The Return of Shrinkflation
Shrinkflation is the practice of shrinking the size of the package, and is primarily used during times of inflation to keep the price of a package constant.
However, the practice also increases per unit price.
This approach was heavily used during the 1960s and 1970s, a time period known for high inflation rates. During these decades, candy, especially chocolate bars, changed their size to keep their price constant. Keeping a candy bar’s price constant is important, as many concession stands sell items at a constant price.
Also during this time period, it was important to keep a constant price because it was difficult to change the price of items in vending machines.
Today, this practice of shrinking the package size is becoming more popular as a result of price increases due to pandemic-related supply chain issues. With increases in the cost of transportation, ingredients, and labor, to name a few factors, companies are looking for ways maintain profits.
Examples of shrinkflation that are appearing today include cat food, paper towels, ice cream, chips, snack food, and candy.
Video Spotlight: “Shrinkflation” hits food and household products (June 4, 2021, CBS News)
This post is based on the Bloomberg article, Shrinkflation Is an Economic Monster Worth Watching, by Stephen Mihm, June 24, 2021; the Agassiz Harrison Observer article, Pay the Same, Get Less: How ‘Shrinkflation’ Masks Price Increases , by Brett Bundale, September 2, 2021; and the YouTube video in the Spotlight. Image source: lovegtrv6 © 123RF.com.
1. Why shrink package size?
Guidance: There are some benefits in keeping the price constant, such as for vending machines or items that are sold at a traditional price, and shrinking the package size when other costs are going up allows price to be held constant. Many people buy on the concept of the price of the item, and won’t notice that the package has shrunk slightly. This allows manufacturers to pass price increases on to customers without them feeling the shock of the price increase.
2. What do you think of the practice of changing package size?
Guidance: Initially, many customers won’t notice that the package size has shrunk. However, once they realize the package size has changed, they could feel cheated.
3. What is the impact of shrinking package size on operations?
Guidance: We have been through a period with relatively stable prices. As a result, many manufacturers have maintained package size. With constant size, companies could dial-in their operations to a specific size. Changing the size could result in changes in the manufacturing process.
Obviously, incoming packaging supplies need to change. In many cases, it is only a slight change in the printing process to change the package size. However, keeping the package size the same adds waste in materials and transportation. Suppliers may need to change their processes for this change.
Methods used by workers may need to change. In the restaurant industry, they might reduce the size of portion, which requires staff retraining.
In some cases, different equipment will be needed.
All of this points to the need for agility in production and distribution systems.