Shrinkflation Grabs National Attention

Shrinkflation is a well-established practice of shrinking the amount of product in a package while maintaining the price, which increases the price per unit.

This tactic has been used by many food producers, and other industries as well. However, the practice has recently come under attack by many, including U.S. President Joe Biden.

Recent examples of shrinkflation include Gatorade reducing its drink size by 12%. Double-Stuffed Oreos now weigh 6% less. Some particularly interesting examples are Darigold Milk reducing the size of a half-gallon of milk from 64 ounces to 59 ounces. Kraft reduced its shredded cheese size from 8 ounces to 7 ounces (problematic when a recipe calls for 8 ounces of cheese).

Shrinking is a popular tactic, given the rising costs of producing items. Producers have the option of keeping the same size and increasing the cost, or keeping the price the same and reducing the size. The thought is that customers are more likely to notice the increase in price, compared to a reduction in size.

One problem is that when customers find out later that the size has decreased, it feels like a deceptive business practice. This has led to much discussion on social media, including a popular Reddit community on the subject. The US Senate has recently introduced a bill to limit the use of this tactic.

Interestingly, one of the worst offenders are dollar stores. As a normal tactic, they buy smaller-sized products and offer them at a lower price compared to other stores. However, the per unit cost is higher, a tactic which enables profitability for this type of store.

Video Spotlight:  

This post is based on the NY Times article, Shrinkflation 101: The Economics of Smaller Groceries, by Jeanna Smialek, March 1, 2024; the article, Shrinkflation Fight Taken Up by U.S. Senate, by Bruce Crumley, March 1, 2024; the Supermarket News article, Some Grocers Are Capitalizing on Shrinkflation, But One Business ‘Fights’ Against It, by Bill Wilson, February 14, 2024; and the YouTube videos in the Spotlight. Image source: RubberBall/Alamy Stock Photo

Discussion Questions:

1. What do you think of the shrinkflation tactic?

Guidance: Answers obviously vary. Some people feel that this is an attempt to unethically generate profits. Others agree with producers that cost and revenue need to be related to each other, and agree that keeping the price the same is more important, especially so for price sensitive customers.

2. Why use shrinkflation?

Guidance: Shrinkflation is a method of increasing profits by increasing the price per unit. Most producers feel that the customer is less likely to notice the decrease in size, or is willing to accept the smaller size given the price hasn’t changed. Shrinking is popular in inflationary times, when costs are increasing and many consumers feel the impact, increasing price sensitivity.

3. What operational issues are raised by shrinkflation?

Guidance: Producers need to adjust their equipment to fill a smaller size or volume. New bags and labeling are needed to display package weight, modified nutritional information, and other information associated with the size change.

An interesting decision is whether to reduce the size of the packaging. While it could save on material, it would require a new package design and further adjustments to the production equipment. Producers that have invested in flexible equipment will be more likely to use this tactic.

Transportation and other logistics provers in the supply chain are impacted by changing package weights. It could change how many units are shipped, and the cost of shipping. Also, the supply chain will have to adjust to the switch to smaller-sized packages. In other words, they’ll need to phase out the larger size for the smaller size.

One issue to be considered is whether the UPC code will change with the size change, which drives data management requirements. Bills of materials must be updated with different per-unit quantities. Reduced sizes may also drive forecast reductions to suppliers.

For retailers, changing from the older, larger size to a new, smaller size raises questions about shelving and transparency. Will the two sizes be on the shelves at the same time? Pricing information that shows price per ounce or pound will need to be updated in systems and on tags.

Retailers may also want to consider how to handle customers who are unhappy when they learn of the size change. Some retailers are displaying signs to tell customers of the change in product size.

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