The ‘’hidden inflation’’ : the Shrinkflation ?
The term skrinkflation is a the combination of Inflation and Shrink refering to practice called ‘’package downsizing or grocery skrink ray”. The main objective of the practices is to reduce the size or the quantity of a products while keeping prices stable at least. For a degradation of the quality of a service, the term skimpflation are more and more used. The direct consequence of this practice is the increase of companies operating margin and profitability without increasing sales as costs are reduced. As Price is a key determinant in the buying decisions, such strategy is perfectly suitable to keep prices low while increase margins. Such practices are particularly useful for packaged items in which the prices are not dependent or the weight or volume, especially when inflation is high or strongly monitored by authorities. The reductions of size or quantity are generally not immediately perceived by consumers. The prices are unchanged so consumers are not fully alert on the increasing Price per Units (or volume, size) of items are stable but not the unit prices. It is why such practices are extremely damageable in long run for purchase power!
In addition, such packages downsizing practices are used as a environmental or health arguments called “ less is more” message. Best examples, as less packages are better for environmental purposes or less portions is better to stay healthy!
The consequence on Shrinkflation on measured Inflation is still ambiguous as some items are included in CPI baskets with a price per volume or size but some others products are totally ignored. In addition, for Services sector the degradation of the general prestation is a subjective perception making extremely difficult to measure such phenomena.
Some examples of Shrinkflation:
- Everybody know the well-know chocolat, Toblerone with it iconic triangles ! In 2010, Kraft the owner of the brand reduced the 200g bar to 170g while keeping price unchanged. However, in 2016, Modelez the new owner decided to changes the 400g bar and the 170g bar by removing 2 triangles and increase the gap between each triangle. So, the 400g bar become a 360g bar while the 170gr become a 150g bar. This change was strongly condemned in the UK and a member of the Scottish Parliament asked for a Government action ! In 2018, the group announced that original version will be restored.
- In the UK some economist argues that the increasing of shrinkflation practices is related to the Brexit as indirect consequences. Firms anticipated the reduction of their margins because of costs increasing and the Pounds decrease. However, the UK statistics on Shrinkflation don’t confirm this point but forecast an future acceleration when the Brexit will be fully effective economically.
- In 2012 in France, the Coca-Cola Companie decide to reduce the coke quantity in the bottle to counter the Soda Tax (sugar tax) establishing in the country to fight sugar consumption especially in beverages.
- In Real Estate sector, the term is used to highlight the increase of the price per m² of appartement resulting of a division of a greater one.
Shrinkflation practices are then extremely damageable for consumers but more obvious to detect it especially in the services sector. However, it is a consequence of the manner of consumers to buy or not …only based on Price focusing only on low-prices.
In a competitive environment price is naturally push downward until a certain level to fit the costs but what happens if it is still too high for consumer? Shrinkflation is then the best strategy by reducing costs while keep the signal of the prices stable.
Note that the term Shrinkflation is common in macroeconomy to illustrate the case of a decrease of the GDP while Prices increase!
