The term “shrinkflation” emerged in the business media during the summer of 2021. What is shrinkflation?
According to Investopedia, “shrinkflation is the reduction in the size of a product in response to rising production costs or market competition.” For a company’s competitive positioning, this pricing strategy allows the company to sell a smaller product and maintain the same retail price of the product. The food and beverage industry widely uses this marketing strategy when confronted by intense product competition.
An example of shrinkflation is the General Mills decision last summer to reduce its “family size” box of Cheerios from 19.3 ounces to 18.1 ounces — a 6.2 percent decline in the volume of cereal to the consumer, while maintaining product price.
Other examples of shrinkflation include Hershey reducing its 18-ounce packages of dark chocolate Kisses by nearly two ounces; a two-pack of Reese’s peanut butter cups being reduced from 1.6 ounces to 1.5 ounces; and Walmart’s Great Value Paper Towels reduced from 168 sheets per roll to only 120, while maintaining its retail price point.
Restaurants are also charging higher prices for their fare to cover higher prices for food ingredients — although some restaurants are maintaining prices while decreasing portion sizes.
Shrinkflation has become so prevalent over the last year that U.S. consumers have generated their own shrinkflation pages at Reddit and the Consumer World’s Mouse Page, where they post photographs of old and new products and compare product volume and their prices.
Inflation is certainly a major culprit for much of this corporate embrace of shrinking of product content while maintain product price. The Bureau of Labor Statistics reported that the consumer price index registered price increases of 7.9 percent. The BLS’s consumer price index for the consumer category of “food away from home” was 6.8 percent for the 12-month period that ended February 2022, while the consumer category of “food at home” registered an even higher 8.6 percent rise for the period.
But shrinkflation creates two potential challenges for the American consumer.
First, inflation provides “air cover” for companies to increase “prices” for their products by reducing the size of their product or contents beyond the actual inflationary price increases in product inputs. A vivid example of this can be found in the case of PepsiCo’s sports drink Gatorade, which recently replaced its 32-ounce size bottle with a 28 ounce bottle while charging the same price — a 14 percent price increase.
“Basically we redesigned the bottle, it’s more aerodynamic and it’s easier to grab,” said a company representative. “The redesign generates a new cost and the bottles are a little bit more expensive … this is only a matter of design.”
Larry Chiagouris, a professor of marketing at Pace University, told Quartz: “I am very confident that the difference in cost between a 28-ounce plastic bottle compared to a 32-ounce plastic bottle for the type of plastic used in water bottles is probably less than 2 cents.”
Second, while selling a reduced-size or -volume product is certainly a legal marketing strategy, it is illegal for companies to label their products inaccurately as to their ingredient list under the Food, Drug and Cosmetic Act, a law that requires that labels on packaged food products in interstate commerce not be false or misleading in any way. This law is enforced by the Food and Drug Administration and also allows private litigants to sue.
For example, on April 22, 2021, McCormick & Co. agreed to a civil, class-action court approved settlement to pay $2.5 million to resolve claims made by customers stating their black pepper products were under-filled compared to what was stated on the label. The settlement benefitted California, Florida and Missouri residents who bought McCormick or other private-label brand black pepper products between Jan. 1, 2015, and Jan. 27, 2020.
As food price inflation continues its upward trajectory, consumers will find themselves having to become ever more vigilant in their observance of food product content downsizing. This will require a deeper analysis of whether a product is not only being downsized to maintain a price point but also whether there will be additional price increases along with product downsizing. This will make a price/volume comparison of one brand’s product versus other brands’ products difficult, but with practice, a savvy consumer may acquire helpful insights into whether a company is exploiting this unfortunate inflationary situation to maximize profits at the expense of the American consumer.
