Shrinkflation

Shrinkflation refers to an economic technique in which a company reduces the size (or sometimes quality) of a product without reducing its price. It is most common in the food and beverage industries but may apply to many kinds of consumer products. Shrinkflation serves as a hidden form of economic inflation, by which companies attempt to increase or maintain profits by selling less product for the same price. Although legal, shrinkflation may be considered sneaky or underhanded, and companies that use shrinkflation often face criticism or mockery from consumers.

Background

Economics is the study of how people make and use money. Economists have developed numerous theories to explain the financial decisions of individuals, families, organizations, and entire countries. Most economic theories relate to the desire to earn more money, spend less money, or make money flow more easily through an economy.

One of the most important yet complex features of economies is known as inflation. Inflation occurs when the prices of goods and services in an economy rise. For example, a loaf of bread may have cost one dollar in 2000, while the same type of bread might cost two dollars in 2020. Consumers will get less value for their spending money and may lose on investments if the rate of inflation is greater than the rate of interest. Inflation usually occurs when demand for goods and services increases or when the cost to produce goods and services rises. Out-of-control inflation, known as hyperinflation, can cause serious economic issues by devaluing currency, so governments usually do what they can to manage inflation.

Over time, economists have expanded greatly upon the concepts of inflation. Some have created new terms based on the word inflation to describe related economic phenomena. One of the most well-known of these is stagflation, a term often associated with the presidency of Jimmy Carter in the late 1970s. Stagflation occurs when an economy is weak (or stagnant), but prices are still rising (inflation). An even more serious, if lesser-known, variation is known as slumpflation, which occurs when an economy is actually declining or in recession even while significant inflation is occurring.

The roots of the term shrinkflation are not entirely clear. An early version of the term appeared in the writings of economist Brian Domitrovic. In his 2009 book Econoclasts: The Rebels Who Sparked the Supply-Side Revolution and Restored American Prosperity, Domitrovic used this term as a replacement for stagflation. He posited that the 1970s economy was worse than just stagnant; it was actually shrinking even while inflation was rising.

Overview

The Domitrovic definition of shrinkflation did not catch on with economists or the public. In the 2010s, British economist Pippa Malmgren applied a different and more widely accepted meaning to the term. Malmgren used shrinkflation to describe the phenomenon of consumer products becoming smaller while their original prices remained the same.

Shrinkflation functions in the economy as a hidden variety of inflation. Traditionally, companies wanting to make more money per item would simply raise prices. A one-pound food item that was originally two dollars might be raised in price to three dollars. However, such shifts in price are obvious to consumers and highly unpopular. In shrinkflation, companies use the less-obvious technique of reducing the quantity of product without reducing the price. Consumers are less likely to notice a product being a few ounces lighter than usual than a product that suddenly costs fifty cents more than it used to. Through this technique, companies can meet their goal of making more money per item sold.

Shrinkflation may have occurred countless times, with or without consumers noticing. However, many cases of shrinkflation, particularly those undertaken by major companies, have come to the public attention. The Internet and social media and their ability to spread information have played a major role in bringing these to light. Major soft drink and candy companies have made headlines for their size-slashing techniques. In some cases, this has led to consumer protests. However, over time, the spread and commonality of shrinkflation have made many consumers simply accept it as an unfortunate but unavoidable reality.

Many consumers, consumer advocates, and economists have spoken out against shrinkflation. Critics often portray the technique as sneaky or underhanded. However, it is completely legal as long as the company accurately describes the product. If the measurements of weight, volume, and quantity on the product packaging still match the product itself, no fraud has occurred.

Companies may resort to shrinkflation for many reasons. Most commonly, a company turns to shrinkflation when it faces higher production costs. Production costs may include the cost of hiring workers, purchasing raw materials, maintaining manufacturing facilities, and distributing completed goods. During times of economic strain, production costs may rise suddenly, and companies turn to shrinkflation to protect their profits. Companies may also use shrinkflation to increase profits without losing the good will of their consumers, in the hope that they will not notice the change.

Different variations of shrinkflation exist. In some cases, the original price of a product actually increases despite the quiet shrinking of the product. In other cases, the change is not a matter of a decrease in physical size. Rather, companies may shrink the quality of the product by quietly replacing ingredients. A company might replace expensive natural ingredients with inexpensive artificial flavorings.

The shrinkflation rampant in the 2010s and 2020s represents a rapid change of course for the food and beverage industries. In earlier decades, an opposing trend referred to as “supersizing,” made infamous by the 2004 documentary film Super Size Me, was more common. In supersizing, companies competed for consumer dollars by offering the largest sizes of products possible. Supersizing was perhaps best known in the fast-food industry, where some restaurants offered very large containers for french fries, soft drinks, and so on. Although this practice was popular with many consumers because it offered more product for the cost, many critics pointed out that the supersize mentality promoted overeating and unhealthy habits.

Shrinkflation increased further as the twenty-first century progressed, especially following the COVID-19 pandemic. President Joseph Biden has spoken out against the phenomenon in television interviews, on social media, and in the State of the Union address, vowing to address the policy with American companies. Biden has called on the Federal Trade Commission to initiate policies on shrinkflation. A report by the Senate noted the products that seemed to be the most affected by shrinkflation in a bid to help consumers. Household paper products, snacks, and coffee were the most affected. Consumers can combat shrinkflation by paying close attention to the products on their shopping lists. Still, many critics argue that shrinkflation is merely a symptom of a more significant problem of general inflation, and the government should concentrate on bringing down the inflation rate instead of blaming companies. 

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