Shrinkflation is a circumstance in which a product’s size “shrinks” or decreases even though its price stays the same. When a product’s size shrinks while its cost stays the same, this indicates that the product’s price is inflated and that the cost per unit of weight has grown. This approach is used by businesses as an alternative to raising prices right away because it has little to no impact on consumer indices like the consumer price index. However, a reduction in the size of the product actually causes prices to increase. Therefore, it represents a convert inflationary mechanism. Given that it may be viewed as less harsh than a price increase, it is frequently employed as a strategy to avoid raising costs and alienating customers. This phenomena, which was first described by the British economist Pippa Malmgren. It has gained popularity recently as a result of rising production and ingredient costs.
Causes of Shrinkflation:
- Escalating input costs: Manufacturers’ costs increase when the price of a commodity rises. One choice is to cut back on the input’s volume. Numerous manufacturers struggled in 2009–2011 as cocoa prices increased. As a result, many chocolate bars had to be made smaller in order to cover the increased cost of the raw materials. The producer’s profit margin can be increased by reducing the items’ weight, volume, or quantity while keeping the retail price the same. The typical buyer won’t notice a slight decrease in quantity, though. Sales volume won’t be impacted as a result.
- Supermarkets’ monopolistic purchasing power: Although the retail supermarket business is competitive, the large supermarkets have enormous sway over their suppliers. Supermarkets frequently work very hard to keep costs down in a competitive market. When supermarkets don’t want to pass on price increases to customers, shrinkflation is a solution.
- Ferocious market competition: Shrinkflation may also result from fierce market competition. Given that consumers have access to a wide range of available substitutes, the food and beverage market is often one that is very competitive. As a result, producers search for solutions that will allow them to maintain both their profit margins and the goodwill of their customers. As an illustration, consider how supermarkets, which operate on a big scale and don’t pass on the burden of rising costs to the customers, have a competitive advantage. The only alternative open to small producers is to stick with this tactic and keep retail pricing steady in order to keep customers.
Shrinkflation’s Effects:
Consumers and businesses may experience a variety of repercussions from shrinkflation.
- For customers: Shrinkflation causes hidden inflation since a product’s price remains constant while its quantity changes. Customers may find it harder to determine what they are missing as a result, and they may even feel taken advantage of.
- For businesses: Shrinkflation is frequently justified by businesses as being necessary to preserve the caliber of their goods. It can, however, result in a loss of confidence between the company and the customer if done without sufficient explanation and information to the consumers. It can occasionally encourage people to purchase goods from other companies.
Advantages of Shrinkflation:
- More budget-friendly: Some products may shrink in size but not in price. Customers can buy them for less as a result.
- Preserved profits: Even though the product’s size is reduced, businesses can still retain or raise their profit margin by using the same strategy.
Disadvantages of Shrinkflation:
- Unfair practice: When a product’s size is decreased without a change to the quality or contents, consumers may perceive this as unfair behavior.
- Loss of trust: When businesses fail to adequately explain to customers why a product is shrinking, it may result in a decline in trust between the two parties.
- Competition: Sometimes businesses would reduce the size of their products in an effort to undercut pricing from rivals. This could result in a race to the bottom, which is bad for both customers and businesses.
Implications of Shrinkflation:
- Inflation: Inflation that is not visible is a result. The reason for this is that inflation indexes only take into account changes in average price levels, ignoring little variations in product sizes. The indexes are predicated on the idea that the product basket won’t change. Although the cost of the product as a whole doesn’t increase, the cost per unit of weight or volume does. Consumers typically are unaware of the slight quantity reduction.
- Consumer Trust: Although the majority of buyers might not detect slight variations in the quantity or size of the product, they might learn the truth later on and feel duped. Customer trust is tarnished by it.
Examples of Shrinkflation:
- Dove Bar: The weight of the soap bars has fallen from 113 grams to 106 grams, yet the cost has not changed. This indicates that the cost per gram has gone up.
- Coca-Cola: In 2014, Coca-Cola changed its large bottle’s capacity from 2 liters to 1.75 liters.
- Tetley: In 2010, Tetley decreased from 100 to 88 the amount of teabags sold in a package.
- Parle-G: After a few years, Parle-G Biscuits changed the weight of the package from 100gm to 92.5gm and subsequently 88gm. Currently, a modest Parle-G biscuit packet that costs Rs 5 weights barely 55 grams. It is interesting to see that the weight has now dropped by 45% from the starting weight.
Conclusion:
Shrinkflation is a popular practice today among manufacturers. Every year, there are more products that are downsized. Shrinkflation can also commonly cause customer annoyance and a decline in consumer perception of the producer’s brand. Consumers eventually “wake up” to the situation. There’s practically a common joke between businesses and customers about cereal boxes that are the same size as before but appear to be just around half full. According to the Consumer Protection Act of 2019, India has recognized the right to information as a consumer right. As a result, the consumer has a right to information about the goods’ quality, quantity, potency, purity, standard, and price. Therefore, rather than allowing customers to be duped by businesses, the Central Consumer Protection Authority needs to introduce some criteria to tell consumers when the weight of a product is reduced.