Businesses grappling with the highest inflation in 40 years face a dilemma: How can they pass on rising costs without apparent price hikes scaring customers away?
The answer is “shrinkflation”. While consumers are highly focused on the price of goods, they are less aware of small changes in the size or volume of products. Removing a few pretzels or cookies from their usual packaging, or even slightly reducing the size of a beverage container, can save companies money. And consumers often don’t realize they’re paying for the same thing for less.
“Shrinkflation is a way to mask inflation and we see it a lot in food and drink or single-use items [products] like garbage bags, things with a lot of sales,” said Chris Motola, financial analyst at MerchantMaverick.com, a comparison site for small businesses looking for financial services. “This is nothing new.”
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But shrinkage inflation — a hybrid of the words shrink and inflation — is a tool most companies use repeatedly without penalty. A few keen-eyed shoppers can spot the slightest change in their favorite brands. But when a company clearly and accurately labels its product, shrinkage inflation is perfectly legal.
“This is not cheating,” Motola said. “But they rely on consumers not to calculate.”
Edgar Dworsky, editor of ConsumerWorld.org, a consumer newsletter and advocacy group, can rattle off a list of products that have been shrink-flattened. Over the past six months, Procter & Gamble’s Gain laundry detergent has sold less liquid — 154 ounces versus 165 ounces — but in the same bottle at the same price, Dworsky noted.
“Over the past 60 years, we’ve seen Charmin toilet paper go from 650 single-ply sheets on a roll to the equivalent of 90% less,” said Dworsky, a former Massachusetts assistant attorney general and consumer advocate. P&G did not respond to requests for comment.
Last, Charmin ultra-soft “mega” rolls shrank from 264 double-ply sheets per roll to 244 sheets. And “super mega” rolls dropped from 396 sheets to 366 sheets.
“It’s a backdoor price hike,” he said. “Some companies may do both. A big price increase is mitigated because they reduce the product a little and increase the price a little.”
Shrinkflation might sneak past buyers, but the Bureau of Labor Statistics of the Ministry of Labour, publishes inflation data, tracks some products by volume and weight, and detects a price increase when consumers pay the same amount for less, The Wall Street Journal reported.
For example, Kimberly-Clark’s Cottonelle toilet paper has also shrunk mega-rolls from 340 single-ply sheets to 312 sheets. Cottonelle’s soft version dropped from 284 two-ply sheets to 268 sheets. Texas-based Kimberly-Clark, which also makes Kleenex and Huggies brands, among others, did not respond to a request for comment.
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“Candy sellers are one of the biggest culprits,” Dworsky said. Food giant Mondelez confronted legal action in 2017 about creating more space between the tops of Toblerone candy bars and eventually changed back to the previous shape.
“Consumers need to look at net weight, not just price,” Dworsky said.
Dworsky recently bought Gatorade at his local Stop & Shop supermarket outside of Boston, paying $1.19 for both a 32-ounce bottle and a smaller, newer 28-ounce bottle. “They were both on the shelf at the same time. It’s very fast. So stock up on the larger sizes while you can.”
Gatorade drinks and other products are made by parent company PepsiCo, which did not respond to a request for comment. The company’s Frito-Lay subsidiary confirmed this quartz that his Doritos bags contain fewer chips due to inflation. “Inflation hits everyone. … We just took a little bit out of the bag so we can give you the same price and you can keep enjoying your chips,” a spokesman said Online business news website.
Some companies blame raw material prices, others blame high energy prices, which increase transport or packaging costs.
US inflation climbed to an annual rate of 7.9% in February as energy prices soared amid Russia’s invasion of Ukraine. Investment firm UBS expects inflation “to remain high in the short term and to ease in the second half of the year,” said Julie Fox, Northeast market head at UBS Private Wealth Management.
Jesus Fernández-Villaverde, a University of Pennsylvania economics professor agreed, but stressed that nothing is certain. “It’s more likely [inflation] will decrease,” he said later that year. “But am I sure? Not really.”
However, companies that raise prices risk public backlash and even scrutiny from officials.
Washington lawmakers held a Listen on inflation and corporate America earlier this month. After the event Kyle Herrig, President of the Watchdog Advocacy Group Accountable.US, accused a spectrum of industries – including meat packers, rail, trucking and shipping companies – of using the pandemic as a cover for price hikes. Companies “act like they have no choice but to raise prices while bragging about huge profits and payouts to their shareholders,” Herrig said.
Pennsylvania resident Hershey is in the broad swath of companies that started raising retail prices in earnest over the past year, according to the latest conference call.
Hershey has also engaged in shrinkflation in recent years, shrinking Hershey Kisses and Reese’s packages, Dworsky said.
“They came up with very odd package sizes like 17.9 ounces for some bags of Kisses and 8.94 ounces for a bag of assorted chocolates,” he said.
Hershey said inflation rates “are at their highest in 40 years and are affecting every aspect of the cost of doing business. Like most companies, we announced price increases over the past year, which are now on store shelves as a result,” spokeswoman Allison Kleinfelter said.
“Most prices were list price increases due to rising costs of doing business across the value chain,” she said, as opposed to shrinking packaging.
Even Golden Arches has addressed the cost of groceries by slashing portion sizes. McDonald’s offerings are “shrinking. The prices are rising. It’s just crazy what’s happening in the restaurant industry,” said Ed Rensi, former CEO of McDonald’s USA said Fox host Neil Cavuto in February. Rensi served as the company’s President and CEO from 1991 to 1997.
Many “goods” in a modern economy are a bundle of services – which could also shrink.
Fernández-Villaverde, an economics professor at Penn, said, “Think of the package as everything that goes with a product like a flight — the food, the drinks, the ambiance, the portion size, or how useful the customer service is.”
Cutting free snacks, increasing customer service wait times and reducing a points action program are all ways to cut into a bundle, Fernández-Villaverde said. “You take your car to the dealer for service and they charge $150. They don’t change the vignette price, but there is no rental car,” he added as another example. “This is inflation through the back door.”
Lee Lewis, owner and operator of West Cape May, NJ-based Exit000Skincare, said the economic recovery has been a mixed blessing.
Shoppers previously locked at home are now stepping out and shopping at her store for her hand-blended natural soaps, cosmetics and lotions made for eczema sufferers. Her Online sales on Etsy.com also rebounded as the COVID-19 pandemic subsided.
But this year, as inflation rose, “my material costs are up 15% to 20%,” she said. Instead of raising prices, she reduced bulk sales.
Problems in the supply chain also contributed to this. Most of Lewis’ paper and plastic packaging comes from a supplier in South Korea. Most of the price increases have come from plastic containers and dispensers, “anything that has a mechanism, plastic or with a pump or a click-top,” she said. “There are certain things that I haven’t been able to find new suppliers for, and they were backordered last year.”
To combat soap, lotion, and candle inflation, she buys her ingredients in bulk, such as food-grade argan oil, tallow, wax, and soybean oil.
And how much are companies actually saving through shrinkage inflation?
“It’s something that economists have been trying to measure for 25 years,” Penn’s Fernández-Villaverde said. “But we haven’t found a good way to do that yet. Changing the price can be costly, making the service less noticeable.”
Hidden rate hikes and fees have become so problematic that the Consumer Financial Protection Bureau is urging Americans to notify regulators of “junk fees” they’re being charged, including resort fees added to hotel bills and service fees on concert ticket prices as well Late Fees, Return Fees, Payment Stop Fees, Check Image Fees, Foreign Transaction Fees, Account Closure Fees, Inactivity Fees, Fees to Investigate Fraudulent Activity, or Mortgage Underwriting Fees.
Consumers who have an issue with a consumer financial product or service can do so file a complaint with the CFPB online or by calling (855) 411-CFPB (2372).