Yahoo Finance Shrinkflation: The sneaky cost-cutting tactic angering Aussies explained
Companies hope consumers won't notice the change immediately and, thus, avoid any potential backlash.
As inflation continues to challenge global markets, a sneaky tactic is leaving many consumers unaware that they're getting less bang for their buck.
Enter "shrinkflation" - a term that's been buzzing around finance circles and causing frustration among buyers and TikTokers alike. But even if you’ve never heard of it, there’s a good chance you’ve been an unwitting victim.
Shrinkflation, as the name suggests, is where businesses intentionally shrink the size, weight or quantity of their products – all while keeping prices unchanged.
In some cases, the packaging remains the same size, while the goods inside fill up less space, as one annoyed Aussie shared on Reddit.
Its quiet cousin, “skimpflation”, is even more covert. Rather than downsizing, companies reduce the quality of a product by switching out ingredients or materials with cheaper stuff, or simply water it down.
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But the cost-of-living crisis is forcing consumers to pay more attention to their shopping trolleys. Savvy shoppers are catching on and aren’t afraid to name and shame on social media.
Why companies resort to shrinkflation
Facing the rising costs of doing business – be it from raw materials, labour, transportation, or other overheads – companies often seek alternatives to straightforward price increases.
Data from the Australian Bureau of Statistics (ABS) shows the price of food and non-alcoholic beverages in Australia rose by 4.8 per cent between September 2022 and September 2023. For dairy products, that figure jumps to 10.2 per cent.
In the UK, where inflation is even higher, food prices have jumped 12 per cent this year alone (to September).
Companies can either deal with the rising costs of raw goods by passing price increases directly onto consumers, or by subtly reducing package sizes, quantities, or the overall quality of goods.
In some cases, firms might even choose to use multiple strategies simultaneously, such as a case where the UK’s Tesco supermarket reduced the size of its ready-made meals while also hiking prices.
These firms hope consumers might not notice the change immediately and, thus, avoid any potential backlash or reduced sales.
It’s not a new tactic, however, it tends to become more prevalent during periods of economic pressure.
The consumer response
But consumers aren't staying silent. Platforms like TikTok have seen a surge in content highlighting instances of shrinkflation, with many users expressing their dissatisfaction and calling out brands that employ this tactic.
The conversation has grown so prominent that even financial experts and commentators are weighing in.
AMP chief economist Shane Oliver said Shrinkflation had become more noticeable lately because costs across the board had gone up.
“It’s an alternative to raising the price, with the company hoping customers don’t notice and so maintaining sales,” Oliver said.
But he added it was a risky strategy that could do more harm than good.
“Of course, if customers notice, they will switch to a brand that doesn’t do it, or go to a lower-cost ‘home’ brand for the same sized product or get the product in a discount store like Kmart. Which will ultimately make it harder for the company to do it, particularly if its reputation suffers.”
Finder’s Consumer Sentiment Tracker shows Australians are indeed responding to the cost-of-living crisis by cutting down on their overall spending, with groceries taking the biggest hit, followed by non-essential goods and holidays.
Impact on the market
While shrinkflation is often referred to as a type of “hidden” inflation, Oliver said because the ABS was wise to the tactic – and adjusted its books accordingly – it didn’t artificially lower the inflation rate.
“I wouldn’t see it as a major concern from an economics point of view, providing consumers are still able to work out that the product they are getting is less than it used to be,” Oliver said.
Other effects of shrinkflation on financial markets are multi-faceted. On the one hand, companies can maintain their profit margins by effectively cutting production costs without startling consumers with higher prices.
Numerous studies show consumers are far more likely to be negatively impacted by price increases than the reduction in size of a product. The strategy might even bolster certain sectors, like consumer staples, because these companies can sustain their margins by implementing shrinkflation tactics.
On the other hand, as consumers become more aware of these practices, brand trust could erode, leading to shifts in market loyalties. In the long run, this could lead to calls for clearer product labelling, or even regulatory oversight to ensure consumers are informed about what they're truly getting for their money.
And while shrinkflation may be a smart move for businesses in the short term, only time will tell how this tactic plays out in the larger economic narrative.
In the meantime, it’s important for shoppers to stay vigilant, read labels and ensure you’re getting value for your hard-earned money.
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