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Close Look: July 2022

4 months ago

Shrinkflation - what’s the big story?

Sometimes it seems like it’s just your imagination. Your favourite chocolate bars were so much bigger when you were young! The sad fact is that this is probably a reality. Research in the UK showed that over 2,500 products shrank over a 5 year period, while only 614 got bigger. Welcome to the world of shrinkflation. We take a look at the serious side of a rather odd word.

In fact it’s not just the chocolate bars. Cans of tuna have shrunk noticeably over recent decades. And a mega pack of crisps probably only contains 22 bags instead of the 24 you were used to. That’s all very well, but has the product price been shrinking too? Sadly, that’s very unlikely. And food and drink manufacturers are banking on the fact that consumers, happy with a stable price point, will simply not notice.

What’s to stop consumers from trading down to a larger cheaper product if they do spot the difference? Or from buying a supermarket’s own brand item? A lot is riding on brand loyalty. The risk to producers is that consumers will lose trust and turn their back on their favourite products if they suspect they are being hoodwinked. So let’s look at the two main reasons for shrinkflation.

Perhaps the producer is just being greedy, expanding their margins at the expense of their customers. After all, the increase in profits will please shareholders. But with soaring inflation, the producer could be facing pressure on margins. Production costs are rising, whether raw materials, such as cocoa or sugar, the energy used to run production lines or indeed staff costs. Shrinking the product clearly protects profit margins as costs climb.

On a more positive note, shrinkflation could itself help to keep a cap on consumer prices. After all, the size of the product might shrink, but headline prices remains the same. The downside is that this muddies the picture for the statisticians. They use a ‘market basket of consumer goods and services’ to calculate the rate of inflation. This basket could be changing imperceptibly from month to month. Except to the eagle-eyed shopper, of course.

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