Beware of Shrinkflation
As inflation cuts into consumers' buying power, it's easy to see price hikes in many everyday staples like milk, eggs, meat, and gas. Besides outright price hikes, consumers need to keep an eye on a sneaky tactic that manufacturers use called shrinkflation.
Same Price, Smaller Quantity
Shrinkflation is when a product's price stays the same, but the manufacturer reduces the quantity or volume in the package. While the product's total price remains unchanged, the amount paid per unit increases.
Let's look at an example. Say a cereal manufacturer sells a 20-ounce box of cereal for $4.99. This price equates to about 25 cents per ounce. As the manufacturer's costs rise, or if they want to squeeze more profit out of a sale, the company reduces the amount of cereal it puts in the box to 17 ounces while keeping the price at $4.99. Now, the consumer is paying over 29 cents per ounce. This is a 17.6% price hike per ounce that the manufacturer stealthily passes on to its customers.
If someone buys this cereal every week, they will notice if the manufacturer increases the price of the 20-ounce box of cereal by 17.6%, raising it from $4.99 to $5.86. On the other hand, most consumers will not notice a price hike based on shrinkflation since the total price they pay stays the same. The shopper would need to compare the price per ounce every time they shop, and most shoppers do not investigate their grocery items in that much detail.
Shrinkflation Is Not Limited to the Grocery Store
While grocery items get the most attention in shrinkflation conversations, this phenomenon happens all over the economy. Restaurants often reduce portion sizes instead of raising menu prices. A restaurant may keep the price of its rib eye dinner steady but reduce the size of the steak by several ounces.
A sock manufacturer may reduce the number of socks it puts in a package from 12 pairs to 10 pairs while holding the price stable. This reduction in quantity is, in effect, a 20% price increase that most consumers will not notice.
Shrinkflation is all around us, and consumers need to stay vigilant to get the most bang for their buck, especially in times of inflation.
Combating shrinkflation involves changing our habits as we shop. Instead of focusing on the total cost, we need to look at the price per unit. Luckily, many stores must include the unit costs on price labels. In our cereal example, stores need to indicate that the current price per ounce is 29 cents.
While most consumers will not remember the cost per unit they paid in the past, they can compare the current cost per unit to other products on the shelf. If comparable cereal sells for $6.99 but contains 28 ounces, that product is a better deal per ounce than the $4.99 cereal that holds 17 ounces.
Shrinkflation is not a new phenomenon. It's been happening for decades and accelerates during periods of inflation. Companies believe that reducing the volume in a package will be noticed less than an outright price hike. Consumers must pay attention when shopping and make some effort to ensure they get the best deal on all their purchases.