The most trending tax and financial industry issues.

Author Picture

Lane Keeter, CPA

Partner: Tax Consulting, Estate Planning, and Heber Springs Managing Partner

The Shrinkflation Phenomenon

Every now and again, popular culture introduces a new word or phrase into the common vernacular. Think "deplatform" or, "dad bod" (he says with a straight face -- not). 

The field of economics is no different. Anyone remember the days of what became known as stagflation, the economic phenomenon of economic stagnation combined with inflation (see what they did there)?

Add to that what is now becoming widely known as "shrinkflation". Shrinkflation is the practice of selling a product of reduced size or volume while keeping the price generally the same, and it's a practice that is on the rise all over the world. The term itself is widely attributed as having been coined by British economist Pippa Malhgren several years ago. 

If you've been paying much attention of late, you likely have noticed it. I know we have. Just the other day I commented to my wife upon seeing a box of crackers she just bought that it was the smallest such box I ever remember seeing. 

Some other examples that I've been able to find include a bag of Doritos being shrunk from 9.75 to 9.25 oz., bottles of Gatorade going from 32 oz. down to 28 oz., and even WalMart getting in on the act by reducing Great Value paper towels from 168 sheets per roll all the way down to 120 sheets, a whopping almost 30% reduction!

Even restaurants have gotten into the act, including fast food joints, reducing the overall size of burgers or the number of nuggets included in an order.

While the practice of reducing the size of a product while maintaining its sticker price has been with us for quite some time, in periods of higher inflation like we're seeing now, its usage becomes more common. I view it essentially as a marketing strategy companies use to keep consumers from turning away from their products due to rising costs. We become used to paying basically a known amount, and in our minds, when that amount doesn't change (or changes very little) we can still justify the purchase, when all along, we are getting less for our money.

Research has borne out the general effectiveness of this strategy. Multiple studies over the years have shown that we gullible consumers are generally more sensitive to price increases than to, what industry often refers to as, "package downsizing". 

But let me just put this out there. In my view, what this boils down to is that shrinkflation is really nothing more than hidden inflation. 

That's not to demonize the companies who practice package downsizing because I get it; they are in business to sell their products and make a profit, and they have to remain competitive. Like consumers, they too are subject to rising costs of production, and when such costs increase, their profit margins get squeezed. To maintain profitability (and thus ensure the continuance of the business) they are often forced with the decision to raise prices, reduce the size of the product, or some combination of both. 

It's a matter of economics, and sometimes survival, especially during trying economic times. Often, package downsizing is viewed as the path of least consumer resistance. However, in practicing this, companies also risk alienating their customers, who may move on to other alternatives and never return.

I bring all this up because being a smart consumer is one way to maximize your overall financial health, which is the focus of this column and the reason it exists. Only in knowing about shrinkflation can you recognize it and assess the effect it has on your purchasing power. 

Likely, you are pretty aware of the price you generally pay for most of your common purchases. Now, you may need to start paying more attention to measures of size or volume, such as the per unit cost of something. 

And here's another tip – have you noticed a change in the packaging of something lately, like a change in color or design? This could also signal that a change has been made in the amount of product contained in the packaging, so you may want to investigate and see what you really are getting for your money.

Prev Next