2022, Izabella Kaminska's The Blind Spot published an article that proposed the term shitflation in reference to maintaining a product's price while decreasing quality.[41][unreliable source?] The article's author, Dario Garcia Giner, proposed that shrinkflation and shitflation spoke to the Grossman-Stiglitz paradox, and argued they were akin to "Trojan horses buried in the heart of mainstream finance — just waiting to tear down the system by discombobulating relative values in the big-data spreadsheets that central bankers and financiers depend on to manage economic allocation."

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The term has been used by President Joe Biden in 2023 and 2024 to blame companies for deploying this tactic to increase their profits, deflecting criticism about inflation during his administration and instead pinning the blame on big business.[42] Biden's claim has been criticized, with some conservatives arguing that his economic policies and the Inflation Reduction Act were the primary cause of price increases and shrinking products.[43][44]

See also

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References

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  1. ^ a b "Toblerone triangle change upsets fans". BBC News. 2016-11-08. Retrieved 2016-11-08.
  2. ^ a b c "More than 2,500 products subject to shrinkflation, says ONS". BBC News. Archived from the original on 2017-07-24. Cite error: The named reference ":2" was defined multiple times with different content (see the help page).
  3. ^ J. Edward Moreno (2024-05-31). "What's a fancy name for shrinkflation?". NY Times. Retrieved 2024-07-03.
  4. ^ "Shrinkflation: When less is not more at the grocery store". The Conversation. 2018-05-28. Retrieved 2021-09-14.
  5. ^ a b "Beyond Inflation Numbers: Shrinkflation & Skimpflation". stlouisfed.org. Retrieved 2024-11-24. Businesses know that for some goods and services, consumers are more sensitive to changes in price than to changes in quantity, and this tendency often allows businesses to benefit from shrinkflation.
  6. ^ a b c d e f Smialek, Jeanna (2024-03-01). "Shrinkflation 101: The Economics of Smaller Groceries". The New York Times. While 'shrinkflation' gets measured, 'skimpflation' does not. Shrinking itself is captured in official inflation data, but another sneaky force that costs consumers is getting missed in the statistics. Companies sometimes use cheaper materials to save on costs in a practice some call "skimpflation." That is much harder for the government to measure.
  7. ^ McNair, Kari (2023-02-02). "Getting less for the same price? Explore how the CPI measures "shrinkflation" and its impact on inflation". Bureau of Labor Statistics. Retrieved 2024-11-24. As input costs increase and costs to create a product rise, companies can increase the list price of a good or they can offer a smaller amount of the product for the same price. So, a candy bar's size might change from 1.6 ounces to 1.5 ounces, yet the price stays the same. In other words, the price per unit the consumer pays increases as the amount they purchase decreases, while the price they pay at the register remains the same. Downsizing is common across food and household commodities, including potato chips, paper towels, cereal, cleaning supplies, and candy. Manufacturers change sizes because market research indicates that consumers are more sensitive to price change than size change.
  8. ^ "That Shrinking Feeling". Merriam Webster Dictionary. Retrieved 2019-01-21.
  9. ^ "Do Antitrust Enforcers Know They Induce Shrinkflation?". ProMarket. 2023-08-18. Retrieved 2024-02-17.
  10. ^ Moorthy, Vivek (2017). Applied Macroeconomics Employment, Growth and Inflation (Ist ed.). Delhi: I.K. International Publishing House Pvt.Ltd. pp. Section 3.5 The Rationale for cost based price pp 78.
  11. ^ "Shrinkflation – Real Inflation Much Higher Than Reported". London, UK: Goldcore. 2017-06-28. Retrieved 2020-07-07.
  12. ^ Sewraz, Reena (2017-02-21). "Shrinkflation: the food and drink items that have shrunk but aren't any cheaper". lovemoney.com. London, UK. Retrieved 2020-07-07. Ratula Chakraborty, senior lecturer in business management at the University of East Anglia, said: "Shrinkflation is a sneaky practice because consumers are not expecting any size changes so do not inspect package sizes unless there is a really noticeable difference."
  13. ^ Studman, Anna (2019-02-23). "Shrinking products: are we paying more for less?". Which?. London, UK. Archived from the original on 2021-01-18. Retrieved 2020-07-07.
  14. ^ "Carrefour warnt vor versteckten Preiserhöhungen". Wirtschaft. Merkur.de (in German). Münchener Zeitungs-Verlag GmbH & Co. KG. 2023-09-09. Archived from the original on 2023-09-16. Retrieved 2023-09-16.
  15. ^ Ammann, Lucas (2023-09-15). "Erstmals warnt eine Supermarktkette vor versteckten Preiserhöhungen - Eine französische Supermarktkette hängt Warnschilder aus und warnt somit vor "Shrinkflation". Sogar ein Gesetz ist vorgesehen". Kurier (in Austrian German). Archived from the original on 2023-09-15. Retrieved 2023-09-15.
  16. ^ "ECB Meets To Tackle Deflation While Ignoring Shrinkflation". London, UK: Goldcore. 2014-09-04. Retrieved 2020-07-07.
  17. ^ "Weber's Law of Just Noticeable Difference". University of South Dakota.
  18. ^ "Shrinkflation: How many of our products are getting smaller?". Office for National Statistics. Retrieved 2021-03-13.
  19. ^ https://www.bls.gov/opub/btn/volume-12/measuring-shrinkflation-and-its-impact-on-inflation.htm
  20. ^ Moorthy Vivek "Understanding Stagflation—Past and Present" McGraw Hill Education (India) 2014, pp. 79-80 ISBN 978-93-392-0334-4
  21. ^ a b York, Emily Bryson (2009-03-09). "Ben and Jerry's Calls Out Haagen-Dazs on Shrinkage". adage.com. Advertising Age. Retrieved 2015-11-22.
  22. ^ a b "Ben and Jerry's vs. Haagen-Dazs: A Pint-Sized Battle". popsugar.com. POPsugar. 2009-03-10. Retrieved 2015-11-22.
  23. ^ a b c d "VAT rises but food shrinks". Daily Mirror. 2010-12-19. Retrieved 2014-06-09.
  24. ^ "There are now TWO fewer Cadbury Fingers in every pack". 2015-04-14.
  25. ^ "Cadbury take ELEVEN CHOCS from Heroes and Roses tubs but price stays same". Daily Express. 2015-07-20. Retrieved 2016-11-27.
  26. ^ "Terry's Chocolate Orange doubles in price in some supermarkets". inews.co.uk. 2017-11-27. Retrieved 2019-10-24.
  27. ^ Milka se nenápadně zmenšuje, cena ale zůstává stejná. Obalové triky jen tak nepoznáte - Aktuálně.cz
  28. ^ "Jaffa Cakes packet size reduced in latest 'shrinkflation' move". The Guardian. 2017-09-26. Retrieved 2017-09-26.
  29. ^ Rosalsky, Greg (2021-07-06). "Beware Of 'Shrinkflation,' Inflation's Devious Cousin". Planet Money. NPR. Retrieved 2021-07-07.
  30. ^ Kavilanz, Parija (2022-03-08). "Your toilet paper roll is slimming down". CNN Business. Retrieved 2022-03-08.
  31. ^ Leonard-Bedwell, Niamh. "Unilever shrinks Dove Beauty Bar packs as cost inflation bites". The Grocer. Retrieved 2023-07-31.
  32. ^ "Visualizing Shrinkflation in Different Industries". Coventry Direct. 2023-06-06. Retrieved 2023-08-25.
  33. ^ "Whiskas shaves 15g off packets – but still charges same price". The Telegraph. 2023-01-26. Retrieved 2023-04-07.
  34. ^ Rogelberg, Sasha (2024-02-13). "McDonald's CEO sees a McFlation 'battleground' with customers revolting over $8 chicken sandwiches and $3 hash browns". Yahoo Finance. Retrieved 2024-05-14.
  35. ^ "TikTok showing $25.39 McNugget, fries bundle with no drink goes viral". KATV. 2024-04-09. Retrieved 2024-05-14.
  36. ^ "STUDY: McDonald's prices have increased by over 100% in the last decade". WKRC. 2024-04-03. Retrieved 2024-05-14.
  37. ^ ROGELBERG, SASHA (2024-05-14). "McDonald's may be willing to lose money on $5 meal deals if it means winning back disgruntled cash-strapped customers". Fortune. Retrieved 2024-05-14.
  38. ^ "S.3819 - Shrinkflation Prevention Act of 2024". congress.gov. Retrieved 2024-09-18.
  39. ^ Rosalsky, Greg (2021-10-26). "Meet skimpflation: A reason inflation is worse than the government says it is". NPR. Retrieved 2021-10-30.
  40. ^ Osborne, Hilary (2023-07-22). "'Skimpflation': how supermarkets reduce the quality of what you buy". The Guardian. Retrieved 2023-08-11.
  41. ^ "Hi Shrinkflation, Meet Your Cousin Shitflation". 2022-09-02.
  42. ^ "Biden calls out 'shrinkflation' as part of a broader strategy to reframe how voters view the economy". AP News. 2024-03-08. Retrieved 2024-03-14. The president's focus on shrinkflation is part of a broader strategy to reframe how voters think about the economy before the November election. Biden is trying to deflect criticism about high prices and instead pin the blame on big business.
  43. ^ Venegas, Natalie (2024-02-11). "Conservatives mock Biden's "shrinkflation" video about Super Bowl snacks". Newsweek. Retrieved 2024-03-14.
  44. ^ "Biden planning to hit food 'shrinkflation,' corporate greed in SOTU". POLITICO. Retrieved 2024-11-26. Republicans are highly critical of those White House claims, arguing it's Biden's policies that are fueling inflation, not corporations jacking up prices. And even some Democratic economists remain skeptical about how much of the price increases can be pinned on so-called "greedflation."
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